The TFSA (Tax-Free Savings Account) is the ideal place to build up investments and savings for retirement. Investment income earned in the TFSA has no tax consequence. When you choose to withdraw funds (say for retirement), there is no tax on the withdrawal either.
This makes the TFSA a great place to invest and compound your wealth over time. By not paying tax on investment gains and income, you can really accelerate your long-term annual rate of return.
If you are thinking about retirement and want some stocks for retirement peace of mind, here are three to consider right now.
A long-term tech stock for any TFSA
Even though it has been a high-growth technology stock, Constellation Software (TSX: CSU) has delivered incredibly consistent results. Its stock has delivered a 26% compounded annual growth rate (CAGR) over the past five years and a +30% CAGR over the past 10 years.
Certainly, it has seen some growth deceleration, but +20% annual growth is exceptional for a stock with an $81 billion market cap. Constellation operates about 1,000 niche software businesses in a decentralized manner.
Its software tends to be mission critical to its customers and industries. As a result, customer churn is limited, and recurring revenues continue to grow. The company’s diversity across products, customers, and geography helps insulate it from broader economic challenges.
Mergers and acquisitions provide most of Constellation’s growth, but its solid organic growth is underappreciated by the market. Constellation has a team of incredibly intelligent and thoughtful executives. If that culture persists, this will be a very good stock to hold in a TFSA until retirement.
A railway for the long haul
Another stock that could help you retire with peace of mind is Canadian National Railway (TSX: CNR). CN is not a growth stock like Constellation, but it can be a stable anchor in a long-term TFSA portfolio.
Canadian National has been in operation for more than 100 years. It has stood the test of time. Today, it has a leading network across Canada that connects to major transport hubs in North America.
CNR stock has compounded by about 9.5% a year for the past 10 years. However, when you add in its growing dividend per share total returns are closer to 11.5% a year.
CNR is very well managed, and it has an industry-leading balance sheet. This should support share buybacks and solid dividend growth in the future. For a steady and solid compounder, CNR is a safe bet to hold in a TFSA for retirement.
A technology network to build steady TFSA wealth
Descartes Systems (TSX: DSG) may not be the cheapest stock for a TFSA. However, if I am looking for a stock and a business that can be considerably larger in the years ahead, this is one to have in a TFSA.
Descartes provides an essential logistics network to the global transportation industry. It complements this with a suite of software services that enable efficiencies and cost savings for customers.
Descartes is to the transport industry like Visa is to the financial industry. Once a user gets on its network, it is very challenging to move back to old technologies (like paper/form tracking).
Descartes is highly profitable with a high rate of recurring business. It is not the fastest-growing tech stock, but it could grow by a mid-teens rate for years to come. That makes it a solid TFSA compounder that could really deliver for your retirement.
