The ideal place to hold stocks for a lifetime is a TFSA (Tax-Free Savings Account). All income earned from investments in the account are tax-free.
Equally as important is the fact that any withdrawals made from the account are also tax-free. The TFSA is the simplest and easiest registered account to use in Canada.
Don’t waste a TFSA with high interest savings accounts
Many Canadians fall for the trap of using the TFSA as a simple savings account. The big Canadian banks promote high interest savings accounts (normally between 2% and 4%) for the TFSA.
Unfortunately, these accounts benefit the banks more than they benefit Canadians. The banks get to hold your deposit in their account (where they can reinvest the capital), while you only get paid a paltry low single-digit return.
These savings accounts hardly maximize the tax-free compounding ability that the TFSA provides. If you want to build wealth over a lifetime, the TFSA is better used as an investment account.
Choose stocks that can compound earnings for the long term in a TFSA
A diverse portfolio of common stocks can provide a great mix of manageable risk and elevated returns. Some of the best long-term stocks are those that can take their earnings and reinvest them into accretive growth.
The longer you hold a stock, the longer it can compound and multiply. You don’t want to pay any tax on those elevated returns. If you are looking for some great “lifetime” stocks to hold in a TFSA, here are two quality Canadian stocks.
Colliers: Its day in the sun will return
Colliers International (TSX: CIGI) has traded sideways for the past couple of years. However, Colliers has been a long-term performer. Its stock is up 400% over the past 10 years and 2,457% in the past 20 years.
Colliers has built out an internationally recognized brand in commercial real estate brokering. That part of the business can be a bit cyclical. It is in a down cycle right now and that is why the stock has traded sideways.
However, it has significantly diversified in the past five years. In fact, over 70% of its earnings are now derived from stable, recurring business segments.
It is now a serious player in project management, engineering, consulting, real estate management, and asset management. If it can recover its historic high teens growth rate, long-term TFSA investors could do very well.
Topicus: A mini-Constellation with room to run
Another stock for a long-term hold in a TFSA is Topicus.com (TSXV: TOI). It is a recent spin-out from Constellation Software.
Some investors see Topicus like a mini-Constellation, but in the early years of its growth trajectory. For context, in the past 10 years, Constellation stock has risen by 1,760% to its recent record high of $4,044 per share.
This is not to say Topicus will replicate such returns. However, even if Topicus does half as well as Constellation, shareholders could earn substantial gains.
While Topicus is replicating Constellation’s aggressive acquisition strategy, its focus is on Europe’s diverse markets. It also happens to be growing faster organically than Constellation.
Given its listing on the TSX Venture Exchange and European focus, this stock is missed by many mainstream investors. However, as its smart management team prove out its strategy, more and more investors will take notice.
