How to Turn Your TFSA Into a Gold Mine Starting With $10,000

Here’s how I would personally maximize growth in a TFSA via ETFs.

Tony Dong, MSc, CETF®

Tony turned a series of 2017 marijuana stock losses into a freelance career advocating for ETF investing. He currently holds a Master’s in Risk Management from Columbia University and is a Certified ETF Advisor (CETF®). Tony is the founder of ETF Portfolio Blueprint (etfportfolioblueprint.com) and the Lead ETF Analyst for ETF Central, a partnership between Trackinsight and the NYSE. His analysis has also been featured in publications like Kiplinger, 24/7 Wall St., U.S. News & World Report, TheStreet, and Benzinga.

Published July 24, 2024 10:00 am EDT

Normally, I’d suggest that investment decisions hinge on personal circumstances, but there’s one standout exception: maxing out your Tax-Free Savings Account (TFSA) as soon as possible and consistently.

Why? Because it’s completely tax-free, yet you’re given limited contribution room each year—this presents a massive opportunity for compounding.

Sure, you might be tempted to use your TFSA for immediate income, but for most young investors, focusing on growth is a far smarter move. Here’s how I would invest a $10,000 TFSA to maximize growth potential.

Why focus on growth?

While income investing has its merits, particularly for those in the withdrawal phase of their financial life who rely on steady cash flow, it’s less optimal for young investors not yet needing monthly income to cover living expenses.

Consider this: if you find an asset offering an 8-10% yield, your $10,000 TFSA investment could generate between $66 and $83 monthly.

However, if this income isn’t needed immediately for expenses and is merely reinvested, it becomes an unnecessary step.

Although receiving these payments might be psychologically satisfying, it doesn’t add mathematical value if the goal is wealth accumulation.

Therefore, with a $10,000 investment in your TFSA, a smarter approach would be to aim for total returns, which include both capital appreciation and the reinvestment of income.

What to buy

Consider investing in BMO NASDAQ 100 Equity Hedged to CAD Index ETF (TSX: ZQQ) as a prime example for a growth-focused investment in your TFSA.

This ETF tracks the largest 100 non-financial NASDAQ-listed stocks, with about 50% of its portfolio in technology sectors.

While ZQQ may not offer high dividends—currently yielding just 0.27% as of the end of June—it excels in total returns.

Over the last decade, ZQQ has delivered an impressive annualized return of 17.26% despite its modest dividend yield. This highlights the potential of growth investing, especially when considering the compounding effect of a TFSA.

If your strategy focused solely on generating income with your $10,000 TFSA investment, you might overlook potent growth opportunities like ZQQ.

The takeaway here is clear: prioritize total returns, not just dividends, to truly capitalize on your TFSA’s potential for wealth accumulation.