The Tax-Free Savings Account (TFSA) is a great tool to assist in a worry-free retirement. Calculating and paying tax can be one of the most stressful experiences a person can go through.
Earning investment income inside the TFSA instantly alleviates that pressure. You don’t pay any tax on your investment income (dividends, interest, or capital gains) and you don’t pay any tax when you withdraw your gains.
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The TFSA saves you from tax on your gains and withdrawals
Just using the TFSA can save you a lot of time, effort, and money when it comes to tax time. Also, since you pay no tax, you can compound your investment returns even faster.
Another way to lower your investment stress is to diversify your investment holdings. Own stocks in a mix of sectors, industries, and asset classes. That way when the market sways one way or another, you have more ballast to more predictably compound returns.
If you are looking for some stocks to lower any retirement anxiety, here are two low-risk, blue-chip stocks to own in a TFSA for the long term.
Fortis: A solid TFSA anchor
Fortis (TSX: FTS) is a safe and steady anchor for any diversified TFSA portfolio. This is not a stock you own for substantial growth. It is like a stable bond, but with some income growth potential. FTS has a low Beta. That means it tends to trade with significantly less volatility than the broader stock market.
Fortis operates 10 regulated utilities across North America. Its focus is on power and gas distribution and transmission. These are incredibly stable operating segments because both businesses and consumers need power and gas regardless of the economy or the market.
Fortis is managed with prudence and operated in a low-risk manner. While it has a lot of debt, its debt structure is locked in at very attractive rates for the long term.
The company is focused on growing its rate base by around 6% a year. It invests in utility assets, and in return collects a contracted growth rate.
Management projects between 4% and 6% of annual earnings per share and dividend per share growth. It already has 50 years of consecutive dividend increases under its belt.
Many years of slow, but steady increases are expected. I wouldn’t put all my money into a slow snail like this, but a portion of a TFSA portfolio makes sense. This stock yields 4% right now.
CPKC: A long-term company for a long-term shareholder
If you are looking for a bit more growth but with manageable risk, Canadian Pacific Kansas City (TSX: CP) is a great TFSA bet. While the company has only been publicly listed since 2001, it has been in operation for 143 years.
Since their construction, rail lines like CPKC’s have become fundamental to the North American economy. How else can mass bulk commodities and goods get transported across this broad continent?
The great news is that CPKC has just become significantly larger after Canadian Pacific merged with Kansas City Southern. Combined, CPKC has the only rail network that extends across Canada, the U.S., and Mexico.
This is expected to provide significant advantages to CPKC and to its customers. The company is projecting to double earnings per share in the next four to five years.
This TFSA stock has pulled back on worries about a potential strike in Canada. Certainly, that is a near-term concern. Yet, it should not inhibit CPKC’s long-term return potential. CPKC stock is a great add to a TFSA for a care-free retirement today.
