The TFSA (Tax-Free Savings Account) is a registered account that was launched in 2009 to help Canadians generate tax-free gains by holding qualified investments. Given its tax-sheltered status, Canadian households should maintain a diversified portfolio of stocks and ETFs (exchange-traded funds) in a TFSA and aim to create inflation-beating returns over time.
While the maximum cumulative TFSA contribution room has increased to $95,000 in 2024, let’s see how you can use the registered account and turn it into a gold mine starting with $10,000.
Hold a majority of investments in index funds
The equity markets have showcased an ability to create game-changing wealth for long-term investors. For instance, in the last 30 years, the S&P 500 index has returned more than 2,000% to shareholders after accounting for dividend reinvestments. Notably, 85% of the fund managers on Wall Street have failed to outpace the S&P 500, indicating that Canadians can gain exposure to the popular index and beat the majority of asset managers in the process.
The top companies in the S&P 500 index include Big Tech giants such as Apple, Microsoft, Nvidia, Alphabet, Amazon, Meta Platforms, and Tesla. Canadian investors who want to invest in the S&P 500 can buy shares of iShares S&P 500 Index ETF (TSX: XSP). With more than $10 billion in assets under management, the XSP ETF is quite popular in Canada as it is hedged to the Canadian dollar, shielding investors from fluctuations in exchange rates.
To benefit from diversification, individuals and households should allocate at least 75% of their investments to low-cost, passively managed index funds such as the XSP. An investment of $7,500 in an index tracking the S&P 500 30 years back would be worth close to $160,000 today.
Hold quality growth stocks such as Snowflake
Now, investors with a higher risk appetite can consider holding quality growth stocks such as Snowflake (NASDAQ:SNOW). Down over 71% from all-time highs, Snowflake provides a cloud-based data platform in the U.S. and other international markets. Its Data Cloud allows customers to consolidate data sets, derive meaningful business insights, and build data-driven applications.
In the fiscal second quarter (Q2) of 2025 (ended in July), Snowflake reported revenue of US$829 million, higher than consensus estimates of US$810 million. Additionally, the company raised its full-year revenue guidance due to solid enterprise demand. However, Snowflake expects its adjusted gross profit margin to fall from 78% in fiscal 2024 to 75% in fiscal 2025, while its operating margin might narrow from 8% to 3%.
Snowflake is investing heavily to build out its artificial intelligence capabilities, which should drive future revenue, earnings, and cash flows higher. Notably, Snowflake’s free cash flow margin continues to improve, having improved the metric from US$94 million in fiscal 2022 to US$847.4 million in the last 12 months.
Snowflake continues to grow its customer base and spending at a steady pace. It ended Q2 with a revenue retention rate of 127%, which suggests that existing customers have increased spending on the Snowflake platform by 27% in the last 12 months. Moreover, its customer count rose by 21% year over year. Analysts remain bullish on SNOW stock and expect it to surge over 30% in the next 12 months.
Investors should identify other growth stocks, create a portfolio of fundamentally strong companies across sectors, and derive outsized gains over time.
