Many new TFSA (Tax-Free Savings Account) investors may stand to underestimate the true wealth-creating power the account grants them. Undoubtedly, you can just leave your TFSA funds sitting around in a savings account to collect tax-free interest.
That said, if you’re a young investor, I believe the sooner you put the funds to work in equities, the better. If you’re just getting started with your career, you likely have an investment horizon that’s measured in decades.
The longer your horizon, the more tax-free compounding you’ll be able to benefit from. And though everyone’s situation is different (some folks may need the TFSA cash at some point over the medium term for a down payment on a home), I think that value stocks, vanilla index funds, or affordable exchange-traded funds (ETFs) are options to look to if you’re looking at constructing a sound long-term TFSA strategy.
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It’s not just for the retired: Why positioning a TFSA with passive income and value in mind seems smart
The TFSA isn’t just for growing wealth via capital gains, however. It can also be a robust cash flow generator that can supplement your income. And you don’t need to be a retiree to benefit from the passive income either.
Undoubtedly, the cost of living has risen at a jarring rate in the post-lockdown world. And if you could use an extra few bucks of passive income to help out on the rent or the trips to the grocery store without spending down your retirement savings (spending the principal of your nest egg never feels good!), I think a passive-income strategy for your TFSA can make sense for some.
Right now, the TSX Index is packed with some very cheap, high-yielding dividend stocks. Further, if you’re serious about collecting passive income from a TFSA portfolio, the real estate investment trusts (REITs) also look intriguing this December. Some pundits on Bay Street are fans of the setup for some REITs going into the new year. And there’s more to them than just the falling-rate catalyst!
In this piece, we’ll look at one TFSA-worthy investment (spoiler alert: it’s a REIT) worth adding to your radar before 2024 ends.
SmartCentres REIT: A fat but stable yield
SmartCentres REIT (TSX:SRU.UN) is one of my top REIT picks for 2025. Shares are currently trading at just under $26 per share after rising just 4% year to date. Indeed, it’s been a volatile ride, primarily due to expectations for where rates could be headed. In any case, shares seem poised to pick up where they left off prior to the correction, which started this September.
Of course, the 7.16% distribution yield is the most compelling part of SRU.UN shares. A $14,000 sum invested would work out to $1,000 in annual passive income. Come January, you may find yourself with such a sum (think the TFSA contribution limits for 2024 and 2025) to put to work!
That said, I view the dirt-cheap multiple and sustainability of its payout as also positive traits that should have passive income investors intrigued.
Though SRU.UN shares could prove choppy in 2025; I’d stash the name away for the next five years as the REIT recovers from the high-rate world while looking to benefit from several impressive real estate projects. As I’ve noted in prior pieces, SmartCentres is a retail REIT but one that may soon become a diversified REIT as it finds success with its residential project pipeline.
