2025’s TFSA contribution room has the potential to boost your portfolio returns significantly. Next year, you will get $7,000 in extra room. That is $7,000 in addition to whatever you already have. So, even if your TFSA is maxed out this year, you will be able to invest fresh funds into it next year. It’s a great time to be investing. In this article, I will explore a few asset categories you could consider holding in your TFSA in 2025.
Bonds and GICs
Bonds and Guaranteed Investment Certificates (GICs) are some of the best assets to hold in your TFSA. The reason is that interest is taxed more heavily than dividends and capital gains. Dividends have the dividend tax credit, and capital gains are partially not taxed. Bonds are taxed at the same rate as a dollar of extra employment income. As a result of this, bonds benefit the most from being tax-sheltered. So, if you can, hold as much of your bond portfolio as possible in your TFSA.
High-yield stocks
Another asset category that benefits from TFSA tax sheltering is high-yield stocks. Such stocks produce a lot of income, which, outside of a TFSA, is taxable immediately. Non-dividend stocks, however, don’t get taxed until you sell. So, dividend stocks, especially ones with high yields, merit inclusion in a TFSA portfolio.
Consider First National Financial (TSX:FN), for example. It’s a Canadian non-bank lender with $3 per share in dividends and a $40.46 stock price. The dividends and stock price imply a 7.41% dividend yield — very high. If you hold FN stock in a taxable account, you may end up paying considerable taxes on it, even if you don’t sell. The reason is that the stock pays dividends, they’re taxable immediately, and the yield is high. Compare this to a stock that doesn’t pay dividends. With such a stock, you don’t pay any tax unless you sell. So, a high-yield stock like FN should take precedence over non-dividend stocks in a TFSA. The latter type of stock is taxed less, to begin with.
Tech stocks: Proceed with caution
One asset category you would want to be wary of holding in a TFSA is tech stocks. U.S. tech stocks are off the charts expensive right now, the “Magnificent Seven” trade at about 60 times trailing earnings on average. Also, tech stocks mostly either don’t pay dividends or pay very small ones. So, they may not be the best TFSA holdings for 2025.
Crypto: Forget about it
One thing you’d be well advised not to invest your 2025 TFSA contribution room in is cryptocurrency. Cryptocurrency is a highly volatile asset class; it is very little regulated, and assets in the crypto space very frequently go to zero. It’s better regarded as a gamble than an investment. Sure, Bitcoin and a few others have done well in the long term, but they’re the exception, not the rule. It is better to stick to assets that produce cash flows. Additionally, crypto gains are considered capital gains, so the tax case for holding them in a TFSA is not that great.
