Your Tax-Free Savings Account (TFSA) is one of the most powerful tools available for building wealth in Canada. It allows you to grow your savings without the burden of taxes. In 2025, the key to maximizing returns in your TFSA will be to make strategic investment choices that leverage both the tax advantages of the account and the potential of the stock market.
The TFSA is not just for saving
While saving is the first step to building wealth, investing those savings is what can truly accelerate your returns. With a TFSA, any growth — whether from interest, dividends, or capital gains — is tax-free. In other words, the money you earn within the account isn’t subject to taxation, making it a fantastic vehicle for long-term growth.
Both the Canadian and U.S. stock markets are trading near their all-time highs. While this could spark concerns about a potential pullback, there are still opportunities to maximize returns in your TFSA. It’s important to remember that market fluctuations are part of the investment landscape, and with the right strategy, you can still capitalize on gains while minimizing risk.
Finding value in a high market
Despite the market’s high levels, there are still pockets of value to be found. While stocks are generally more volatile than bonds, which are considered safer investments, they also tend to offer higher returns over the long term. The key to success in 2025 is to identify solid companies that are trading at attractive valuations, even when broader markets seem expensive.
For example, Canadian stocks such as Toronto-Dominion Bank (TSX:TD) are reasonable investments at current levels. With a dividend yield of 5.4%, TD Bank provides an income stream that outpaces the current one-year Guaranteed Investment Certificate (GIC) rate of around 4%. Although GICs guarantee principal protection, investing in stocks like TD Bank can provide greater returns over time — despite the inherent risks.
Low-risk dividend stocks for steady growth
For investors seeking stability with decent returns, solid dividend stocks can be a great choice within a TFSA. Toronto-Dominion Bank is a prime example. Currently trading at $77.78 per share, TD is priced about 12% below its long-term valuation, making it a relatively low-risk option for investors looking for consistent income and growth potential. Over time, as TD Bank eventually reverts to higher growth, the stock could deliver total returns of around 13% per year.
Another stock idea for 2025 is Exchange Income Corporation (TSX:EIF), which has proven itself as a reliable dividend payer since 2004. Offering a monthly dividend yield of 4.5%, Exchange Income also has impressive growth potential. In 2024, the stock rose by 31%, with total return — including dividends — reaching a remarkable 36%. While its valuation is now higher, it still has upside potential, with estimates indicating a 23% return over the next year.
The Foolish investor takeaway
As you enter 2025, the key to maximizing your TFSA returns lies in making informed, strategic investments. You might want to focus on dividend stocks that offer both income and growth potential, like Toronto-Dominion Bank and Exchange Income. By balancing risk and reward and staying patient, your TFSA can be a powerful tool for growing your wealth in the years to come.
