Starting your financial journey at 20 with a Tax-Free Savings Account (TFSA) and Registered Retirement Savings Plan (RRSP) is an incredibly smart move. According to StatsCan, Canadians aged around 20 years old hold about $6,558 in a TFSA and $1,800 in RRSPs. Falling below that line? Then this article is for you.
Getting started
For TFSAs, younger Canadians often begin contributing with smaller amounts, focusing on getting into the habit of saving and investing. Even small, consistent contributions can set the stage for significant growth over the decades, especially when paired with the right investment strategy.
To make the most of these accounts, start by contributing regularly. The TFSA is especially flexible because you can withdraw money tax-free at anytime, while the RRSP offers immediate tax benefits and is ideal for long-term retirement savings. Contributing early and often allows your investments to grow thanks to the magic of compounding. Even if you only have a few thousand dollars to start with, putting your money to work in investments rather than leaving it in cash can dramatically increase its value over time.
Options
When deciding how to invest, exchange-traded funds (ETFs) are a fantastic choice for young investors. ETFs are diversified, cost-effective, and easy to manage, making them ideal for those just starting out. For someone with a 30-year investment horizon, growth-oriented ETFs that focus on equities are a great option. For instance, the Vanguard All-Equity ETF (TSX:VEQT) provides exposure to 100% stocks across various geographies, offering maximum growth potential. This ETF is particularly suitable for young investors who can handle short-term market fluctuations for long-term gains.
Another excellent ETF to consider is the iShares Core S&P/TSX Capped Composite Index ETF (TSX:XIC). This fund tracks the performance of the largest Canadian companies, giving you broad exposure to the domestic market. If you want a slightly more balanced approach, the Vanguard Growth ETF Portfolio (TSX:VGRO) offers an 80/20 split between equities and bonds, thus making it a good option if you’re looking to mix in some stability without sacrificing much growth potential.
For international diversification, the Vanguard FTSE All-World ex Canada Index ETF (TSX:VXC) is a great pick. This ETF focuses on global equities outside Canada, ensuring that you’re not overly reliant on the Canadian market.
Keep it consistent
The key to success over 30 years is to stay consistent with your contributions and allow your investments to compound. If you contribute the maximum allowable TFSA amount each year, currently $7,000 in 2025, your account could grow to nearly $1,000,000 in 30 years! This performance is assuming an average annual return of 7%. For the RRSP, if you consistently contribute 18% of your income or up to the annual maximum, you’ll also see significant growth, with the added benefit of reduced taxable income during your working years.
Rebalancing your portfolio every year or two is also important. As you grow older or your financial situation changes, you might want to adjust your asset allocation to reduce risk. For example, in your 20s and 30s, it makes sense to focus on equities. But as you approach retirement, you might shift some of your portfolio into bonds or dividend-paying stocks to provide more stability and income.
The future outlook for ETFs remains bright, with many funds consistently delivering strong performance. While markets will always have ups and downs, staying the course and maintaining a long-term perspective is crucial. Recent earnings from major companies highlight resilience in various sectors. And ETFs tied to these markets are well-positioned to benefit from global economic growth. Staying informed about economic trends and performance metrics will help you make adjustments as needed.
Bottom line
In the end, building wealth through TFSAs and RRSPs is about consistency, diversification, and discipline. By starting early and choosing the right investments, you can set yourself up for a financially secure future. A mix of Canadian, U.S., and international ETFs can give you the growth and stability you need, ensuring that by the time you reach 50, your savings have grown into a substantial nest egg. It’s not just about saving. It’s about investing wisely and letting time do the heavy lifting.
