A Tax-Free Savings Account (TFSA) is one of the best investment tools available to Canadians, but how you use it matters. While it’s great for passive income, the real long-term power of a TFSA lies in total returns – building a tax-free nest egg through share price appreciation and reinvested dividends.
Since TFSA withdrawals are tax-free, they won’t push you into a higher income bracket or trigger Old Age Security (OAS) clawbacks in retirement. But if you’re younger, the best strategy is to optimize for total returns – letting compounding do the heavy lifting over time.
With that in mind, here are two top investment choices for a TFSA in 2025, both designed to maximize long-term growth.
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The Nasdaq-100 Index
For maximizing TFSA growth, a strong option is the Nasdaq-100 Index, which tracks 100 of the largest non-financial companies listed on the Nasdaq exchange.
Unlike the S&P 500, this index excludes financials, giving it a heavy tilt toward tech and high-growth stocks. The Nasdaq-100 includes all of the Magnificent Seven stocks within its top holdings.
For exposure, I like the BMO Nasdaq 100 Equity Index ETF (TSX:ZNQ).
This ETF comes with a 0.39% management expense ratio (MER) and has delivered a strong 21.7% annualized return over the past five years – although remember, don’t rely on this to predict future returns.
The Nasdaq-100 Index (currency hedged)
One thing to keep in mind with Nasdaq-100 investments is currency risk. Since this index is made up of U.S. stocks, when the U.S. dollar rises, Canadian investors benefit. But if the Canadian dollar strengthens, it becomes a headwind, reducing your returns.
This happens because most Nasdaq-100 stocks trade in U.S. dollars, while Canadian-listed ETFs like ZNQ are priced in Canadian dollars. If currency fluctuations are a concern, there’s a hedged alternative: the BMO Nasdaq 100 Equity Hedged to CAD Index ETF (TSX:ZQQ).
ZQQ holds the same 100 stocks as ZNQ, including all the Magnificent Seven, but it uses financial instruments to cancel out foreign exchange risk. That means you get the Nasdaq-100’s returns without worrying about currency movements.
Like ZNQ, ZQQ has a 0.39% MER, making it a cost-effective way to invest in U.S. tech and growth stocks while keeping returns tied to the index itself, not the exchange rate.
