Recently, an extra $7,000 was added to Canadians’ tax-free savings account (TFSA) contribution room for 2025. The extra contribution room provides a great opportunity to invest fresh money tax free. If you’re getting a tax refund this year, making a TFSA contribution would be a great thing to do with it. In this article, I will explore how I’m investing my $7,000 TFSA contribution in 2025.
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Index funds
Index funds have been among the assets I’ve been buying in my TFSA in 2025. Index funds are great because they provide ample diversification in a single security. Such funds tend to outperform individual stock pickers over the long term.
One index fund I purchased this year was the KraneShares CSI China Internet ETF (NYSE:KWEB). It’s an index fund that holds Chinese technology stocks. The fund includes some of the most innovative companies in the world, including leaders in gaming, e-commerce, electric vehicles (EVs), and generative artificial intelligence (AI). The KWEB stocks are much cheaper than North American tech stocks on average, despite doing comparable growth. The fund has a relatively high management fee, but I find the price of admission worth it for targeted exposure to one of the world’s most innovative tech sectors.
Stocks
In addition to funds, I’ve also been buying individual stocks in 2025.
One stock I bought in 2025 was Air Canada (TSX: AC). The stock has not been performing particularly well for me so far, but I have high hopes for it. AC is extremely cheap, trading at 6.2 times earnings and 0.2 times sales. Investors are worried about an increase in capital expenditures in the years ahead, CAPEX that is required because Air Canada is buying new airplanes. High long-term recurring CAPEX is a problem, but airplanes have very long depreciable lives – I have faith that AC will have the vast majority of its spending done by the end of 2027.
Air Canada has recovered well from the damage it incurred in the COVID era. After losing $4.6 billion in 2020, the company went on to get its earnings up to $1.7 billion in the trailing 12-month (TTM) period. Its TTM revenue was an all-time high!
Investors are concerned about AC stock today because the company could lose revenue from Canadians cancelling U.S. travel (a common personal approach to Trump tariffs), and also the aforementioned CAPEX spending. I don’t think either of these concerns particularly weaken the thesis on Air Canada. The U.S. travel issue will only be with us as long as Trump is president, and the current round of CAPEX spending will eventually end. What we’ll be left with is a very robust enterprise.
Foolish takeaway
Taking everything into account, I think that right now is a reasonably decent time to be holding stocks in a TFSA. Due to the elevated risk from Trump’s administration, I’m holding more GICs than I usually do, but I still have about half of my money in stocks and index funds. On the whole, I am comfortable holding stocks – especially non-U.S. stocks- – in my TFSA.
