The Tax-Free Savings Account (TFSA) contribution limit has been raised by $7,000 consecutively since 2024. If you maximized your contribution in both 2024 and 2025, you could have $14,000 of cash that could be invested.
If you are a new investor, it can be hard to know how to deploy that kind of cash. Making and contributing to a TFSA is a great start. However, if you just settle for a “high-interest TFSA,” you are not really using the TFSA to its fullest potential (for many reasons). Stocks provide a nice balance of risk and opportunity.
If you are long-term minded, you can usually tip that balance in your favour. Likewise, you can split your bets by owning a diversified portfolio of stocks. If you are looking for ideas, here’s how I would structure a four-stock portfolio with $3,500 allocated to each.
A large-cap tech stock
With a market cap of about $80 billion, Constellation Software (TSX:CSU) is one of Canada’s largest (and best-performing) technology companies. This company has been an exceptional stock to hold in your TFSA. It is up 189% in the past five years and 671% in the past 10 years. You don’t want to pay any tax on those kinds of returns.
That performance comes at a price of a $3,766 stock. It’s a pricey stock, even after the stock recently declined. You can buy a $2,000 stake if your broker allows fractional share purchases.
Or you can buy one of its spin-out entities. Topicus.com (TSXV:TOI) is executing a very similar software consolidation plan. Its focus is largely on Europe (versus Constellation, which is focused globally). However, it only trades for $144 today.
Both these stocks have a great history of strong double-digit growth, great cash generation, and wise capital allocation. Any time you can pick them up at a discount is a great time to add.
A defensive utility for a TFSA
It is always smart to have some ballast in your TFSA portfolio for any market storm (and there will be plenty to come). Fortis (TSX:FTS) serves that purpose with excellence. It is a regulated utility with operations across North America.
It is a very boring, but very stable business. The company aims for 4-6% earnings per share growth annually. It tends to increase its dividend by a similar rate.
Fortis yields 3.6% today. It has grown its annual dividend for 51 consecutive years. You can sleep well at night with this stock.
A blue-chip stalwart
Blue-chip stocks like Canadian Pacific Kansas City (TSX:CP) are attractive for a TFSA. They have very established businesses, but they also have better growth than defensive stocks (like Fortis). CP has a market cap of $93 billion. It has been in business for nearly 145 years!
CP has the only rail network that spans Canada, the United States, and Mexico. It provides substantial, industry-leading growth opportunities.
Despite tariffs and a freight recession, CP still has a target for low-teens earnings growth for years ahead. It’s a well-managed company, and it is trading at an attractive price right now.
Every TFSA portfolio needs a few small-cap stocks
Every TFSA needs to have a sky-rocket stock. This may be higher risk, but also higher reward. Small-cap stocks are a great place to look for this. With a market cap of $700 million, VitalHub (TSX:VHI) is interesting.
The company provides essential software for the healthcare industry. It has used a smart strategy of consolidating smaller software providers. It can use its operational and financial expertise to expand growth and increase margins.
VitalHub generates attractive cash flows and has a strong balance sheet to continue its acquisition plans. It’s a nice bet for big potential TFSA gains in the future.
