The Tax-Free Savings Account (TFSA) is made for Canadians who want to save money and build wealth. While the federal government doesn’t get many things right, the TFSA was one of its best creations.
Canadians can invest in individual stocks, bonds, indexes, ETFs, and mutual funds inside their TFSA. Any interest, dividend, and/or capital gain is completely tax-free. The best part is that when you withdraw your capital, there is no tax on the withdrawal either.
The TFSA is the ideal place to put long-term investments. You want to build up substantial capital gains in that account. You don’t want to pay any tax on 5, 10, or 50 times returns. The TFSA becomes the most efficient place to hold stocks that you anticipate will deliver big returns.
If you want some TFSA ideas, here are a few examples of stocks that have delivered substantial long-term returns and one stock that could deliver great returns in the future.
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A stock benefiting from the data centre and electricity boom
Hammond Power Solutions (TSX:HPS.A) is probably one of the most successful TSX stocks that most investors have never heard of. This $1.8 billion stock is up 2,432% in the past five years! A $10,000 TFSA investment five years ago would be worth $252,866 today! That’s a capital gain you would not want to pay any tax on.
Hammond has steadily been growing its portfolio of specialized transformers and crucial electrical components. During the pandemic, this stock traded for a low single-digit earnings multiple.
However, secular themes like electrification, manufacturing on-shoring, renewable power, and artificial intelligence have spurred on a wave of demand for its products.
Today, Hammond is a bit pricey at 22 times earnings. However, the stock has recently pulled back. If it got closer to 15 times, it could be an interesting time to add it to your TFSA.
This TFSA stock would have massively multiplied your capital
TerraVest Industries (TSX:TVK) is another uncommon stock that would have delivered exceptional returns for shareholders. Its stock is up 717% in the past five years and 1,880% in the past 10 years. If you invested $10,000 TFSA dollars in TerraVest 10 years ago, it would be worth $195,000 today. You don’t want to pay tax on that kind of growth.
TerraVest operates a mix of gritty industrial businesses that include tank and trailer manufacturing, boilers, and energy services. The company’s secret sauce has been its ability to scope out cheap businesses and use best practices to maximize profits.
Like Hammond, its valuation has risen considerably in the past few years. Right now, this stock is in a bit of a drawdown. It may mean you can add it at a more attractive price for a longer-term hold.
Hold this small-cap stock for long-term TFSA compounding
If you want a stock that is still in its early innings, Firan Technologies (TSX:FTG) might be a great add to a TFSA. Its stock is up 431% in the past five years. However, it only trades with a $262 million market cap. This company could still have some substantial growth ahead.
Firan supplies circuit boards, cockpit components, and specialized sensors and hardware to the aerospace industry. Smart acquisitions have expanded its manufacturing capability and product assortment.
Airline demand for new planes is insatiable. Likewise, defence spending is on the rise. All these factors support increased demand for Firan’s products.
The company trades at a considerable discount to other aerospace component providers. For a fairly priced stock with a long-term tailwind of growth, this is an ideal stock to hold inside a TFSA for the long term.
