As the new year arrives, Canadian investors should have a game plan for their TFSA (Tax-Free Savings Account) portfolios and perhaps a list of potential investment ideas for their next (2026) contribution, which is, sadly, not getting a bump and will be sticking at $7,000. In any case, there are many Canadians out there who might be guilty of holding on to a bit too much cash in their TFSAs. And while keeping your powder dry is an increasingly smart idea, especially as valuations continue to climb while the AI bubble fears draw investors towards the riskiest of names, I think that it is possible to have too much cash in your TFSA.
If you’re a young investor who can handle the volatility for a shot at growth, I’d argue that it makes very little sense to be making nearly negligible (think 1% or even less) interest on your TFSA deposits. Sure, it’s a savings account, but its best use is as an investment account. Either way, the TFSA can grant you far better mileage if you treat it as a Tax-Free Investment Account, with equities at the core and perhaps a bit of bond exposure as the market weather gets a bit stormier going into the new year and beyond.
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What’s the TFSA game plan for growth investors?
In any case, the game plan for cash-heavy TFSA portfolios should be to gain some equity exposure! It doesn’t matter if you’re going for a vanilla index fund that follows the TSX Index or the S&P 500. With all the fantastic ETF products that allow investors exposure to a range of regions and sectors far and wide with minimal fees and no FX fees, I’d argue that it just makes sense to get started with an ETF portfolio to keep things quick, easy, and, most importantly, efficient. If you are a seasoned TFSA investor who’s heavy on stocks, it might make sense to reassess how much risk you’re taking on.
Are you too heavily invested in the tech trade? How many of those names are AI plays? And of those AI bets, how many have price-to-earnings (P/E) ratios that are well north of the 40 times mark? Are there even earnings to go by? I
f you’re too heavy on the high-multiple (or no-multiple if you’ve been betting on pre-earnings or even pre-revenue growth companies), it just makes sense to take a step back and give more consideration to more reasonably valued names, whether that’s the sub-30 P/E technological innovators or something else. Either way, rotating away from tech to other sectors by way of a sector ETF could make a lot of sense as well.
The financials look cheap and bountiful
Personally, I’ll be going for some individual names that look far cheaper than the broader markets. Come 2026, I think valuation will become even more important, especially as the tech scene looks choppy, with one (or perhaps a few) earnings result likely to dictate the next move in tech as well as the broad markets. Perhaps a Canadian bank ETF like the BMO Equal Weight Banks Index ETF (TSX: ZEB) could make sense to own.
It has a 3.2% yield and has been on a smooth ride higher in the past nine months. With modest valuations and plenty of banking catalysts to get behind (including AI), I’m thinking the financials (and the big banks) might be the cheaper, yet still hot, investment to stick with for the long run.
Bottom line for TFSA investors
If you’ve got a favourite bank or two in mind, I’d not be afraid to add them to a watchlist. If you’ve got nothing specific in mind, the ZEB could be the security to go with.
