Only the one who knows how to make the most of the Tax-Free Savings Account (TFSA) can build a $1 million portfolio without paying a single penny in tax. The tax benefit offered by a TFSA is best suited for long-term growth stocks, cyclical stocks that can generate medium-term gains, opportunistic stocks for short-term gains, and high-yield dividend stocks for compounding.
Source: Getty Images
How to convert a $7,000 TFSA into a cash-pumping machine
The one rule of a TFSA is that you can withdraw tax-free. There is no limit on how much you can withdraw. You can withdraw $10,000 or $100,000 if you have that much balance in your TFSA. The withdrawn amount will be added to the TFSA contribution room the next year.
Pumping cash from long-term growth stocks
You can invest in a growth stock and withdraw capital gains, while retaining the invested amount. Suppose you invest $10,000 in Nvidia (NASDAQ:NVDA) in 2020 and that stock doubled your money to $20,000. You can withdraw the capital gain of $10,000 and keep the remaining $10,000 invested. That way, you enjoy the growth cycle and do not miss out on long-term growth. However, the benefit of compounding gets diluted.
Nvidia stock is a long-term growth stock, not just for its artificial intelligence (AI) data centre graphics processing units (GPUs) but also for its autonomous vehicle and AI 2.0 opportunities. As long as Nvidia’s GPUs maintain their unmatched performance, they will command a premium price and scale their revenue by strong double digits.
Pumping cash from cyclical stocks
Another opportunity to pump cash from a TFSA is to invest in cyclical and seasonal stocks at their dip. For instance, buying commodity stocks that give you exposure to gold and Bitcoin prices is a good opportunity. The gold price tends to rise in economic uncertainty, and the Bitcoin price in economic prosperity.
If you invested in Lundin Mining at the start of 2025, your investment must have doubled as the gold price surged amidst economic uncertainty. Moreover, central banks have been buying gold to build their gold reserves, driving the demand for gold. You can consider withdrawing the capital gain and investing it in Bitcoin through Hive Digital Technologies (TSXV:HIVE).
Hive is a Bitcoin mining company with no debt. It has been expanding its Exahash per second (EH/s) capacity from six to 25 EH/s in 2025. This computing power will help it mine more Bitcoin. Moreover, the firm accumulates Bitcoin when its price falls and sells it when its price rises to fund capacity expansion. Hive’s share price is influenced by the value of its Bitcoin inventory, giving you exposure to Bitcoin prices.
As there is no debt and it is expanding into leasing high-performance computing (HPC) cloud space, it can generate stable cash flows and survive a bubble burst. You can consider buying the stock when its share price is below $4 and selling it at $8, only withdrawing the gains while keeping your initial investment.
Pumping cash from high-yield dividend stocks
Another interesting source of cash will come from a high-yield dividend stock like Telus Corporation (TSX:T), trading near its 12-year low with a 9% yield. The stock has dipped this low because the management has paused dividend growth until it deleverages its balance sheet. However, it will continue to pay the current dividend. You can withdraw this dividend and enjoy an assured quarterly cash income.
You can also reinvest the dividend in Telus itself through its dividend reinvestment plan and save on brokerage fees on DRIP stocks. Another option is to reinvest the dividend amount in the iShares NASDAQ 100 Index ETF (CAD-Hedged) (TSX:XQQ).
The ETF will give you exposure to the emerging tech trends of AI, autonomous vehicles, and hydrogen cars. From hardware to software, you will get market-linked returns that will balance the risk of individual stocks. With ETFs, you can withdraw the capital gains and keep the invested amount intact.
