With the 2026 tax-free savings account (TFSA) contribution limit at $7,000, the total cumulative room rises to a substantial $109,000 for those eligible since 2009. However, there is a massive maximizer gap in Canada. Despite the growing room, many eligible residents aren’t using up all the tax-efficiency edge the TFSA brings to individual retirement planning.
According to the BMO Investment Survey (2025), the average boomer’s TFSA balance was just above $72,000 going into 2025. These individuals were well into their rewarding careers when the TFSA went live in 2009.
The latest CRA Statistics (2025 Report) reveal that the average unused contribution room per individual stands at $49,596. The vast majority of Canadians are leaving their most powerful tax-free tool underutilized. If you find yourself with $20,000 in dry powder, you could be ahead of the curve. And now it’s time to invest it like a professional as you work on maximizing all the benefits the TFSA brings to the financial planning table.
Here’s how I’d deploy $20,000 in TFSA investments for 2026, starting with an exchange traded fund (ETF) as a core holding for instant diversification.
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The core holding: Vanguard FTSE Canada All Cap Index ETF (VCN)
Every resilient retirement investment portfolio needs a solid foundation. The Vanguard FTSE Canada All Cap Index ETF (TSX:VCN) is a gold standard for low-cost, broad-market exposure. It offers access to returns on a $13.2 billion portfolio of 205 small-cap, mid-cap, and large-cap stocks listed in Canada.
If small caps successfully maximize on growth opportunities in the evolving and rebalancing Canadian economy, investors will participate in the above-average growth. If mid-caps capitalize on their advanced learning curves to offer superior returns, the VCN ETF investor gets a share. If Canadian large caps outperform the market as they capitalize on established moats, the ETF will still pass on the gains to investors. It captures returns from “all” market players.
The VCN ETF’s wide diversification comes at a low cost, given a management expense ratio (MER) of just 0.06%. Investors may expect to pay about $0.60 annually on every $1,000 invested. You get to keep most of the returns yourself, instead of sharing them with the fund manager.
Most noteworthy, the ETF has generated about 233% in returns during the past decade. A 2.3% dividend yield should offset ETF costs.
I would allocate about half the TFSA balance here, and forget about it for a long time as returns compound over time, tax-free forever.
Buy Dollarama stock for defensive growth
The remaining half of the $20,000 TFSA balance could be split over a number of defensive stocks and dividend plays on the TSX – just in case the market worries itself into a (usually short-lived) recession while Canada recalibrates its trade-partners book.
Dollarama (TSX:DOL) stock could be a good candidate for a defensive TFSA stock to buy and hold in 2026. The retailer is a master at generating good returns on invested capital (ROIC). Dollarama’s operations generate above-average operating margins, and its ROIC at 23% towers above an industry average of 16%, earning the stock better valuation multiples, especially during tough economic times.
Moreover, with operations straddling South America and Australia, the defensive stock should do well, even if Canada goes through some economic turbulence. Even if the Canadian economy weakens, value-seeking consumers may sustain its sales growth trajectory.
With a low beta under 0.2, the low volatility defensive stock acts as a TFSA shock absorber in 2026 and beyond. Investors are paying a premium forward P/E of 35 for a business that consistently outcompetes its peers.
