If you want to maximize the impact a TFSA (Tax-Free Savings Account) can have on your wealth, make sure you are investing your capital and not just placing it in a “high-interest” savings account (and by high interest, we mean 1% to 3%).
Even though the TFSA is referred to as a savings account, it is more so a compounding account. When you don’t pay any tax on your investment gains, you can increase your annual returns substantially over time.
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Don’t waste your TFSA on low “high”-interest savings accounts
If you are just earning 1% to 3% in a savings account, who really cares about the tax you are saving? Those gains are minuscule in comparison to a stock that could double, triple, or 10X your capital. The fact is, if you are only using your TFSA as a savings account, you are losing value to inflation regardless of your tax savings or not.
If you want to multiply your wealth, you are wise to invest in something better than a savings account. Canadians can buy indexes, exchange-traded funds, or individual stocks inside a TFSA. Here at the Fool, we like individual stock portfolios. If you are looking for maximum wealth impact, Stantec (TSX:STN) and TFI International (TSX:TFII) are interesting blue-chip stocks to buy today.
Stantec: A quiet compounder
With a market cap of $11.5 billion, Stantec is a major global engineering, architecture, and environmental firm. After revamping its strategy in 2020, this stock has delivered strong returns. This TFSA stock is up 162% in the past five years and 335% over the past 10 years.
Stantec has been riding on several global tailwinds such as data centre development, major infrastructure renewal, climate change adaptation, and electrical grid improvement. It has used an intelligent acquisition strategy to position its services in the right places at the right time.
Over the past five years, Stantec has demonstrated operating leverage, with low double-digit annual revenue growth and high-teens earnings-per-share growth. This is a well-run business that should continue to grow inside a TFSA for years ahead.
TFI International: A blue-chip stock for the long term
With a market cap of $13.8 billion, TFI International is one of Canada’s largest trucking and transportation firms. While its stock is up 81% in the past five years, it is down around 11% in the past year. This stock is up 730% over the past 10 years!
It has been a difficult freight environment for a few years. Tariffs and trade wars certainly haven’t helped. However, things do appear to be improving. TFI had some underperforming segments in the U.S. that began turning around in recent quarters. It is even gaining momentum from the AI and data centre boom.
Overall, TFI is a well-run, highly cash generative business. It has traditionally deployed that cash into acquisitions. However, with its stock price depressed, TFI aggressively bought back shares. That is the kind of capital allocation a long-term shareholder wants, and that is why TFI could be a great addition for a long-term TFSA portfolio.
The TFSA takeaway
You don’t need to own flashy stocks to earn strong returns in your TFSA. Quality blue-chip companies can deliver exceptional results, especially if you are patient. These investments are sure beat out any type of return you would get from just an interest-bearing savings account. If you want to enjoy tax-free, use stocks to earn big returns inside your TFSA.
