If you’ve been contributing to your TFSA (Tax-Free Savings Account) every single year since it was first introduced, you’ve quietly passed the $109,000 milestone. Undoubtedly, that’s the cumulative limit since the TFSA came to be way back in 2009. If your TFSA is comfortably above the level, you might be invested in stocks, bonds, REITs (real estate investment trusts), or something else.
In any case, it’s quite a feat to be above the $100,000 TFSA mark, and if you’ve gotten this far, you should keep up with constant contributions. Of course, not every Canadian who was of age back in 2009 has been contributing every single year. And that’s a major reason why the average TFSA level is well south of the $109,000 mark.
In any case, if you’re below the milestone, do not fret, as one can always make up for lost time later on, perhaps once one has enough cash to make the contributions. As always, though, check your eligibility (you should have been at least 18 back in 2009) and all call in to make sure you’re not at risk of overcontributing. There are unreasonably harsh penalties for doing so, after all!
The big question is what one should invest in with one’s TFSA funds. A good mix of stocks, REITs, and bonds is a tough mix to beat. Arguably, gold has been a shining star that’s also worth consideration, especially given the debasement trade is in full swing, even after that latest correction to start the year. For those with very long time horizons (let’s say you’re 36 and were eligible to contribute starting day one of the TFSA’s introduction), I’d argue that an equity ETF or portfolio of individual Canadian and U.S. stocks can make a lot of sense.
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Betting on the S&P for a TFSA
For those who want more growth, I’d argue that something like Vanguard S&P 500 Index ETF (TSX: VFV) makes a lot of sense. It’s an unhedged ETF that invests in the S&P 500. And, best of all, you’ll be able to stay in Canadian dollars, making it a great efficiency play if you’re not a fan of the exchange rate or can’t implement Norbert’s Gambit (a currency fee-saving move that Canadian investors should know) at your brokerage.
Either way, keeping it simple with the VFV is never a bad idea, especially since it’s been flat for around five months. Of course, the S&P 500 remains very heavy in the Magnificent Seven.
And with the VFV, you’re going to see a bit of downward pressure should the Canadian dollar appreciate against the U.S. dollar. If the U.S. dollar falls relative to the loonie, though, shares could catch a bit of a jolt. It works both ways for the unhedged ETFs. In any case, I think long-term investors should focus more on the index and less on which direction one currency will move against another.
Any way you look at it, an ETF like the VFV keeps things simple. And for the TFSA, it’s a great pick for simplicity and cost savings. For those looking into buying ETFs or stocks for their Registered Retirement Savings Plans, though, I’d go for the U.S.-traded S&P 500 ETF, given the exemption from the 15% foreign dividend withholding tax.
