Coming into 2026, many investors were expecting interest rates to continue falling steadily and were positioning their TFSAs for the long haul.
Inflation was cooling, central banks appeared to be done hiking, and the expectation was that lower rates would help push markets higher.
However, just a few months into the year, that outlook has changed quickly.
With oil prices spiking due to the conflict in the Middle East and inflation once again becoming uncertain, the path to lower rates is no longer as clear.
That matters because when interest rates stay higher for longer, it changes how you should be thinking about your TFSA.
It’s no longer just about chasing growth or assuming markets will keep pushing higher. At the same time, sitting in cash or GICs isn’t a great long-term strategy either if you actually want your wealth to grow and meaningfully outpace inflation.
So, if interest rates aren’t falling anytime soon, here’s how I’d be thinking about positioning my TFSA today.
Why higher interest rates change everything for TFSA investors
It’s no surprise that interest rate decisions by central banks around the world consistently make headlines. When interest rates stay elevated, it impacts nearly every part of the market.
First off, higher rates put pressure on valuations, especially for growth stocks that rely on future earnings. That’s why many high-growth names struggle when rates rise or stay elevated longer than expected.
At the same time, income becomes more attractive. Investors start to prioritize reliable cash flow and dividends because they offer immediate returns in an uncertain environment.
However, you still can’t ignore growth entirely. Inflation hasn’t gone away, and if anything, it’s becoming more unpredictable again. So, if your portfolio is only focused on income with no growth, you risk falling behind over the long haul.
That’s why the strategy needs to shift. It’s not about going all-in on growth or all-in on income. It’s about finding the balance.
You want to find businesses for your TFSA that generate reliable cash flow, can hold up in a higher-interest-rate environment, and still have the ability to grow over time.
How I’d balance my portfolio today
First, especially if you’re underweight in the sector, I’d be looking to add a high-quality energy stock to my portfolio.
If oil prices remain elevated, which could be the case for months, energy companies are undoubtedly some of the biggest beneficiaries. And even if prices pull back slightly, many of these businesses are still generating significant cash flow.
That’s why one of the top stocks to add to your TFSA as rates stay elevated in the current environment is Canadian Natural Resources (TSX: CNQ).
CNQ is one of the most efficient producers in the country, with a massive asset base and the ability to generate strong free cash flow even in weaker environments. And right now, with higher oil prices, that cash flow is only increasing.
That means the stock has more flexibility for dividends, buybacks, and continued long-term growth.
To balance that out and reduce exposure to energy prices, I’d also want something more stable, such as an energy infrastructure stock like Enbridge (TSX: ENB).
Unlike producers, Enbridge’s profitability isn’t directly tied to commodity prices. Instead, it generates most of its revenue through long-term contracts and regulated assets.
So, while it still benefits from strong energy demand, it offers much more predictable cash flow and a high, reliable dividend with a current yield of 5.2%. That makes it one of the best defensive income stocks you can own in a higher-rate environment.
And finally, I’d still want some exposure to growth, but not the kind that depends on lower interest rates. Instead, I’d look to add a defensive growth stock like Dollarama (TSX: DOL).
Dollarama is consistently expanding its operations and growing its earnings. Furthermore, its business model actually performs well in weaker economic environments as consumers look for more affordable options.
That means it offers investors that growth component without taking on the same level of risk as more rate-sensitive stocks.
So, if interest rates stay higher for longer, the key isn’t to overreact; it’s to position your TFSA with a mix of high-quality businesses that can generate income today and continue growing over the long haul.
