Investing in a Tax-Free Savings Account (TFSA) is not a one-time event but a habit. You need to keep reviewing your portfolio to book profits, align your investments with your financial goals, and sometimes sell stocks that have lost their reason for being in your portfolio.
Why take all this pain?
Because investing in stocks is equivalent to being a part owner in the business. Even though you are not actively involved in the operations, you are responsible for your money.
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The types of stocks in your TFSA
Your TFSA has a variety of stocks, some cyclical that need annual or half-yearly review. Some growth and dividend stocks that you buy for a reason, and when that reason is gone, there is no point holding them.
For instance, goeasy was a stock to buy for its controlled credit risk despite operating in a non-prime lending space. It lost its reason when the lender flagged accounting errors that had increased its credit risk to the level that it had to pause dividends and impair the goodwill of its LendCare business. Whether the pause is temporary or permanent is unclear. Such stocks need revisiting.
Remember, Warren Buffett offloaded airline stocks at a loss as soon as the pandemic struck, saying the world had changed for airlines. This is the benefit of regular review.
The one TFSA stock to buy and never feel the need to revisit
While there are a variety of stocks, you only need a handful to become a millionaire. Among them should be one TFSA stock for your core portfolio, which you buy, set aside, and never revisit. It is the kind of stock you know can grow your wealth in the long term and preserve it during market downturns and inflation. Such stocks are the most boring ones, working behind the scenes.
Wealth creation
To create wealth, Broadcom (NASDAQ:AVGO) is the ideal choice. Its ethernet switches, Wi-Fi routers, and cybersecurity and enterprise software offerings are a package deal of fast and secure connectivity infrastructure. Broadcom’s long-term success lies in growing through innovation and acquisition, cutting the clutter, and keeping only the things that matter.
Broadcom’s CEO, Hock Tan, is now in his 70s and is one of the major reasons for the company’s success. He has made bold and difficult decisions, including even changing the company’s domicile to have a global edge. His retirement could trigger volatility in the short term. However, the company has built an ecosystem where its products will remain relevant in any tech revolution.
Wealth preservation
To preserve wealth, CT REIT (TSX:CRT.UN) is an ideal choice. Its low-risk business strategy makes it ideal to convert your wealth into passive income. CT REIT has an arrangement with its parent, Canadian Tire. If the retailer wants to buy, develop, or intensify a store, CT REIT will have the first right to refuse, depending on whether it has the bandwidth to take up the project. Even if the real estate investment trust (REIT) agrees, the retailer pays upfront for development and intensification.
This helps the REIT keep its construction loans to a minimum. Moreover, it doesn’t have to advertise, pay a brokerage to find a tenant, and worry about occupancy. Every new store it buys has an assured occupancy from Canadian Tire. The retailer deducts rent from its revenue, and the REIT gets assured cash flow.
This arrangement has helped CT REIT increase its dividends by an average annual rate of 3% while reducing its payout ratio to 73.5%. Every new property addition or intensification increases the net asset value (NAV) of CT REIT’s portfolio. You get regular passive income, and your investment value is preserved in NAV. This robust setup makes CT REIT a stock that doesn’t need revisiting.
