The so-called TFSA number is often viewed by Canadian investors as that “magic number” or milestone one needs to hit before even thinking about hitting that retirement button. Indeed, for those who were of age when the TFSA was started and have been making the full contribution (it varies depending on the year) without missing a beat, one might already be past the $100,000 mark. While we have heard of TFSAs that are worth well more than $109,000 or so, it tends to be the growth within the TFSA that’s to thank.
And for those who’ve invested in common stocks, rather than just savings, the difference could become stark over the course of nearly two decades. Any way you look at it, Canadian investors should prioritize not only making a habit of contributing, but investing that sum in undervalued stocks that can help one compound their nest egg at a rapid rate over time. Indeed, you don’t need to get in on the ground floor to the red-hot AI stock that has tons of momentum behind it.
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Investing in stocks is the way to go for a TFSA
But you do need to think about stocks (think index funds or even boring defensive dividend stocks) and REITs if you’re to get significantly ahead of the rate of inflation, which, as I’m sure you know, continues to be a source of sticker shock at the grocery store, at the pump, the electronics store, or, really, just about anywhere else. Are stocks and REITs risky?
Technically, yes. But, then again, I’d argue that the penalty (opportunity costs) of holding too much cash is far above historical norms. In any case, let’s get back to the TFSA number. For the most part, there is no one number that’s right for everyone.
It depends on your spending patterns, your ability to rein in spending, the costs of goods where you live, and what other sources of income you’ll have (CPP? OAS? another dividend portfolio?). So, in my view, I’d gather all the right variables and double-check to ensure that the math is right. In this piece, though, we’ll look at a fantastic ETF that I believe can help get your TFSA to where it needs to be over a long-term time horizon.
Vanguard FTSE Canada All Cap Index ETF
When going for growth with your TFSA, I’m a big fan of simplicity and ease of access. And when it comes to cost-effective, simple plays, perhaps there’s nothing that’s more effective than a run-of-the-mill index ETF such as the Vanguard FTSE Canada All Cap Index ETF (TSX: VCN).
It’s simple, it’s cheap (a low MER), and it has the brand name (it’s tough to top Vanguard!). What’s more, though, is that the Canadian stock market itself has not only been a more impressive performer than the S&P 500 of late, but it’s also cheaper on the basis of price-to-earnings (P/E). Of course, you’re not going to get that big tech and AI exposure as you would with the U.S. stock market.
But, at the same time, AI has been a source of volatility in recent weeks, and with extended multiples, I’d argue that going for the cheaper, cash flow-heavy plays on the cheap could be a way to limit the pain should a big correction be in store for tech. Despite the recent run, the TSX Index still looks cheap, and for that reason, I think it’s a go-to for TFSA investors looking to get to their desired number.
