Why Many Canadians Aren’t Using a TFSA the Right Way, and How to Fix It

A TFSA cannot reach its full potential when it is treated only as a place to hold cash. That’s why owning quality businesses could give Canadians a better chance to build tax-free wealth over time.

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Key Points
  • Many Canadians hold back their TFSA by keeping too much money in cash instead of quality investments.
  • Brookfield Asset Management (TSX:BAM) combines a 4.1% dividend yield with expanding fee-based earnings and several long-term growth drivers.
  • RB Global (TSX:RBA) is growing revenue and earnings, making it another stock worth considering for a long-term TFSA.

If you think the biggest Tax-Free Savings Account (TFSA) mistake is choosing the wrong stock, you’re probably overlooking a much bigger issue. Many Canadians treat their TFSA like a traditional savings account, using it mainly for cash or low-interest products instead of taking advantage of its tax-free growth potential. While that approach may suit short-term goals, it can limit the long-term benefits the account was built to provide.

That’s why the biggest mistake many TFSA holders make is failing to use the account as a long-term wealth-building tool or failing to invest at all. Using the TFSA as a long-term wealth-building tool could help you get more out of every contribution while taking full advantage of the account’s tax-free growth potential.

In this article, I’ll highlight two reliable Canadian stocks that could make a TFSA work harder over the long run.

Blocks conceptualizing Canada's Tax Free Savings Account

Source: Getty Images

Brookfield Asset Management stock

The first stock I’d consider to make a TFSA work harder instead of sitting in cash is Brookfield Asset Management (TSX: BAM). This company manages alternative investments across infrastructure, energy, real estate, private equity, and credit.

After climbing nearly 14% over the last four months, BAM stock now trades at $66.88 per share with a market cap of $109.4 billion and a 4.1% annualized dividend yield.

Interestingly, the stock is currently about 24% below its 52-week high, giving long-term TFSA investors a more attractive entry point, especially as the underlying business continues to grow.

Brookfield generated US$1.3 billion in revenue in the first quarter, up about 24% year-over-year (YoY). Its fee-related earnings rose 11% from a year ago to US$772 million, while distributable earnings increased 7% to US$702 million. These gains were mainly backed by capital inflows, investment deployment, and strength across its real asset and complementary investment strategies.

Fundraising is also building BAM’s future earnings power. The company raised US$21 billion in the March quarter as its fee-bearing capital climbed 12% YoY to US$614 billion. At the same time, the asset manager also deployed or committed US$34 billion and completed US$8 billion of asset sales.

Its longer-term opportunity comes from new flagship funds, the integration of Oaktree, and a mandate to manage US$40 billion for Just Group. That mandate is expected to initially generate about US$100 million in annual base fees. These moves brighten BAM’s long-term growth outlook, making it an attractive choice for long-term TFSA investors.

RB Global stock

The other stock that fits well for investors trying to fix common TFSA mistakes is RB Global (TSX: RBA). The company operates auction sites and digital marketplaces for vehicles and commercial assets.

After rallying by around 90% over the last three years, its shares now trade at $153.59 apiece with a market cap near US$28.6 billion and a 1.1% annualized dividend yield.

RB’s first-quarter gross transaction value rose 13% YoY to US$4.3 billion. During the quarter, its total revenue climbed 11% YoY to US$1.2 billion with the help of a 5% service revenue growth and a 32% jump in inventory sales revenue. Meanwhile, the company’s net income jumped 20% YoY to US$135.6 million.

This growth came from stronger activity across automotive, commercial construction, and transportation. Its acquisitions, like J.M. Wood, also contributed, while higher average selling prices supported gross transaction value. Its BigIron acquisition and the purchase of Blackmon Auctions are expected to expand its U.S. presence further.

With rising earnings, lower adjusted net debt, and a quarterly dividend of US$0.31 per share, RB Global could help TFSA investors combine growth with modest income.

Fool contributor Jitendra Parashar has no position in any of the stocks mentioned. The Motley Fool recommends Brookfield Asset Management. The Motley Fool has a disclosure policy.

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