Canadians: How Much Should Be in a 20-Year-Old’s TFSA to Retire?

Space Exploration Technologies (NASDAQ:SPCX) stock might be a nice draw to new, young investors looking to start off a TFSA wealth-building journey.

Key Points
  • If you’re 20, your TFSA should be around $14,000 in contribution room, and anything above that should only be from investment growth to avoid overcontribution penalties.
  • With decades to compound, keep contributing and invest for long-term growth (broad index funds, value stocks, and selective higher-risk bets like newer AI IPOs if you can hold through big dips).

If you’re a 20-year-old investor and you’re even thinking about investing, you’re way ahead of the pack, and I mean it. At a time when money is tight and many young adults are going deep into credit card debt, even thinking about one’s future and investing for it, I think, is a huge win. As to how large your Tax-Free Savings Account (TFSA) should be, you should be at $14,000 or so. Any more should be attributed to capital gains on investments.

Otherwise, you could be at risk of overcontribution, and that’ll result in an unpleasant penalty. In any case, the big question is where you should get your TFSA before you even think about hitting the retirement button.

And I think someone with many, many decades to save for, I think you shouldn’t set an upper bound on how big you can make it. In other words, keep contributing, growing, and don’t get ahead of yourself.

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Investing with a TFSA at 20

When the time comes, and the TFSA is fat enough, you can crunch the numbers, but since that’s a long way out, I’d argue that one’s focus should be planting the seeds in a TFSA to finance that future retirement, whether it’s in 20 years, 30 years, or a while longer.

Who knows? Some people choose not to retire when they could have in comfort many years ago. In any case, the key here is turning your TFSA into a vehicle to help you achieve true financial freedom.

And investing in stocks, preferably value stocks with a long growth runway, seems to be the answer. Of course, investing in index funds that follow the S&P 500 or the TSX Index is great as well. These days, it seems like the latter has been the steadier bet amid recent volatility surrounding the tech sector. Any way you look at it, though, early retirement is a possibility if you can compound early on.

For a 20-year-old, you’ve got arguably one of the best powers to be had in investing. If the stock market plunges tomorrow (and you should hope it does, given you’re just getting started), you’ll be able to pick up more for less.

Recent IPOs might be drawing in big investor interest

As for the kinds of stocks that would appeal to young investors, it’s hard to argue against the recent slate of AI initial public offerings (IPOs).

They just keep on coming. And while I’m not against buying and holding something like a Space Exploration Technologies (NASDAQ:SPCX), especially at close to $10 below its IPO price of $135, I think that a willingness to hold for an extremely long timeframe is most important.

You can afford to take risks and brave dips as you look for a shot at next-level growth. But, for the most part, I think strategic risk-taking and staying the course are among the most important skills a new, young investor can learn.

As to whether Elon Musk’s companies are worth betting on (they’re certainly appealing to the younger crowds), that remains the big question. If it means getting you interested in investing early, I view it as a good thing.

Fool contributor Joey Frenette has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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