There is plenty of financial pressure on Gen Z Canadians right now. Housing is expensive, entry-level jobs can be difficult to find, and everyday living costs take a bigger bite out of each paycheque.
But if you’re 20, you also have two powerful things working in your favour: better investing tools than previous generations had at your age and, more importantly, time. One of the best tools available is the Tax-Free Savings Account (TFSA).
Contributions are made with after-tax money, investments can compound tax free, and withdrawals can generally be made whenever you want without triggering tax. Withdrawals are also added back to your contribution room the following calendar year.
To take full advantage of those benefits over the next several decades, here are three best practices I would focus on.
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1. Dollar-cost average
You do not need enough cash sitting around to maximize your TFSA in one lump sum.
The annual TFSA contribution limit is $7,000 for 2026. You can divide that amount throughout the year instead. One approach is dollar-cost averaging, where you invest a consistent amount at regular intervals regardless of what the market is doing.
For someone receiving a biweekly paycheque, that could mean automatically setting aside some money every two weeks and investing it immediately. The amount matters less initially than establishing the habit.
2. Reinvest your dividends
You can withdraw TFSA distributions and spend them tax free, but I don’t see much reason for a 20-year-old to do that unless the money is genuinely needed. Early in your investing journey, the income probably will not amount to much anyway.
Reinvesting those dividends buys additional shares, which can generate their own dividends and potentially appreciate over time. Repeat that process for several decades and reinvested distributions can become an important component of total returns.
As the saying goes, yield is for farmers. At 20, I would be much more interested in total return and compounding.
3. Keep fees low and diversification high
Two things I want to minimize in a young investor’s TFSA are excessive fees and permanent losses.
Fees compound against you. A seemingly small difference in annual investment costs becomes increasingly meaningful when it persists for 40 or 50 years.
Diversification addresses the second problem. Rather than betting heavily on a handful of individual companies, owning hundreds or thousands reduces the damage any single failed investment can inflict.
One example is the Vanguard All-Equity ETF Portfolio (TSX: VEQT).
VEQT provides exposure to more than 1,000 underlying stocks across Canada, the United States, international developed markets, and emerging markets. It automatically rebalances those investments and charges a 0.24% management expense ratio (MER).
For a young investor comfortable with the volatility of a 100% stock portfolio, that is the type of simple foundation I would rather build around than constantly searching for the next hot stock.
