In this piece, we’ll check in on a number of strategies to help turn your TFSA (Tax-Free Savings Account) into a compounding engine to help you hit your retirement milestones. Undoubtedly, for those who can max out their TFSAs, the faster ones will be able to get past that retirement finish line, whatever it may be.
Given the soaring costs of living and the likelihood that many Canadians are having to draw down from their TFSAs rather than contributing, we’ll check out a hypothetical TFSA portfolio that’s worth $20,000. With broad markets imploding on Thursday, there is perhaps no better time to start thinking about buying.
I do think that braving the wreckage could help get one that much closer to their retirement dreams, even though it may seem like the concept of retirement is fading away every day as above-average levels of inflation linger.
So, what are some worthwhile strategies to help one progress on their path towards a comfortable (or maybe even early) retirement? In my view, focusing on capital appreciation, rather than dividend investing, seems like the smart way to go, especially for a younger investor who has only made a handful of TFSA contributions so far.
Source: Alphabet
Setting a TFSA up for long-term growth
Indeed, a TFSA income fund is always nice so that one can more easily make rent amid inflation. But, at the same time, I’m a firm believer in reinvesting every dividend that trickles in while focusing on getting that TFSA balance as high as it can go.
Focusing on growth doesn’t mean going heavy on the explosive momentum stocks with the prettiest five-year charts. Rather, I think it’s a wise idea to stick with a strong, wide-moat firm with a history of earnings growth and a multiple that makes sense. As it turns out, you don’t need to pay a pie-in-the-sky multiple for decent growth.
After Thursday’s sell-off, I think it’s worth checking in on the hyperscalers that got caught skating offside. Just one day after a big rebound session, the hyperscalers stumbled, crushing investors who chased shares on the way higher.
With lukewarm earnings clocked in by many of the big-name hyperscalers, and many still questioning whether the capital expenditures on AI will be worth it, I think there’s a chance to jump into the big spenders as the Democrats look to slow the AI data centre buildout with policy that might just include a moratorium.
Indeed, such a development could easily crash the AI trade (if it isn’t already in the process of crashing). But, at the same time, I do believe that investors will get what they want when it comes to the hyperscalers: less CapEx on AI-related efforts (like chips and all the components that go into data centres).
Whether the Democratic sweep in the U.S. leads to a forced cap on AI-related spending remains to be seen. Either way, it’s hard not to think about buying the dip in the CI Invesco Nasdaq 100 Index ETF (TSX: QQC) after it slid over 6% in a day.
Alphabet
I view the hyperscalers, especially Alphabet (NASDAQ: GOOG), as a bargain hiding in plain sight that might just rally as the semiconductor trade collapses further. While shares of GOOG fell close to 2% on Thursday, putting the name off around 28% from its highs, I do think that the AI big spender should have rallied in a massive way, especially as the firm looks to more effectively monetize the technology.
Whether it’s Gemini 4 Argon or Alphabet’s wider moat around its own AI infrastructure (and what’s to come), I think it makes very little sense for the stock to trade at 14.7 times trailing price-to-earnings (P/E). Was the latest quarter lacking in AI ROI guidance?
Most definitely. But, at the same time, perhaps the feared and dreaded AI-related CapEx is closer to reaching a ceiling following the Democratic sweep. Could it be that the Democratic midterm victory sets the stage for a big rally in the hyperscaler names as they’re nudged to rein in the spend? Perhaps. Either way, I think it makes little sense for shares to be falling post-midterms.
