The Tax Free Savings Account (TFSA) is a useful investing tool to help young Canadians build a substantial savings fund.
<h2 class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="How to invest in a TFSA” data-reactid=”33″>How to invest in a TFSA
Canada created the TFSA in 2009 to provide residents with a new savings alternative. Contribution limits increase each year and currently stand at a maximum of $59,500.
People use several approaches to put cash aside for the future, including taxable accounts, RRSPs, and TFSAs. Advisors often recommend using taxable accounts once RRSP and TFSA contributions limits are exhausted.
The RRSP remains very popular and is particularly useful when a person is in a higher marginal tax bracket than they expect to be in retirement. RRSP contributions reduce taxable income in the respective year. Inside the RRSP, the funds grow without being taxed. However, the CRA taxes the money when it is withdrawn.
Investors make TFSA contributions with after-tax income. Investments inside the TFSA grow tax-free and no tax is paid to the CRA when you remove the profits. Young investors who still have their highest-income years ahead of them might want to use the TFSA space first and save RRSP room for when they earn more money.
In addition, the TFSA benefits retirees. The CRA does not include TFSA earnings when determining OAS clawbacks.
The top stocks to owns over the long haul tend to be market leaders. They generate solid profits regardless of the economic environment and pay reliable dividends.
Savvy investors use the dividends to buy more shares, setting off a powerful compounding process that makes some people rich. Let’s take a look at two stocks that demonstrate how this works.
<h2 class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Canadian National Railway” data-reactid=”42″>Canadian National Railway
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Canadian National Railway (TSX:CNR)(NYSE:CNI) is the only rail operator in North America with access to ports on three coasts. The lines serve as the backbone of the Canadian and U.S. economies, carrying everything from coal and crude oil to grains, cars, forestry products, and finished consumer goods.” data-reactid=”43″>Canadian National Railway (TSX:CNR)(NYSE:CNI) is the only rail operator in North America with access to ports on three coasts. The lines serve as the backbone of the Canadian and U.S. economies, carrying everything from coal and crude oil to grains, cars, forestry products, and finished consumer goods.
The stock tends to hold up well when the broader market crashes, making it a sleep-easy TFSA investment. For example, CN trades higher now than it did before the pandemic.
A $5,000 investment in CN just 20 years ago would be worth $135,000 today with the dividends reinvested.
<h2 class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Royal Bank of Canada” data-reactid=”46″>Royal Bank of Canada
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Royal Bank (TSX:RY)(NYSE:RY) is Canada’s largest financial institution. Earnings took a hit in the first half of 2020 due to the pandemic, but Royal Bank remains very profitable and has the capital to ride out the recession.” data-reactid=”47″>Royal Bank (TSX:RY)(NYSE:RY) is Canada’s largest financial institution. Earnings took a hit in the first half of 2020 due to the pandemic, but Royal Bank remains very profitable and has the capital to ride out the recession.
The bank gets revenue from several divisions, including personal banking, commercial banking, capital markets, and insurance. This helps balance the revenue stream in challenging times. Royal Bank has the firepower to make strategic acquisitions. The bank also invests heavily in digital platforms.
Buying Royal Bank stock on dips tends to be a smart move over the long term. A $5,000 investment in Royal Bank 25 years ago would be worth $150,000 today with the dividends reinvested.
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Royal Bank stock for TFSA
Royal Bank survived every major financial and geopolitical crisis in the past 100 years. The stock now trades near $93 compared to $103 at the start of the year.
<h2 class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="The bottom line for TFSA investing” data-reactid=”71″>The bottom line for TFSA investing
Canadians can use their TFSA to turn small initial investments into significant savings for retirement. The strategy requires patience and discipline, but the payoff can be enormous.
The post Do You Have $5,000 to Invest in Your TFSA?: Here’s How to Turn it Into $150,000 appeared first on The Motley Fool Canada.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="David Gardner owns shares of Canadian National Railway. The Motley Fool owns shares of and recommends Canadian National Railway. The Motley Fool recommends Canadian National Railway. Fool contributor Andrew Walker has no position in any stock mentioned.” data-reactid=”86″>David Gardner owns shares of Canadian National Railway. The Motley Fool owns shares of and recommends Canadian National Railway. The Motley Fool recommends Canadian National Railway. Fool contributor Andrew Walker has no position in any stock mentioned.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool Canada’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Motley Fool Canada 2020” data-reactid=”87″>The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool Canada’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Motley Fool Canada 2020
TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 103.40 points at 24,542.48.
In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.
The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.
The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.
The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.
This report by The Canadian Press was first published Oct. 16, 2024.
TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.
The S&P/TSX composite index was up 205.86 points at 24,508.12.
In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.
The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.
The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.
The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.
This report by The Canadian Press was first published Oct. 11, 2024.
TORONTO – Canada’s main stock index was little changed in late-morning trading as the financial sector fell, but energy and base metal stocks moved higher.
The S&P/TSX composite index was up 0.05 of a point at 24,224.95.
In New York, the Dow Jones industrial average was down 94.31 points at 42,417.69. The S&P 500 index was down 10.91 points at 5,781.13, while the Nasdaq composite was down 29.59 points at 18,262.03.
The Canadian dollar traded for 72.71 cents US compared with 73.05 cents US on Wednesday.
The November crude oil contract was up US$1.69 at US$74.93 per barrel and the November natural gas contract was up a penny at US$2.67 per mmBTU.
The December gold contract was up US$14.70 at US$2,640.70 an ounce and the December copper contract was up two cents at US$4.42 a pound.
This report by The Canadian Press was first published Oct. 10, 2024.
