TFSA Strategies: 1 Investment Is All You Need to Build Wealth in This Volatile Market

Why the BMO Low Volatility Canadian Equity ETF (TSX:ZLB) is a staple for investors in these ridiculously volatile times.

| More on:

As Foolish investors, we’re all about long-term investing with little to no consideration for shallow short-term forecasts that are regularly the main topic of discussion on most financial television shows.

Yes, every investor wants to know where the markets are headed next, especially after a big down day. But unfortunately, nobody, not even the most seasoned economist, knows with any degree of certainty how the markets will fare over the near term.

Warren Buffett, the greatest investor of our time, is humble enough to acknowledge that he doesn’t know what the markets are going to do over the next week, the next month, or even the next year. The sooner investors stop trying to time the markets, the sooner they can get out of their own way and start to really build wealth using TFSAs.

With securities held within a TFSA, you’re off the hook for taxes on your capital gains and domestic dividends. And if you reinvest your dividends, you can unlock the full power of long-term tax-free compounding, which can snowball your wealth quicker than you’d ever imagine possible.

Right now, unexpected events are moving this market. We’re hearing less about the earnings of individual companies and more about macroeconomic trends. So, like it or not, the markets over the short term have become a casino.

The funds within your TFSA are precious and shouldn’t be gambled on some analyst’s prediction of where he thinks the markets will be in a week or two. While it’s tempting to want to take action in response to the volatility we’ve faced over the past few weeks, doing so will only increase your commission bill and cause you to miss out on potential recovery days that nobody will see coming.

All it takes is missing out on a day or two to stunt your returns severely.

So, if you’re not sure how to react to such elevated levels of market volatility, the best course of action when it comes to your TFSA is to take a hands-off, risk-off approach with ETFs like the BMO Low Volatility Canadian Equity ETF (TSX:ZLB), a “smart beta” ETF that I’ve praised numerous times over the past few years.

I’m a fan of the ZLB not just for the low management fees, but also for the compelling strategy that has delivered terrific results relative to the benchmark.

It’s a more prudent way to invest than index funds, as you’re getting lower beta securities and a strategy that doesn’t entail managers trading in and out of stocks over the short term due to subjective reasoning.

In this kind of market, where the markets are a roller coaster ride, you’ll get some much-needed smoothing thanks to the ZLB’s low-volatility constituents. While the ZLB isn’t immune from going down, it will take a lot more to send the ETF down by the triple digits than it would the broader indices, which now appear to be on unstable footing.

As others jump in and out of the markets based on meaningless short-term noise, the best thing you can do for yourself is to tune out and stay invested in ETFs like the ZLB. Volatility is the new normal, so investors need to respond accordingly, not by selling stocks for bonds, but by reducing one’s beta to reduce volatility without reducing potential returns.

Stay hungry. Stay Foolish.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joey Frenette owns shares of BMO Low Volatility CAD Equity ETF.

More on Investing

The virtual button with the letters AI in a circle hovering above a keyboard, about to be clicked by a cursor.
Tech Stocks

Emerging Canadian AI Companies With Big Potential

These tech stocks are paving the way to an AI-filled future, but still offer enough growth ahead for a strong…

Read more »

Young Boy with Jet Pack Dreams of Flying
Tech Stocks

Is Constellation Software Stock a Buy, Sell, or Hold for 2025?

CSU stock has long been a strong option for high growth, high value stocks. But are there now too many…

Read more »

rising arrow with flames
Investing

2 Riskier Stocks With High Potential for Canadian Investors in November

Risky stocks such as Well Health Technologies have the potential to provide life-changing long-term returns.

Read more »

hand stacks coins
Dividend Stocks

3 Ultra-High-Yield Dividend Stocks You Can Buy and Hold for a Decade

These three high-yield dividend stocks still have some work to do, but each are in steady areas that are only…

Read more »

senior man and woman stretch their legs on yoga mats outside
Dividend Stocks

TFSA: 2 Canadian Stocks to Buy and Hold Forever

Here are 2 TFSA-worthy Canadian stocks. Which one is a good buy for your TFSA today?

Read more »

Canada day banner background design of flag
Investing

Got $500? 5 Top Canadian Stocks to Buy and Hold

These top Canadian stocks have solid fundamentals with potential to outperform the benchmark index by a wide margin.

Read more »

man touches brain to show a good idea
Energy Stocks

1 No-Brainer Energy Stock to Buy With $500 Right Now

Should you buy a cyclical energy stock at its decade-high? Probably not. But read this before you make a decision.

Read more »

Asset Management
Stocks for Beginners

TFSA: 4 Canadian Stocks to Buy and Hold Forever

Thinking about what to buy with the new TFSA contribution space in 2025? These four Canadian stocks are worth holding…

Read more »