TFSA Investors: KISS Complexity Goodbye

The TFSA is a great investment tool, Motley Fool investors should have these points in mind.

| More on:

The Tax-Free Savings Account (TFSA) is one of the best ways to see your investments grow over time. Since 2009, investors have been given a total of $75,500 worth of TFSA contribution room. Motley Fool investors have since added to their investments every year, and that’s great! But the problem is, those opportunities have created a complex investing strategy.

The issue

Each year, you get an additional few thousand dollars to add to your TFSA. Great! You think to yourself, “diversity is great, so I’ll add a new stock to my portfolio.” You add another line of revenue that then creates another layer of complexity that you have to follow. As the years go by, you add stock after stock rather than adding more cash to indexes, commodities, and equities. This creates a portfolio that hardly even a hedge fund manager could follow.

Yes, one of the top rules should be that you diversify, but there is one thing you should always keep in mind: your goal. Is it to retire by a certain age? To pay off debt? And what are those numbers? This will help guide your investments rather than create a mishmash that really has no goal in mind. This leads me to my next issue.

KISS your worries goodbye

As Dwight Schrute from The Office put it (granted, when quoting Michael Scott), “Keep it simple, stupid.” But this goes far beyond selling reams of paper in Scranton, PA. Your investment strategy for your TFSA should also be simple. If you have a number of TFSAs opened under various accounts, and several stocks within those accounts, you’re not just creating a complex situation for yourself. You’re also paying insane fees!

If you proceed with simplicity rather than complexity, you also keep your costs far, far down. And hey, there’s an easy way to simplify your TFSA and still have diverse portfolios: ETFs! If you invest primarily in ETFs, you can get all the diversification you want by investing in companies that provide global exposure to both stocks and bonds.

But not too simple

Now notice, I said to invest primarily in ETFs in this case — not completely. Many new investors don’t know where to put their cash, so may choose one of the Big Six banks. That’s fine, but you shouldn’t have all your cash in one stock, ETF, bond, or anything. Too little diversification is just as bad as too much. While less is more, it’s still good to have a few options in your TFSA portfolio so that when one area is down, another picks it up. This creates a strong, defensive investment strategy towards your ultimate goal. So, you therefore keep costs down, and the cash if there when you need it most.

Some strong options I would consider today would be Vanguard S&P 500 Index ETF (TSX:VFV) and Horizons S&P/TSX60 Index ETF (TSX:HXT). You get access to both of the top performers on both the S&P 500 and the TSX but at a cheaper price. Vanguard offers managers, while Horizons offers an artificial intelligence-run portfolio. This creates a perfect point for new Motley Fool investors to start their TFSA portfolios.

Bottom line

While the TFSA is great, if you have too many investments, or too few, you can create a situation where you risk having far less than what you need down the road. By keeping your investing strategy simple, and ultimately having a goal, each year Motley Fool investors can use your TFSA contribution room to support that goal. You’ll therefore create a long-term investment strategy that will see fewer costs and more rewards down the line.

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 Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

More on Stocks for Beginners

dividends grow over time
Stocks for Beginners

The Smartest Growth Stock to Buy With $2,000 Right Now

Do you have $2,000 to invest for the long term? These three TSX stocks have and will continue to deliver…

Read more »

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

Is OpenText Stock a Buy, Sell, or Hold for 2025?

OpenText stock has fallen in the last few years, but that could mean this top tech stock remains an undervalued…

Read more »

man touches brain to show a good idea
Dividend Stocks

3 No-Brainer REIT Stocks to Buy Right Now for Less Than $200

REITs have long been touted as some of the best dividend stocks out there if you want recurring, strong income.…

Read more »

grow money, wealth build
Dividend Stocks

3 Top High-Yield Stocks to Buy in November

If you want passive income, high yield dividend stocks are the clear choice. These are the best, and safest, out…

Read more »

Stocks for Beginners

Where will Loblaw Stock be in 5 Years?

Want a great food stock that can provide growth and income? Here's why Loblaw stock can offer that and more.

Read more »

A worker overlooks an oil refinery plant.
Dividend Stocks

3 Canadian Infrastructure Stocks to Buy Now

Infrastructure makes up everything we use, from the water we drink to the roads we drive. And these three infra…

Read more »

Sliced pumpkin pie
Stocks for Beginners

Ready to Invest With $2,000? 4 Stocks for November

Got $2,000 to start a new investment portfolio? Try these four high quality Canadian stocks for long-term wealth compounding.

Read more »

cloud computing
Tech Stocks

3 No-Brainer Tech Stocks to Buy Right Now for Less Than $1,000

Not all tech stocks are the risky investments that many think they are. Which is why we're focusing on the…

Read more »