TFSA Investors: Make 3 Changes in Your TFSA Portfolio

Every investor has a different investment strategy, but a few good practices can help all RRSP and TFSA investors.

| More on:

Every TFSA holder may have a different approach to their TFSA. They may use the account purely for cash, which is highly advised against. That’s because cash in TFSA, even with a relatively healthy interest rate, cannot help you beat inflation. And even Canadians that invest in their TFSAs might consider making positive changes in their portfolios.

Replace cash with dividend stocks

Many TFSA holders, including the ones that have invested a healthy portion of their TFSA funds into different stocks, tend to keep cash for a rainy day. However, stocks can be just as liquid, and you can sell them almost instantly to produce cash to meet your emergency needs. And if you use that cash to buy a generous dividend stock like True North Commercial (TSX:TNT.UN), you may build a sizeable cash reserve within your TFSA.

For example, if you have about $20,000 tucked away in your TFSA for a rainy day (in cash), and you use it to buy shares of the REIT, it will generate over $1,600 in cash through dividends. In five years (assuming no dividend cuts), you will have a small cash nest egg of about $8,000. As for your original capital, True North is a relatively stable stock, and, unless you are selling during a market crash, you will likely sell for a relatively insignificant profit or loss.

Add a little bit of risk

A conservative investment approach is healthy, but being too cautious can cost you in terms of lost opportunities. So, it’s a good idea to invest (a relatively small amount) in a risky stock like Organigram (TSX:OGI)(NASDAQ:OGI). It’s not risky because of some fundamental financial weaknesses. Rather, the marijuana industry as a whole is currently riddled with uncertainty.

At its peak, the stock traded at about $7.9 per share. If you buy it at a current price ($1.47) and invest $5,000 in the company, which is a small portion of a fully stocked TFSA, you will get about 3,400 shares of the company. And if the stock rises to its peak valuation in the future and you sell it at the right time, you can grow your capital to over $25,000. Even if it happens after a decade, it would still beat most conservative growth stocks.

Don’t disregard long-term holdings

A lot of investors have different approaches to their TFSA and RRSP: for example, short-term holdings in TFSA and long term in RRSP. And while it’s a good idea to keep rapidly growing stocks in an account, you have access to before retirement, that doesn’t mean your TFSA portfolio shouldn’t have long-term holdings at all, especially if you have decades yet to grow.

A long-term buy-and-forget stock like Royal Bank of Canada (TSX:RY)(NYSE:RY) can be a powerful asset in your TFSA. It’s a reliable grower and a part of your portfolio that you don’t need to touch, so the growth will keep on accumulating. And if you don’t want to cash in the dividends, opting for a DRIP program will ensure that your stake in the bank keeps growing.

Foolish takeaway

Your TFSA can be a powerful financial asset or merely a cash “drawer” from which inflation swipes away a few bucks every month. It’s your investment choices and the chances you are willing to make in your investing approach that can ensure that it becomes an asset.

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 Adam Othman has no position in any of the stocks mentioned. The Motley Fool recommends OrganiGram Holdings.

More on Dividend Stocks

Make a choice, path to success, sign
Dividend Stocks

Is Fortis Stock a Buy for its Dividend Yield?

Fortis has increased the dividend for 51 consecutive years.

Read more »

Middle aged man drinks coffee
Dividend Stocks

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

BAM stock recently jumped after beating earnings. But is it still a buy, or is it better to wait?

Read more »

Electricity transmission towers with orange glowing wires against night sky
Dividend Stocks

3 Top Canadian Utility Stocks to Buy in November

Are you looking for some top Canadian utility stocks to own? Here's a look at three must-have options for any…

Read more »

View of high rise corporate buildings in the financial district of Toronto, Canada
Dividend Stocks

Is First Capital REIT a Buy for its 4.8% Yield?

First Capital is a REIT that offers you a tasty dividend yield of 4.8%. Is this TSX dividend stock a…

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Dividend Stocks

TFSA Passive Income: 3 Stocks to Buy and Never Sell

Stocks like Fortis Inc (TSX:FTS) are worth holding long term.

Read more »

Electricity transmission towers with orange glowing wires against night sky
Dividend Stocks

Canadian Utility Stocks to Buy Now for Stable Returns

Given their regulated business, falling interest rates, and healthy growth prospects, these three Canadian utility stocks are ideal for earning…

Read more »

nuclear power plant
Dividend Stocks

The Best Canadian Stocks to Buy and Hold Forever in a TFSA

TFSA investors can buy and hold these Canadian stocks to generate above-average, tax-free returns over the next decade.

Read more »

Person holding a smartphone with a stock chart on screen
Dividend Stocks

Is Telus Stock a Buy for its 7.3% Dividend Yield?

Although the 7.3% dividend yield Telus offers is attractive, it's just one of many reasons why the telecom stock is…

Read more »