1 TFSA Stock and 1 RRSP Stock Every Canadian Investor Should Buy

Canadian investors seeking funds in the short and long term need to find the right TFSA stock and RRSP stock to get them there.

| More on:
analyze data

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

There are strong benefits to both the Tax-Free Savings Account (TFSA) and Registered Retirement Savings Plan (RRSP). Frankly, Canadian investors should have both. But when it comes to investing in these accounts, it can be tricky. What’s considered a good TFSA stock, and what’s a good RRSP stock?

Today, I’m going to cover just that. First, I’ll go over what should be considered when looking at a TFSA stock versus an RRSP stock. Then I’ll provide Motley Fool investors with some options to get started.

One TFSA stock

The benefit of a TFSA is that you can take out your cash any time, tax free. You can invest that cash and see it grow over time, but should an emergency happen, or you need to pay for costs before retirement, it’s available to you.

Furthermore, your returns and dividends made from a TFSA stock are tax free as well. Therefore, when it comes to finding a solid TFSA stock, you’ll want to get the most bang for your buck. Let’s say you filled up your contribution room but wanted to buy more shares. To stay within the rules, you’ll need to find companies that offer dividends.

If you want strong dividends that will also provide strong returns in the decades to come, then I would consider Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM). Canadian bank stocks have continued to do well decade after decade, providing solid returns and dividends that continuously grow. CIBC is the perfect TFSA stock, because it dishes out the highest dividend of the bunch. Therefore, should you need cash soon, you’ll be making as much as possible from a stock like this.

As an example, CIBC stock boasts a compound annual growth rate (CAGR) of 7.1% over the last decade. Meanwhile, its dividend boasts a CAGR of 5.53% in that time. That would mean a $20,000 investment today, and adding $6,000 a year and reinvesting dividends, could be worth about $160,000 in just a decade!

One RRSP stock

An RRSP is different. Here, you’re investing for your retirement. So, you want to think very long term and not worry about any potential dips in the future. Furthermore, you also want dividends, but you don’t need to search for an RRSP stock with the highest yield. What you want is stability, so you can have a predictable path towards retirement.

In that case, the Big Six banks are great options. However, I wouldn’t put your retirement all in the basket of one bank. Instead, a great RRSP stock to consider would be a fund that offers exposure to all the banks.

In that case, I would consider BMO Equal Weight Banks Index ETF (TSX:ZEB). The name is just as it suggests — it aims to replicate the performance of all of the Big Six banks. Furthermore, you also get a dividend, which you can use to reinvest towards your retirement income.

This BMO ETF has risen steadily since coming on the market, providing stable income and returns as an RRSP stock. ZEB has a CAGR of 8% over the last decade and a dividend CAGR of 8.97%. That would make a $20,000 investment today, and adding $6,000 a year and reinvesting dividends, worth potentially $162,500 in the next decade! But given that it’s an RRSP stock, you’ll want to hold it longer. A 30-year investment could bring you over $2 million!

Bottom line

Canadian investors should know there is a difference when investing in a TFSA stock versus an RRSP stock. As you can see here, long-term growth can be achieved through dividends and stable returns. Adding your own consistent contributions could mean riches by the time you retire, while taking care of cash flow along the way.

Should you invest $1,000 in Corus Entertainment right now?

Before you buy stock in Corus Entertainment, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Corus Entertainment wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $21,058.57!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 38 percentage points since 2013*.

See the Top Stocks * Returns as of 2/20/25

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 owns CANADIAN IMPERIAL BANK OF COMMERCE. The Motley Fool has no position in any of the stocks mentioned.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Bank Stocks

sale discount best price
Bank Stocks

2 Canadian Bank Stocks to Buy at a Discount

These two TSX bank stocks are too cheaply priced to ignore if you want to increase exposure to the banking…

Read more »

Middle aged man drinks coffee
Bank Stocks

How I Achieved My 2025 Goal of $5,000 in Annual Passive Income

I got to $5,675 in annual passive income with dividend stocks like the Toronto-Dominion Bank (TSX:TD).

Read more »

ETF chart stocks
Bank Stocks

A Canadian Bank ETF I’d Buy With $1,000 and Hold Forever

This ETF provides leveraged exposure to Canada's Big Six banks.

Read more »

a person looks out a window into a cityscape
Bank Stocks

Should You Buy TD Bank Stock While it’s Below $85?

Investing in a well-established bank stock trading at a cheap multiple can be an excellent way to put your money…

Read more »

a person watches a downward arrow crash through the floor
Bank Stocks

These Stocks Got Trounced by Tariffs, But the Damage Is Overdone

TD Bank (TSX:TD) stock looks like a great deal, even as tariff threats look to hit.

Read more »

open vault at bank
Bank Stocks

Best Stock to Buy Right Now: TD Bank vs Royal Bank?

TD Bank stock's earnings and reputation have been hit. Yet, it trades at higher multiples than Royal Bank.

Read more »

up arrow on wooden blocks
Tech Stocks

3 Brilliant Growth Stocks to Buy Now and Hold for the Long Term

If you have a long-term horizon to invest, consider investigating these three growth stocks.

Read more »

open vault at bank
Bank Stocks

3 Canadian Bank Stocks to Shield Against Market Downturns

Bank stocks are sure to be long-term winners in Canada, but these three look ultra promising for investors.

Read more »