When it comes to retirement savings, the Registered Retirement Savings Plan (RRSP) often dominates the conversation. That shouldn’t be all that surprising, though, based on the name of the account. Don’t get me wrong, the RRSP is an excellent choice for retirement savings. If I had to choose only one account for my own retirement savings, there’s no question I’d go with the RRSP.
Fortunately, Canadians are free to use more than just an RRSP for their retirement savings. The Tax-Free Savings Account (TFSA) is an account that I highly suggest maxing out each year to benefit from the incredible tax advantages.
Choosing between a TFSA and RRSP
A key difference between the TFSA and RRSP is the withdrawal rules. Early withdrawals from an RRSP are subject to withholding tax. In comparison, withdrawals from a TFSA can be made at any point in time, completely tax-free. In addition, the investor regains the TFSA contribution room from their withdrawal in the following year.
The reason why most Canadians likely could not rely solely on a TFSA for their retirement savings is due to the contribution limits. Annual limits have hovered around $5,000 since the inception of the account in 2009, which is far below what the RRSP offers. However, it’s worth noting that unused TFSA contributions can be carried over from year to year. The total contribution limit for anyone aged 18 years or older in 2009 is $88,000.
When the savings account has been chosen, next comes the decision of the types of funds to hold. For those in search of growth potential over the long term, investing in stocks would be a wise idea.
With that in mind, I’ve reviewed two top companies that can act as perfect cornerstones to a Canadian investment portfolio.
TSX stock #1: Bank of Nova Scotia
Growth may not be off-the-chart each year, but that’s far from the only reason to own a Canadian bank. It’s the dependable stream of passive income that can make any one of the Big Five an intriguing long-term hold for Canadians.
At today’s stock price, Bank of Nova Scotia’s (TSX:BNS) whopping 6.7% dividend yield ranks it as the highest among the major Canadian banks.
There aren’t many dividend stocks on the TSX yielding above 6%, let alone ones that can compete with Bank of Nova Scotia’s payout streak of nearly 200 consecutive years.
TSX stock #2: Constellation Software
To complement your passive-income holdings, you may be interested in owning stocks with market-beating growth potential. And when it comes to market-beating returns, Constellation Software (TSX:CSU) has a track record that is tough to beat.
Even as the tech company has matured and grown to a massive, by TSX standards, market cap value of $50 billion, it continues to crush the market’s returns. Shares of Constellation Software are up 175% over the past five years. In comparison, the S&P/TSX Composite Index has returned less than 30%, excluding dividends.
With shares of Constellation Software just shy of all-time highs and priced above $2,000, some investors understandably may be hesitant to load up. I’d counter that thought with the fact that this is not a growth stock that goes on sale often. And if you’re looking to earn market-crushing returns, you’ll likely need to pay a premium.
