The Tax-Free Savings Account (TFSA) can be an excellent choice for a long-term savings objective. The annual contribution limits are much lower than a Registered Retirement Savings Plan (RRSP). However, the tax benefits could potentially largely outweigh the drawback of the lower contribution limits over the long term.
A key selling point of a TFSA is the flexibility. Withdrawals can be made at any point in time, completely free of paying any tax at all. But to me, the main reason I’d encourage Canadians to max out their TFSA contributions is for the tax-free growth. Whether it’s through stock price appreciation or dividends, any gains earned within a TFSA can compound year after year, tax-free. Withdrawals on those gains are of course tax-free as well.
Due to the tax benefits, anyone with decades in front of them until retirement could theoretically rely more on their TFSA than their RRSP to fund their golden years.
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Investing for the long term
I don’t blame short-term investors for sticking to the sidelines right now. The S&P/TSX Composite Index has been on fire as of late and is now up close to 20% on the year.
Short-term investors might be wise to wait for a pullback before getting back in. But for those with time on their side, there’s no sense in trying to time the market by waiting for a dip.
If you plan on using your TFSA for a long-term savings objective, then you’ll need to learn to be patient with your investments. There’s always going to be volatility in the stock market. What’s important is that you remain consistent with your buying strategy over the long term.
With that in mind, I’ve reviewed two top Canadian stocks that have a proven track record yet remain loaded with long-term growth potential.
Stock #1: Brookfield
Good luck trying to find a stock on the TSX that’s as diversified as Brookfield (TSX:BN). The $100 billion asset manager has investments spread across the globe, spanning a range of different industries.
But despite the company’s broad investment portfolio, the stock has been a reliable market-beater for years. Brookfield’s return of more than 80% over the past five years is good enough for nearly doubling the returns of the broader Canadian stock market.
If you’re looking for a reliable stock that you can confidently pick up shares of regularly, Brookfield is the company for you.
Stock #2: goeasy
Investors looking to maximize their growth returns might be more interested in goeasy (TSX:GSY).
The consumer-facing financial services provider has taken a short-term hit in this high-interest-rate environment. But for anyone who is a long-term investor, I see this recent pullback as a huge buying opportunity.
Even before interest rates began falling, we saw the growth stock take off. Shares are up 70% over the past year and are now down less than 20% below all-time highs from late 2021. The surge over the past 12 months has put the stock up a whopping 200% over the past five years.
With shares still trading at a discount from all-time highs, I wouldn’t wait long to start a position in this proven market-beater.
