The 2025 Tax-Free Savings Account (TFSA) contribution of $7,000 is now available. It is a perfect time to plan your 2025 TFSA strategy depending on the sectors and stocks that could outperform the market this year. Instead of investing all your money in just one sector or stock, consider diversifying it into stocks that can give you a holistic return.
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Where to invest your TFSA contribution
This year could see a recovery in some dividend stocks as the benefit of interest rate cuts seeps into the income statement and boosts the free cash flow. Also, some growth stocks could see a correction as the U.S.-Canada trade war adds a new layer of complexity.
While a good mix of growth and dividend stocks is common, cyclical stocks are particularly a good investment in TFSA as they can generate significant growth in the short term. The TFSA is the only registered account that allows tax-free withdrawals anytime and allows you to contribute previous-year withdrawals.
For instance, let’s say you invested $2,000 in a cyclical stock that grew to $3,500 in 2024. You withdrew $3,500 and used it for personal consumption. You can contribute last year’s withdrawal of $3,500 and the $7,000 TFSA contribution in 2025. However, be mindful of keeping short-term investments to a minimum, as the core objective of TFSA is to encourage people to save and invest for the long term.
Here are a few stocks you could add to your watchlist and consider investing through TFSA.
Growth stocks for TFSA
Descartes Systems (TSX:DSG) is a resilient growth stock with ample upside potential. The trade war initiated by U.S. president Donald Trump could once again bring a shift in the supply chain. This could trigger demand for Descartes’s global trade intelligence and customs solutions.
Taking some learnings from the 2018 trade war, the stock could see a correction in the short term as the market reacts to tariffs. However, a recovery will follow in the medium term. Descartes’s strong balance sheet and diverse client base in different verticals puts it at an advantageous spot.
Topicus.com (TSXV:TOI) is the spun-off arm of Constellation Software. Topicus.com started off on a weak note as the tech bubble in 2021 pushed it into a loss because of the high valuation of tech companies. However, the earnings picked up in the 2022 tech stock meltdown. A trade war with China could see some correction in tech stocks as overall economic growth slows.
This could allow Topicus.com to buy lucrative vertical-specific software companies at a discount. If the company accelerates its acquisitions, it could witness stronger revenue and earnings growth next year. You could add Topicus.com to your watchlist and accumulate it through the year on every dip. Consider holding the stock for three to five years to witness a recovery rally.
Dividend stocks for TFSA
Telus (TSX:T) is your go-to dividend stock under every economic condition. It may not be severely affected by the trade war or an economic slowdown because of the mission-critical nature of its services to Canadians. While Canada’s move to cut immigration affects Telus’s growth, it could sustain an economic downturn. That is enough for the company to outperform the market this year.
In an uncertain economy, a 7.6% annual dividend yield is a lucrative return. Telus has survived the 2018 trade war and the pandemic without a dividend cut. Although its free cash flows are stressed because of high leverage on the balance sheet, it still has enough room to sustain its current dividends.
Cyclical stocks amid trade war
The trade war has created a cyclical upturn for the safe-haven yellow metal. Canada has one of the biggest gold mine stocks, Barrick Gold (TSX:ABX), which could see a cyclical upturn depending on how the trade war escalates. The falling Canadian dollar could encourage investors to hold gold instead of cash. An early entry into the cycle could give you quick short-term returns. You could consider investing $1,000 in Barrick Gold right now to balance the downside in other stocks. Gold stocks are a good investment in economic uncertainty, but they tend to underperform in a strong economy.
