Investors looking to maximize the tax-free growth potential of a Tax-Free Savings Account (TFSA) may consider investing in growth stocks. Over the past decade, growth stocks within the Canadian market have yielded an average annual return of approximately 10 to 12%, surpassing many other asset classes.
When these returns are achieved within a TFSA, all gains are completely tax-free, allowing investors to optimize their wealth accumulation. This tax-free compounding feature makes the TFSA an attractive option for holding growth stocks, especially for younger investors with a long-term investment horizon. Let’s explore a couple of stocks that could be promising choices.
One potential candidate for inclusion in a TFSA is a prominent Canadian bank known for its stability and robust financial performance. This bank has a long history of delivering solid dividend payments, making it a favourite among Canadian investors. In its most recent earnings report, the bank displayed strong revenue streams and a dedication to providing value to shareholders through dividends. With a dividend yield of around 6%, investors could potentially earn significant annual income from dividends alone, enhancing the compounding effect.
Another option to consider is an exchange-traded fund (ETF) designed to provide exposure to a diversified portfolio of top Canadian dividend-paying stocks. This ETF has demonstrated impressive performance, benefiting from the strength of the Canadian economy and the resilience of its top companies. With a current dividend yield of approximately 4%, investors have the opportunity to earn tax-free dividends within their TFSA, contributing to the growth of their investment over time.
By diversifying their investments and harnessing the power of tax-free compounding, investors can potentially grow their wealth significantly within a TFSA. With the right selection of growth stocks or ETFs, investors can transform their TFSA into a valuable financial asset that generates long-term returns.
