Four stocking-stuffer investments for your TFSA. Plus, how much do you remember about this year’s market chaos?
A down year for investing means upside potential ahead in 2023 and beyond.
Your tax-free savings account is an ideal way to exploit the opportunities ahead. TFSAs offer the supremely attractive benefit of allowing you to generate gains and then withdraw your money without paying any tax. The flexibility of TFSAs allows you to use up the $6,000 in contribution room for 2022 in the few remaining trading days this year, or carry it forward to next year and beyond. The contribution limit for 2023 is $6,500.
Here are four ideas for your TFSA that play off of financial market developments in 2022:
Suggestion #1: A 5-per-cent GIC
Rising interest rates were bad for stocks and bonds in 2022, but they pushed up returns from low-risk guaranteed investment certificates. The tax hit on GICs held in non-registered accounts is harsh because interest is treated as regular income. In a TFSA, you keep all your GIC income. Don’t delay if you want a GIC yielding 5 per cent. GICs with terms of one through five years were available as of late this week, but from a slowly declining number of alternative banks.
#2: A 6-per-cent dividend stock
TFSAs work well if you want to generate tax-free dividend income, and if you’re a total-return investor who wants both dividends and strong capital gains. The stock market pullback in December has created opportunities for both types of investors. Consider Bank of Nova Scotia (BNS-T), which had a dividend yield of 6.3 per cent late this week and a one-year loss of 24.8 per cent. High yield, plus a candidate for a bounceback. Other 6 per cent blue chips included Enbridge Inc. (ENB-T), TC Energy Corp. (TRP-T), Canadian Imperial Bank of Commerce (CM-T), BCE Inc. (BCE-T) and Power Corp. of Canada (POW-T).
#3: A 4.6-per-cent parking spot for cash
Cash-equivalent exchange traded funds hold bank deposits that provide an after-fee return of about 4.6 per cent these days. If the Bank of Canada raises its overnight rate again next year, the increase will be reflected in the return of these ETFs. These funds are a good way to earn an acceptable low-risk return on money in a TFSA while you plot your next big move. Again, the tax-free structure of TFSAs means you keep all the interest you earn.
#4: An asset allocation ETF
Both stocks and bonds had a rough time in 2022. Exploit a rebound for both of these portfolio-building pillars with an asset allocation ETF that offers a completely diversified portfolio in a single purchase. There are asset allocation ETFs for investors of all types – from young investors willing to embrace stock market risk to retirees seeking balance or a conservative approach. The difference between these funds is the emphasis on stocks versus bonds.
— Rob Carrick
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How 2022 shocked, rocked and rolled global markets
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Compiled by Globe Investor Staff
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