Millions of Canadians miss one of the most powerful tools for building wealth: the tax -free savings account (TFSA). Although he was introduced more than ten years ago, the TFSA remains broad underented. In 2024, 45% of the TFSA holders did not contribute at all, and 91% could not maximize their contributions, according to Statistics Canada.
This is not just a missed opportunity – it can be the difference between a modest pension and one with real financial freedom.
Your TFSA is more than just a “savings” account
Too many Canadians treat the TFSA as a basic savings account, which only use it for cash or guaranteed investment certificates (GICs). Although there is nothing wrong with being conservative, especially with short-term goals-scratch you hardly have the surface of what this account can do.
A TFSA can have a wide range of investments: shares, bonds, listed funds (ETFs), investment funds and even certain private company shares. How you choose to invest within your TFSA determines both your return and your exposure to risks.
Let’s look at two extremes. A GIC with an interest rate of 2.85% changes a down payment of $ 7,000 in $ 7.199.50 after a year. Is it safe? Yes. Is it exciting or transforming? Not so much.
A TFSA plan of $ 7,000 for long-term growth
Now, here is a strategy that could transform your pension – and it is surprisingly simple.
Consider investing your $ 7,000 TFSA contribution in Ishares Core Equity ETF portfolio (TSX: XEQT). This all-in-one ETF offers 100% share exposure in a globally diversified portfolio:
- 43% in the United States
- 25% in Canada
- 6% in Japan
- 3.7% in the United Kingdom
- 2.4% in France
- 2.3% each in Germany and Switzerland
- 2% in Australia
- 1.5% in China
- 1.1% in the Netherlands
XEQT is designed for long -term growth. Since its founding in 2019, it has reached a compound annual growth rate (CAGR) of 12.75%, with a recent efficiency of five years of 13.64%. It also pays a distribution yield of 3% and the management cost ratio (EIA) is a low 0.20% – a small price for automatic diversification and again in balance.
Get up wealth automatically
If you use a committee-free platform such as WealthSimple, you can easily dollar costs your investment on average by contributing around $ 583/month and buying more units when the prices are low and less when they are high. This approach smoothes the volatility and removes emotion from your decision -making.
Do you prefer to use a platform that charges committees? You can consider reducing the costs by making fewer purchases throughout the year.
Let us assume that a more conservative annual return of 10% on an annual contribution of $ 7,000. This is what your TFSA would look like:
- 10 years: $ 111.562
- 20 years: $ 400,925
- 30 years: $ 1,151,458!
And forget non-elke dollars of that growth is tax-free when it is included from your TFSA.
The Investor Takeaway Restaurant
This is not just theory – it’s a blueprint. Although there is no investment guaranteed, the consistent investment of your $ 7,000 TFSA contribution in a growth-oriented ETF such as XEQT can set up for a much more comfortable pension.
Even better? You don’t have to be an expert in the field of stock-pick to make it work.
So what do you prevent from turning your TFSA into a tax -free machine of a million dollars?
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