For 2024, Canadian investors received a welcome update from the government – an increase in the contribution limit for the Tax-Free Savings Account (TFSA). The new limit is set at $7,000, a $500 rise from 2023’s $6,500, offering Canadians an even greater opportunity to grow their wealth tax-free.
However, with the increased limit comes the important question of asset location – a strategy that involves placing investments in the most tax-efficient accounts. This is crucial because the TFSA's tax-free status should not be squandered on assets that are already tax-efficient or overly speculative and high-risk investments.
Therefore, selecting the right investments for your TFSA is key to maximizing its benefits. In this article, we’ll explore three potential approaches to investing your $7,000 TFSA contribution in 2024. However, it’s important to remember that the best choice for you will depend on your individual research, risk tolerance, and investment goals.
Keeping It Simple
For investors seeking a straightforward approach to managing their $7,000 TFSA contribution, an all-in-one asset allocation ETF that blends global stocks and bonds could be an ideal solution. This "set it and forget it" strategy is particularly appealing to those who prefer a hands-off investment approach.
Fidelity’s lineup of asset allocation ETFs presents an intriguing option in this space, offering a blend of traditional investment strategies with some contemporary twists.
Unique to Fidelity’s lineup is the inclusion of a modest allocation to cryptocurrencies, adding an element of modernity to the traditional investment mix. This feature introduces investors to the potential high-growth world of digital assets while maintaining a diversified portfolio.
On the fixed income side, Fidelity employs active management strategies, aiming to navigate various market conditions more effectively than a purely passive approach might.
Finally, the global equity component of these ETFs is enhanced by a factor tilt, focusing on elements like low volatility, quality, momentum, and value.
- Fidelity All-in-One Conservative ETF CAD (NLB:FCNS)(FCNS):
- Fidelity All-in-One Balanced ETF (NLB:FBAL) (FBAL):
- Fidelity All-in-One Growth ETF (NLB:FGRO):
- Fidelity All-in-One Equity ETF (NLB:FEQT):
Becoming a Real Estate Investor
Investing in real estate can be an attractive prospect, but the high costs associated with purchasing physical properties often put it out of reach for many investors.
However, with just $7,000, you can become a real estate investor by utilizing a Real Estate Investment Trust (REIT) ETF within your TFSA. This approach allows you to earn tax-free income from real estate investments without the need for a large down payment.
Investing in a REIT ETF offers several benefits. Firstly, you receive monthly distributions, which can be particularly appealing for those seeking a regular income stream. REIT ETFs also provide diversification, as they typically invest in a variety of real estate properties and sectors, reducing the risk associated with investing in a single property. Lastly, these ETFs are managed by professionals who handle all aspects of investment selection and portfolio rebalancing, making it a hassle-free way to invest in real estate.
- BMO Equal Weight REITs Index ETF (TSX:ZRE)
- iShares S&P/TSX Capped REIT Index ETF (TSX:XRE).
- CI Canadian REIT ETF (TSX:RIT)
- Middlefield Real Estate Dividend ETF (TSX:MREL)
Earning Safe, Tax-Free Interest
For those seeking a safe and tax-free way to earn interest on their TFSA contributions, high-interest cash ETFs present an appealing option, especially in the current high-interest rate environment.
Traditional savings accounts offered by Canadian banks often yield disappointingly low-interest rates, and to make matters worse, the interest earned is taxable. While Guaranteed Investment Certificates (GICs) can be held in a TFSA, they typically come with a lock-up period, limiting flexibility.
High-interest cash ETFs, on the other hand, offer several advantages. They pay out interest monthly, allowing for a regular income stream. These ETFs are designed to maintain stable prices, primarily investing in high-interest-bearing bank accounts, thus offering a low-risk investment option.
In the current high-interest rate environment, many of these cash ETFs are offering net yields (after accounting for fees) of 5% or above. This makes them an attractive option for TFSA holders who wish to earn higher interest on their cash holdings without exposing themselves to significant risk.
- Purpose High Interest Savings ETF (TSX:PSA)
- High Interest Savings Account Fund (NLB:HISA)
- CI First Asset High Interest Savings ETF (TSX:CSAV)
- Horizons High Interest Savings ETF (TSX:CASH)
This content was originally published by our partners at the Canadian ETF Marketplace.