VEQT:CC - How to Launch a Powerful TFSA With Just $6500
2023-08-09 11:30:00 ET
In 2023, the Canadian government made a strategic move that affected many Canadians by raising the TFSA (Tax-Free Savings Account) limit to $6,500.
While this amount may seem modest, contributing this fresh limit to a TFSA is an excellent way to kick-start the account. These increased contributions have opened doors for many Canadians to optimize their savings and investments.
Today, I’ll present my preferred way of investing in my TFSA using an exchange-traded fund (ETF) that emphasizes maximum diversification and long-term growth.
Brief recap of the TFSA
The TFSA is more than just a savings account. It’s a flexible investment vehicle that allows Canadians to earn tax-free income and gains. With contributions being made with after-tax dollars, all earnings and withdrawals are entirely tax-free. This tool can be particularly beneficial for retirement planning to augment Canadian Pension Plan (CPP) earnings.
Prioritizing the TFSA should be a good strategy for most Canadians. The contributions aren’t tax-deductible, but the earnings and withdrawals are tax-free. Plus, the unused contribution room carries over, providing an opportunity to grow investments over time. In a world where every dollar counts, taking advantage of the TFSA can make a real difference in your financial future.
My ETF pick for a TFSA
When it comes to investing the new $6,500 TFSA limit, I love Vanguard All-Equity ETF ( TSX:VEQT ). With an incredibly low expense ratio of just 0.24%, VEQT stands out as a cost-effective option.
VEQT offers diversification across a staggering 9,000 stocks, ensuring that investors are not putting all their eggs in one basket. Its global focus means that it doesn’t only rely on Canadian markets but includes international exposure, providing a balanced investment.
What makes VEQT even more appealing is its balance across all 11 market sectors. This ETF isn’t overconcentrated in any single industry, reducing risk and potentially leading to more consistent returns over time.
However, it’s important to recognize that VEQT, being a 100% stock investment, is still subject to volatility and can experience dips. Investing in VEQT is essentially a bet on the global stock market. While the short term can be unpredictable, unless the world collapses, over the long run, this is a winning bet.
Historically, the global stock market has proven to be resilient and has grown over time. By investing in VEQT, you’re taking advantage of this growth trend, but you also must be willing to endure the inherent ups and downs that come with stock investing. There’s no return without risk, after all!
The post How to Launch a Powerful TFSA With Just $6,500 appeared first on The Motley Fool Canada .
Fool contributor Tony Dong has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .
2023