Take Full Advantage of Your TFSA: Growth Strategies for 2025

2025-02-14 20:15:00 ET

A Tax-Free Savings Account (TFSA) is one of the best investment tools available to Canadians, but how you use it matters. While it’s great for passive income, the real long-term power of a TFSA lies in total returns – building a tax-free nest egg through share price appreciation and reinvested dividends.

Since TFSA withdrawals are tax-free, they won’t push you into a higher income bracket or trigger Old Age Security (OAS) clawbacks in retirement. But if you’re younger, the best strategy is to optimize for total returns – letting compounding do the heavy lifting over time.

With that in mind, here are two top investment choices for a TFSA in 2025, both designed to maximize long-term growth.

The Nasdaq-100 Index

For maximizing TFSA growth, a strong option is the Nasdaq-100 Index , which tracks 100 of the largest non-financial companies listed on the Nasdaq exchange.

Unlike the S&P 500 , this index excludes financials, giving it a heavy tilt toward tech and high-growth stocks. The Nasdaq-100 includes all of the Magnificent Seven stocks within its top holdings.

For exposure, I like the BMO Nasdaq 100 Equity Index ETF ( TSX:ZNQ ).

This ETF comes with a 0.39% management expense ratio (MER) and has delivered a strong 21.7% annualized return over the past five years – although remember, don’t rely on this to predict future returns.

The Nasdaq-100 Index (currency hedged)

One thing to keep in mind with Nasdaq-100 investments is currency risk. Since this index is made up of U.S. stocks, when the U.S. dollar rises, Canadian investors benefit. But if the Canadian dollar strengthens, it becomes a headwind, reducing your returns.

This happens because most Nasdaq-100 stocks trade in U.S. dollars, while Canadian-listed ETFs like ZNQ are priced in Canadian dollars. If currency fluctuations are a concern, there’s a hedged alternative: the BMO Nasdaq 100 Equity Hedged to CAD Index ETF ( TSX:ZQQ ).

ZQQ holds the same 100 stocks as ZNQ, including all the Magnificent Seven, but it uses financial instruments to cancel out foreign exchange risk. That means you get the Nasdaq-100’s returns without worrying about currency movements.

Like ZNQ, ZQQ has a 0.39% MER, making it a cost-effective way to invest in U.S. tech and growth stocks while keeping returns tied to the index itself, not the exchange rate.

The post Take Full Advantage of Your TFSA: Growth Strategies for 2025 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 .

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