Statistics reveal a significant gap in how Canadians are utilizing their Tax-Free Savings Accounts (TFSA). A 2023 survey by the Royal Bank of Canada (TSX) highlights that approximately 39% of TFSA holders predominantly invest in cash, and only 13% maintain a diversified mix of stocks, bonds, and exchange-traded funds (ETFs). This lack of diversification could be limiting their long-term growth potential.
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The Importance of Diversification in Your TFSA
Diversification is key to optimizing the performance of your TFSA. When you invest in a mix of asset classes—such as stocks, bonds, and ETFs—you can spread risk and potentially enhance returns. Relying solely on cash or Guaranteed Investment Certificates (GICs) often results in missed opportunities for growth. Diversifying your investments helps balance risk and return, leading to more stable portfolio performance over time.
Investing in Vanguard FTSE Global All Cap ex Canada Index ETF (TSX)
For Canadians seeking to diversify their TFSA portfolio, the Vanguard FTSE Global All Cap ex Canada Index ETF (TSX) is a compelling option. This ETF offers exposure to over 12,000 stocks from around the globe, spanning major international markets including the U.S., Europe, and emerging economies. By excluding Canadian stocks, VXC allows investors to gain international exposure, which is particularly beneficial for those who already have Canadian investments.
The ETF features a low management expense ratio (MER) of 0.20%, making it a cost-effective choice for long-term investment. It includes a broad range of large-, mid-, and small-cap stocks, ensuring a balance of growth potential and stability. As of 2024, VXC has demonstrated strong performance in line with global market trends, making it an excellent starting point for diversifying beyond Canadian borders.
Royal Bank of Canada (TSX): A Stable Investment Option
Royal Bank of Canada (RBC) is another solid choice for those looking to build a diversified TFSA portfolio. Recently, RBC’s stock has reached new heights, reflecting its strong performance in 2024. With a market capitalization exceeding $232 billion, RBC stands out as one of Canada’s largest and most stable banks.
RBC’s recent earnings report reveals a profit of $4.49 billion for the third quarter of 2024, a notable increase from the previous year. The bank also reported a 13% year-over-year revenue growth. With a dividend yield of approximately 3.46% and a quarterly dividend of $1.42 per share, RBC offers attractive income potential. Its forward price-to-earnings (P/E) ratio of 12.77 further underscores its appeal as a long-term investment. RBC’s strong capital base and consistent performance make it a reliable addition to any portfolio.
Canadian National Railway (TSX): Adding Stability and Growth
Canadian National Railway (CNR) is a top pick for those seeking to diversify within their TFSA while focusing on industrial stocks. With a market capitalization of $98.49 billion, CNR has shown resilience and steady performance in fluctuating markets.
CNR offers a stable dividend yield of around 2.16%, supported by a sustainable payout ratio below 40%. The company’s dominant position in North America’s railway sector and strong operating margins of over 40% make it an attractive option for investors looking for stability and moderate, consistent returns. Adding CNR to your portfolio can provide a robust industrial stock with growth potential.
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Utilizing a diversified approach within your TFSA can significantly enhance your investment outcomes. By incorporating options like the Vanguard FTSE Global All Cap ex Canada Index ETF (VXC), Royal Bank of Canada (RY), and Canadian National Railway (CNR), you can spread risk and access a broader range of growth opportunities. Take advantage of these investment choices to maximize the potential of your TFSA and build a more resilient financial future.