Jonathan Ortiz, a senior account manager at We Financial, explains that tax-free savings accounts are different from regular savings accounts. In fact, it’s possible for people to get major value from these accounts once they rely on them as investment vehicles.
Canada’s Income Tax Act mentions that account holders can use their TFSA to hold qualified investments. Investors can add exchange traded funds, corporate and government bonds, publicly listed stocks, or mutual funds to their personal portfolios.
That being said, it’s important to remember that the investments one can purchase depend on which TFSA account they have: regular or self-directed. Here are some of the assets that investors can consider.
Stocks
For new investors who aren’t overly cautious about volatility, stocks are a suitable option. Because it involves taking on extra risk, investing in stocks can result in higher rates of return. Of course, We Financial senior account manager Jonathan Ortiz advises that investors make sure to purchase qualified investments.
That means the stock should be traded on an exchange like the NYSE or TSX. New investors needn’t worry about getting used to a different process, because the process of investing in stocks is the same as with a non-registered account. However, the biggest difference is that there’s no tax requirement on capital gains. Hence, investors who choose to sell when the stock peaks don’t have to pay taxes on their profits.
ETFs
Account holders can buy and sell exchange-traded funds on an exchange, just like regular stocks. The only difference is that an ETF tracks a specific commodity or index. In contrast, a mutual fund tries to outperform an index.
For investors who have long-term plans, an exchange-traded fund is a desirable asset. A major benefit of buying ETFs is that they have a much lower management expense ratio than mutual funds, which usually need further research.
That being said, Jonathan Ortiz of We Financial reminds investors that because ETFs are traded on designated exchanges like stocks, their value can fluctuate based on demand and supply.
Mutual Funds
Compared to individual stocks, mutual funds are entire portfolios that can contain a variety of investment vehicles. They can include bonds, stocks, and other assets, all of which are chosen and managed by an experienced fund manager.
By choosing a mutual fund, you allow your investments to be managed professionally, which offers some advantages. You can select your preferred mutual funds from a range of options based on your investment goals and risk tolerance.
Of course, the value of these mutual funds can change depending on market conditions, so investors can expect a certain amount of volatility. It’s common for investors to diversify their portfolios as a way to increase their return on investment. For those who prefer to select their desired mutual funds, a self-directed account is best.
To conclude, Jonathan Ortiz of We Financial explains that a tax-free savings account can be used as a profitable investment vehicle. Investors can use it to hold different assets like ETFs, mutual funds, and individual stocks and enjoy capital gains without any worries about paying taxes.
