Yahoo Finance The #1 Type of Investment to Buy for Your RRSP and TFSA
If you’re confused about what kind of investment to hold in your RRSP and TFSA, don’t worry; you’re not alone. Because both these accounts are so versatile and can contain so many different types of investments, it’s easy to get overwhelmed by all the different choices.
Let’s break it down to see if we can clear up some of the confusion.
What types of investments can you hold in an RRSP and TFSA?
The main types of investments you can hold in your RRSP and TFSA are stocks, bonds, mutual funds, ETFs, and interest-paying assets such as savings deposits, t-bills, and GICs.
With interest rates so low, the interest-paying investments aren’t very wise right now. You’ll be lucky even to beat inflation. It’s recommended to hold some mixture of stocks and bonds for most people. Many Canadians use mutual funds to achieve this mix, but mutual funds have such high fees in Canada that it tends to underperform.
A more comfortable and better way to achieve this mix is by using ETFs, which have much lower fees than mutual funds. However, if you’re the type of person who likes learning about the stock market and picking stocks, you’ll want to look at buying stocks.
The best option: buying stocks
In my opinion, the best type of investment you can hold in your TFSA and RRSP are stocks. There are zero annual fees, you have complete control over what to buy, and there is high growth potential.
Your TFSA and RRSP should be viewed as long-term retirement saving accounts. Because of this, it isn’t wise to take on excessive risk, such as investing 100% of your portfolio in marijuana stocks, for example. The problem with taking on too much risk is if there is a considerable drop in your portfolio, you will never get that contribution room back.
Diversify your portfolio well and pick good-quality stocks that you are confident will still be around in 50 years. Take into consideration a stock such as Sun Life (TSX:SLF)(NYSE:SLF). Sitting at a $34.68 billion market cap and as one of the top insurance, financial services, and wealth management companies in Canada, you can be confident that Sun Life will be around for years to come.
Sun Life has been paying dividends for over the past 10 years. The company pays a dividend yield of 3.56%. Since March of 2000, the return on your investment in Sun Life would have been 698% with dividends reinvested. If you had invested $10,000 Sun Life, your money would be worth $79,891 today. You would have benefitted from the compounding effect of dividend reinvestment.
Older Canadians will want to stay invested in Sun Life because of its reliability to provide a constant income stream for years. Younger Canadians can also expect the dividend level to increase over time.
Conclusion
Knowing what to invest in your TFSA or RRSP can be challenging to determine. I strongly feel that the right mix of steady, dividend, blue-chip stocks is the key to building a great retirement fund that will last.
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Fool contributor Christopher Liew has no position in any of the stocks mentioned.
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