Yahoo Finance How to Turn Your TFSA Into a Gold Mine Starting With $10,000
Written by Puja Tayal at The Motley Fool Canada
The Tax-Free Savings Account (TFSA) can be a gold mine if you use its tax-free investment growth effectively. You contribute an after-tax amount to your TFSA. Once the amount is in the TFSA, you need not worry about tax. You can even make tax-free withdrawals. Suppose you invested $10,000 in your TFSA in the last two years, and it grew to $50,000; you’d pay no tax on the $40,000 capital gain. That is the power of TFSA.
How to effectively use TFSA?
The TFSA allows you to invest in stocks trading on renowned stock exchanges like the TSX, NYSE, and NASDAQ. These exchanges have high-growth stocks that can grow your money 10-fold if you stay invested long term. While the Canada Revenue Agency (CRA) doesn’t allow trading in the TFSA, you can sell some stocks and book profits when the stock reaches the peak, as per your analysis. Instead of withdrawing that amount, you can reinvest it in another growth or high-yield stock and let the magic of compounding grow your money.
How to convert $10,000 into a TFSA gold mine
If you have booked profits and have $10,000 in your TFSA, you can consider buying these stocks for the long term.
Nvidia stock
Nvidia stock just got more affordable after its 10:1 stock split. The stock crossed the US$1,000 mark this year, riding the artificial intelligence (AI) wave. The split reduced the price to around US$120 at the time of writing this article. If you think the stock is too expensive, read this.
From the fundamental perspective, AI is making waves across all verticals. And this is just the beginning. The 5G ecosystem will bring AI to edge devices to perform tasks like traffic management, self-driving cars, industrial automation, and drone deliveries. Nvidia’s graphics processing units (GPUs) remain unbeatable in AI computing. While Nvidia doesn’t manufacture chips, it earns money for its designs. The more Nvidia GPUs sold in the market, the higher its revenue. This $1,000 stock price is only reflecting the data centre opportunity of AI.
The next wave of AI at the edge will bring volume-based growth and drive revenue in the future. And Nvidia’s existing GPU usage in crypto mining and gaming will continue. It has the moat and a proven technology that converted $10,000 into $2.5 million in 10 years. While the growth momentum will slow in the coming decade, it still has its Midas touch that can make your TFSA a gold mine.
Hive stock
If you are skeptical of buying a stock which is already midway through its peak, you could consider investing in Hive Digital Technologies (TSXV:HIVE). Unlike Nvidia, which you can buy and forget, you can use a mix of active and passive investing for Hive, given its volatility. Hive mines Bitcoin and is affected by fluctuations in Bitcoin prices. While the TFSA does not allow you to invest in crypto, Hive is a stock trading on renowned exchanges. And the stock is trading near the comfortable buy point of $4. It is not a stock you can buy at any price point, so be careful and do not buy the stock above $4.
Hive stock price will surge when the economy shows signs of recovery. For instance, the recent interest rate cut by the Bank of Canada sent Hive stock up 12%. You can buy the stock at $4 and sell a portion of your holdings at $8 and keep doing this to take advantage of short-term fluctuation. In the meantime, keep accumulating stocks for the next crypto wave. At that time, the stock could surge past $20-$25, and you can book a profit before the stock falls.
Remember, no one can predict when the next wave will come. Invest only the money you don’t mind losing. But since you buy at a low, the downside risk will be limited.
The post How to Turn Your TFSA Into a Gold Mine Starting With $10,000 appeared first on The Motley Fool Canada.
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More reading
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Fool contributor Puja Tayal has no position in any of the stocks mentioned. The Motley Fool recommends Bitcoin and Nvidia. The Motley Fool has a disclosure policy.
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