The Tax-Free Savings Account (TFSA) has become a favorite investment tool for Canadians. It’s a flexible, tax-sheltered account that allows you to grow your wealth by investing in stocks, bonds, mutual funds, ETFs, and more — all while enjoying tax-free returns for life.
The Canada Revenue Agency (CRA) has announced that the TFSA contribution limit for 2025 has increased to $7,000. If you’ve been eligible to contribute to a TFSA since its introduction in 2009, your cumulative contribution room will now reach an impressive $102,000.
How to Invest $7,000 in Your TFSA in 2025
1. Invest in Index Funds for Steady Growth
A smart way to utilize your TFSA contribution is to invest in low-cost index funds, such as those tracking the S&P 500. This globally recognized index includes powerhouse companies like Nvidia, Apple, Microsoft, Meta, Alphabet, Amazon, and Tesla, which collectively make up over a third of the index.
Index funds offer diversification, lower risk, and a strong history of long-term growth. In fact, over 80% of actively managed large-cap funds fail to outperform the S&P 500. By investing in such indices, you can beat most professional fund managers and benefit from the magic of compounding returns.
For example, if you had invested $5,000 annually in the S&P 500 since 2009, your portfolio would now be worth $211,316, representing a total return of 181.75% or an internal rate of return of approximately 10.83%. Investing earlier also amplifies returns; a $5,000 investment in January 2009 would now be worth $31,487, showcasing the power of long-term growth.
Buy Quality Dividend Stocks
For TFSA investors seeking both steady income and capital appreciation, dividend stocks are an excellent option. Take Enbridge (TSX:ENB), for instance — a blue-chip energy infrastructure giant offering a dividend yield of over 6%.
Over the past 30 years, a $2,000 investment in Enbridge would have grown to $33,800, and with dividend reinvestments, that figure jumps to $126,000! Enbridge has consistently increased its dividends for 29 years at an average annual rate of 10%, significantly enhancing long-term returns.
Looking ahead, analysts expect Enbridge’s earnings per share to rise from $2.78 in 2024 to $3.25 in 2026, supported by its $15 billion capital investment plan over the same period. Priced at just 18.8 times forward earnings, Enbridge remains a solid pick for long-term TFSA investors.
Should You Invest in Enbridge or Look Elsewhere?
While Enbridge is a strong contender, it’s worth exploring other top-performing stocks for 2025 and beyond. For instance, early investors in MercadoLibre — often called the “eBay of Latin America” — have seen their initial $1,000 investment in 2014 grow to $19,624!
To uncover similar high-growth opportunities, consider leveraging expert insights, like those provided by Stock Advisor Canada. Their analysts provide a step-by-step guide for building a winning portfolio, regular updates, and two top stock recommendations every month, handpicked from the U.S. and Canadian markets.
Start planning your TFSA strategy for 2025 today and unlock the potential for tax-free wealth growth!
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