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The TFSA (Tax-Free Savings Account) annual contribution is set for another hike in 2024. While no official contribution increase has been announced yet, many financial/tax advisors believe it could increase by $7,000.
A big TFSA increase could be announced in 2024
Last year, the annual TFSA contribution increased by 8.3% to $6,500. The CRA (Canada Revenue Agency) raises the limit based on inflation and then rounds the number up to the nearest $500. Given that inflation has been averaging over 4%, it is speculated that the TFSA contribution could qualify for another $500 increase to $7,000.
For now, we will have to wait for the CRA to announce the actual increase officially. In the meantime, you can start planning about how to use your new contribution room.
Start saving now for your TFSA
Firstly, you can start thinking about saving for your new TFSA contribution. You would need to save $1,116 every month if you wanted to save up your entire new contribution in six months. If that isn’t realistic, you would need to save $583 per month for 12 months to hit your contribution limit by the end of 2024.
Plan how to allocate your capital for tax-free returns
The second thing is to start planning how to deploy your new contribution. You can’t claim capital losses in your TFSA, so you want to own stocks that have a relatively high probability of delivering positive long-term returns.
You don’t want to pay tax on any investment that has a chance to multiply and grow significantly. There is no other opportunity where you can invest, grow your wealth, and pay no tax than the TFSA. So, any chance to maximize your contributions should be utilized.
FirstService: A good stock for long-term returns
FirstService has a large multi-residential property management business that is complemented by a mix of specialized property services (like building restoration, painting, flooring, and renovations). The company has a great track record of creating shareholder value.
Over the past 10 years, shareholders have earned a combined 532% total return (24% compounded annually). The company is a dominant leader in multi-family management. It tends to earn stable, recurring revenues from that business. It has used its excess cash to acquire and consolidate property service businesses.
The company continues to have a very wide array of opportunities to consolidate in its current niches. Likewise, it could acquire new service verticals. While this stock is never cheap, it is trading with a valuation below its three-year average. If you can look out 10 years from now, it could be a great stock to buy with your 2024 TFSA contribution.
WSP Global: A stock for a lifetime
Like FirstService, WSP Global is almost never cheap. It often trades at a premium to competitors. Yet the company has a proven track record of delivering strong long-term returns.
Since 2013, it has delivered shareholders a nearly 700% return (including dividends). WSP Global has grown to become one of the largest consulting, engineering, and design firms in the world. It has grown by consolidating a very fragmented sector.
Despite its $23 billion market cap, this company can acquire both large and small consulting firms. With a broad portfolio, it can help clients with everything from business strategy to asset planning, design, project management, operations, and maintenance.
The global population is rising and demand for efficient infrastructure is ever rising. This supports the long-term viability of this company and this stock. For a long-term hold in a TFSA, WSP is a great bet for an investment next year.