Money Should You Buy Stocks With Your 2018 TFSA Contribution or Wait for a Crash?

21:43  09 january  2018
21:43  09 january  2018 Source:   The Motley Fool

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It may be tempting to load up on more of these high-flyers with your 2018 TFSA contribution , but as we head into a new year, it may be wise to take a step Walt Disney Company (another value stock that could have a huge 2018 ), and I believe that should propel shares slightly higher over the next year.

If you ’ve got the extra cash, it’d be smart of you to make the full annual contribution of ,500 to your TFSA as soon as you can to get the most out of compounding. If you haven’t thought of which stocks you should be adding to the core of your TFSA freedom fund, then you ’ve come to the right place!

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It’s the million-dollar question: With markets hitting all-time highs in Canada and in most places around the globe, is it safe to keep buying stocks at these levels? Or is it better to wait for the much-anticipated market crash?

Quotes in the article

Cenovus Energy Inc

CVE

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If you ’re a young investor with a long-term time horizon, your best bet would be to own high-quality stocks with top-tier growth profiles to grow your TFSA at the So, without further ado, here are two undervalued growth names you should think about buying with your TFSA contribution for 2018 .

But should you dare add a pot stock to your TFSA ? If you ’re going to buy pot stocks in your TFSA anyway, make sure you understand the added risks. And if possible, wait for another meaningful dip in pot stocks before you pull the trigger within your TFSA .

10.40
+0.33
+3.28%
Crescent Point Energy Corp

CPG

8.47
+0.36
+4.44%
S&P/TSX Composite

0000

16,344.96
+27.31
+0.17%
S&P/TSX Venture Composite

ISPVX

923.91
+2.87
+0.31%

The next crash is coming. It’s inevitable. Nobody knows when it’s going to happen, but with the old age of the current bull market, many pessimists are thinking it’s going to be soon, but here’s why I don’t buy these doomsday predictions.

First of all, many doomsdayers have been calling a market crash pretty much every year. At the beginning of 2017, everyone was afraid that the bull market was showing its age, but the S&P 500 went on to gain ~20%. Talk about being completely wrong! Instead of a Trump crash, which everyone was worried about, a Trump rally happened, and it’s still going strong into 2018. What happened to all the doomsdayers?

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But unfair as it sounds, the Canada Revenue Agency simply does not allow you to claim a capital loss on TFSA contributions . You can sell the stock , wait 30 days, and then buy it back inside your TFSA account , but check the superficial loss rules first. You should hold bonds and GICs inside your TFSA

The TFSA may be ideal if: • Y ou’re saving for a big goal like buying a house • Y ou’re saving for a special purchase, rather than. The TFSA may be ideal if: • You ’re using all your RRSP contribution room each year and have additional savings to invest.

Consider long-time bear Prem Watsa, who turned bullish over a year ago following Donald Trump’s presidential victory. It was a surprising move that caught the general public off guard, but it was a smart move for Watsa to eliminate many of his hedges, otherwise Fairfax Financial Holdings Inc.(TSX:FFH) would be in much worse shape today, and the press would have started to compare him to Bill Ackman, a seasoned veteran who just clocked in his third straight year of losses.

So, are all the bears turning into bulls?

Not necessarily. Although we’re in the late stages of a bull run, Trump’s pro-growth agenda is going to boost the U.S. economy and, in turn, global financial markets in the foreseeable future, and you probably don’t want to remain completely on the sidelines! That doesn’t mean that you should rule out a mild near-term correction though, so it’s a good idea for the average investor to have some skin in the game with ample cash on the sidelines, just in case.

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RRSPs and TFSAs are built for saving (through contributions and investments). • the annual limit (e.g. ,010 in 2017; ,230 in 2018 ); or. yes – the main advantage with a group TFSA is competitive investment fees (think buying in bulk for investment management services).

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It’s never a good idea to time the markets, so instead of trying to predict where the markets are headed, just focus on individual stocks and try and find ones that are on sale. It’s been difficult to spot value in the U.S. after such a fantastic 2017, so you may wish to stay within the confines of Canada while you do your bargain hunting.

There are several opportunities in the severely undervalued energy sector, including Cenovus Energy Inc.(TSX:CVE)(NYSE:CVE) and Crescent Point Energy Corp.(TSX:CPG)(NYSE:CPG) that are trading at significant discounts to their intrinsic value. But if you’re still wary of the state of the markets, and you want to play defence, you may wish to load up on Fairfax. Although Watsa has a more bullish tone, the preservation of capital is his number one concern, and Fairfax still has protection from substantial market downside in the event of a violent market-wide pullback.

Bottom line

Timing the market is a bad idea. If you choose to wait for a crash before entering the markets, you could miss out on years of major gains. Conversely, if you go all-in on stocks without a cash position, you’ll kick yourself should the markets crash this year.

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As the calendar switches over to 2018 , Canadian investors can make another ,500 contribution to their TFSAs . You can bet against that long-term trend if you wish, but I think every portfolio should include at least some dividend-paying stocks .

Which stocks should you buy ? Using the TFSA to start a retirement fund allows millennials to reserve RRSP contribution room for the coming years when they will likely be in a higher tax bracket.

A great strategy for investors who are just getting started is to be in stocks, but just make sure you’ve got enough cash to capitalize on sales that come after a crash.

Stay hungry. Stay Foolish.

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Fool contributor Joey Frenette has no position in any of the stocks mentioned. Fairfax is a recommendation of Stock Advisor Canada.

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