I always get the question from people at my speaking events “what should I put in my TFSA?”. I’ve decided to write about that today and what I do. Because I’m a dividend and options guy I’d make a portfolio of covered call ETFS.
GICs won’t give you a proper return to beat inflation and corporate bonds are just as risky as the big blue chip stocks that we buy, collect dividends, and write calls on. Plus I get a way higher yield from them with volatility being the way it is right now.
Place $1k of your $5k into each of these ETFS each year ongoing. Set up a dividend re-investment plan so that their crazy high yields that pay monthly keep buying you more units. This is the best way to get a boost in your TFSA and save the tax. You can’t use it like a savings account either. You need to let your TFSA ride to gain the most of it using this strategy of yield and tax savings. Just keep a high interest account for cash that you might need in the future. It’ll pay you back in the long run.
I used the symbols below but the product name’s are as follows:
20 % BMO Covered Call Canadian Banks ETF (ZWB)
20% Horizons Enhanced Income Equity ETF (HEX)
20% Horizons Enhanced U.S. Equity Income Fund (HES.UN)
20% Horizons Enhanced Income International Equity ETF (HEJ)
20% Horizons Enhanced Income Gold Producers ETF (HEP)
If you like the banks for the long run buy ZWB. It currently has a 8.9% yield made juicy with the six big Canadian banks 4% dividends and the rest is made of “writing” option calls on the positions every two months or so 5% out of the money.
Add HEX which is the TSX top 30 companies. It has a 16.656% yield right now due to the volatility and you have the cream of the TSX all in one.
I’d then add in some US exposure and buy HES.UN. This is the top 50 NYSE stocks with a nice 16.635% yield as of today. It will be the similar HEX ETF but with US top stocks. There aren’t any tax benefits because the dividends and capital gains are considered foreign here so it’s good that this US product is in your TFSA.
Because we want to keep adding the $5k a year to our TFSA to take the most advantage of the tax savings we will buy HEJ which gives us exposure to international stocks and then write calls on them.
For a little “spice” for our TFSA the last ETF I would buy would be HEP – The Gold producers covered call product. I don’t think that gold has hit it’s highs and with the volatility in the market the yield is 23.8% right now for this product.
Love your TFSA and it’ll love you back with long term tax free returns!
Dave
