China’s richest man, Jack Ma, said, “If you put the banana and money in front of a monkey, the monkey will choose a banana because the monkey doesn’t know that money can buy a lot of bananas.” That’s exactly what millennials and Gen Zs are doing. They are just leaving the money on the table by making this Tax-Free Savings Account (TFSA) mistake. According to a poll by Toronto-Dominion Bank, 41% of Gen Z and millennials are not investing the money held in their TFSAs:
- 27% want the funds to be available.
- 22% feel they do not have enough savings to invest.
- 22% are unsure about the investment products.
- 19% are not confident in their investment knowledge.
TFSA mistake #1: Not investing TFSA money, thinking you don’t have enough
You don’t need $2,000 to start investing. You can begin with as little as $100. A $100 invested per week becomes $5,200 in a year. And instead of just keeping this money, if you invest it even in the most obvious instrument — the market exchange-traded fund (ETF) — you would have made a return of over 20% in a year.
If you want to hold cash, do so in the bank’s savings account. The CRA has a TFSA contribution limit of $7,000. No matter how much you earn by investing in a TFSA, whether $100 or $10,000 or $100,000, the entire amount is tax-free.
Had you earned $100,000 investment income in a normal stock account, you would have to include 50%, which is $50,000 of it, in your taxable income. Even taking the minimum federal tax rate of 14% results in a tax liability of $7,000 on the $50,000 capital gain. The TFSA could have saved you $7,000 in the long term.
TFSA mistake #2: Not staying invested in the TFSA
Another big mistake millennials and Gen Zs make is that they don’t stay invested in the TFSA to avail themselves of the benefit of compounding. We are not talking about any one stock but a no-brainer market ETF like BMO S&P/TSX 60 Index ETF (TSX:ZIU). It replicates the TSX 60 index, which is a list of the top 60 stocks in the TSX by market cap. The index keeps revising every three months, replacing poor performers with those that have climbed the ladder.
The ETF has returned 23% in a year and 60% in two years. If you made the mistake of withdrawing money from the market ETF in less than a year, you did not allow your money to compound. Don’t let small gains ruin your big, long-term gains. Get started by investing in an ETF rather than holding cash.
TFSA mistake #3: Investing TFSA money in a low-yield investment
Another million-dollar mistake millennials and Gen Zs make is that they invest their TFSA money in low-yield Instruments like a term deposit. When you have an account that allows tax-free growth of your investment and tax-free withdrawals, it is time to take some risks and invest in wealth-generating growth stocks.
Some growth stocks may turn negative in the short term, but if you buy them at the dip and stay invested, your $2,000 can become $10,000 and even $100,000. Some of the most obvious compounders are Shopify, Nvidia, and Constellation Software. Each of them had its share of dips and business risks, but their secular growth remains intact, making them a stock to buy the dip and hold for the long term.
| Stock | Share Price January 2016 | Share Price January 2016 | Share Price January 2026 | $2,000 Investment in 2016 is worth | $2,000 Investment in 2021 is worth |
| Shopify | $2.90 | $151.67 | $216.00 | $148,824.00 | $2,808.00 |
| Nvidia (in US$) | $0.82 | $13.30 | $188.85 | $460,605.15 | $28,327.50 |
| Constellation Software | $345.40 | $1,647.00 | $3,239.00 | $16,195.00 | $3,239.00 |
I took two years: 2016, when the market was bearish, and 2021, when the market was bullish. Buying the dip and just holding them can bring a remarkable difference in the returns. Now is a good time to buy Constellation Software at its dip. As for Shopify and Nvidia, consider waiting for the stocks to fall as they trade near their cyclical highs.
