Here’s what to hold in your tax-free savings account

Ottawa’s new Tax-Free Savings Accounts (or TFSAs) let you earn investment income — including interest, dividends and capital gains — tax free. A tax-free savings account can generally hold the same investments as an RRSP. This includes cash, mutual funds, publicly traded stocks, GICs and bonds. However, you are best to hold lower-risk investments in your TFSA. That’s because you don’t want to suffer big losses in your TFSA. If you do, you can’t use those losses to offset capital gains. You’ll also lose the main advantage of a TFSA: sheltering gains from tax. You won’t have gains to shelter if the value of your investments falls. [ofie_ad] You can only invest $5,000 this year to start your TFSA, so you can’t yet build a diversified portfolio. That’s why you are best to hold lower-risk and low-fee equity investments such as index funds, or interest-bearing investments like high-yield savings accounts such as those from President’s Choice Financial or ING Direct. Over the years, as the value of your TFSA increases, you could switch to a well-diversified portfolio of conservative, mostly dividend-paying stocks.