© Reuters. A cheap Canadian REIT to help your TFSA survive inflation
Your TFSA (Tax-Free Savings Account) is a very powerful tool for Canadian investors, big and small. Unfortunately, many Canadians are not using it as effectively as they could. This means making regular contributions (Canadians are allowed to contribute $6,000 a year) and using the proceeds to invest wisely.
There’s no doubt that many TFSA users are likely to hold substantial amounts in the form of savings or lower-paying investments like GICs (guaranteed investment certificates). With such volatility in the S&P 500 and , it’s no mystery why many TFSA investors might want to stay away until things have a chance to calm down. The macro environment is causing a lot of concern. And the last thing new investors want is to see their TFSA lose significant amounts of their value from month to month.
REIT distributions to help TFSA investors fight +6% inflation in Canada With recent Canadian inflation over 6% (more than three times the annual inflation that many of us are used to) , the so-called “tax” on inflation will punish savers accordingly. While you don’t lose money by parking money in a TFSA, the only thing guaranteed these days is a loss of purchasing power in my opinion.
It’s high time that TFSA investors start thinking about their “real” wealth, taking into account the effects of inflation. Remember that if you miss inflation, you actually see the purchasing power of your nest egg shrink, even if it grows modestly in a savings account of less than 2%.
In this article, we are going to take a look at one of the best REITs that I would look to buy to offset the horrible impact of inflation. Consider H&R REIT (:HR.UN), a diversified REIT that has struggled to emerge from the coronavirus slump that has seen stocks lose more than 63% of their value from peak to peak.
H&R REIT H&R REIT is a diversified REIT, with considerable weighting in office exposure. There is no doubt that the pandemic-induced rise of hybrid and remote work is working against the REIT. Even if the pandemic were to end sooner than expected, the recovery trajectory for office real estate is unlikely to reach pre-pandemic levels in the next 18 months. Indeed, the future of office space remains a huge question mark as workers embrace working from home and the added savings of not having to spend huge amounts of money renting large office spaces.
It’s not just about office space, though. H&R is exposed to other subsectors. But for now, the office’s fate hinges on a major equity overhang. Fortunately, H&R has taken steps to lighten the office load, with the sale of Calgary’s sprawling $1.67 billion Bow Tower. While I’m not the biggest fan of retail, I think H&R is on its way to diversifying even further, seeking the optimal balance between commerce, retail and industry. The 3.9% yield is plentiful, as is the potential for capital appreciation over the next few years, with stocks still stuck in the rut they fell into during the stock market crash of 2020.
The post A cheap Canadian REIT to help your TFSA survive inflation appeared first on The Motley Fool Canada.
Fool contributor Joey Frenette has no position in any of the stocks mentioned. The Motley Fool has no position in the stocks mentioned.
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