The Tax-Free Savings Account (TFSA) is an incredible place to build up savings and investments for retirement. Any chance you get to compound investments completely tax free is one you should exploit.
With a TFSA, there is no tax when you earn capital gains or income. There is also no tax consequence when you withdraw money from the account. It is kind of the best of the best when it comes to registered investment accounts.
Turn your TFSA into $1 million in 26 years (or less)
Even if you are only starting with $50,000 to invest in a TFSA, you have a reasonable chance to be a millionaire by retirement. Let’s say you can earn an average rate of return of 9% per annum (it’s not easy but in line with the S&P 500 over the decade).
Your $50,000 portfolio could be worth over $1 million in 35 years. If you annually contribute the current annual TFSA increase of $6,500, you could actually hit $1 million in 26 years.
Starting early to invest and compound inside a TFSA is a great way secure retirement. If you want to speed the process up, you might want to find stocks that perform even better than the market. Here are two that might be a good bet today.
The next Constellation Software?
Topicus.com (TSXV:TOI) is like a mini-Constellation Software (TSX:CSU) but with a holistic focus on European vertical market software (VMS) businesses. If you are not familiar with VMS, it is niche, specialized software that provides a critical function for both the public and private sectors.
If you aren’t familiar with Constellation Software, it has built an empire consolidating hundreds of VMS businesses around the world. Its stock is up 1,755% over the past 10 years. That is a 33% compound annual growth rate (CAGR).
While Topicus is executing a similar program in Europe, it is growing organic revenues even faster than Constellation. There is a chance that its results could mirror those of Constellation in the coming years.
Now, this TFSA stock has almost never been cheap. In fact, it is quite expensive. However, if Topicus can compound in the same way as Constellation, its growth could be impressive. You might have to take a 10-or 20-year investment with a stock like this, but it could pay off very well.
A TFSA growth stock with a dividend
Another stock that could do very well inside a TFSA is goeasy (TSX:GSY). Now, if you look at the stock chart in the past few years, it hasn’t done very well. Since late 2021, its stock has nearly been halved. Fortunately, that doesn’t factor in that the stock is actually up 896% over the past 10 years.
goeasy is one of the largest non-prime lenders in Canada. While its cost of capital has increased due to increasing interest rates, it has continued to see strong demand for its lending products.
Over the years, it has been de-risking its loan portfolio. Likewise, it continues to expand to new markets and grow its market share.
This TFSA stock pays an attractive 3.4% dividend yield. Likewise, it only trades for 11 times earnings, which is nearly half its growth rate. This stock may be volatile in the near term, but you can purchase it at a bargain price and valuation today.
