Million-Dollar TFSA: 1 Way to Achieve 7-Figure Status

A million-dollar TFSA might seem impossible now. But invest in this top ETF and you could easily bring it well within reach.

Amy Legate-Wolfe ❯

@amylegatewolfe

Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances. Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities. She also provides investors with a daily newsletter, Canada Stock Digest, for daily market updates. Before joining Motley Fool Canada, she wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog, and travel with her husband. Follow Amy on LinkedIn and Canada Stock Digest. Favorite Investment Quote: “October: This is one of the particularly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” – Mark Twain

Published August 14, 2024 8:00 pm EDT

Creating a million-dollar income through a Tax-Free Savings Account (TFSA) in Canada is achievable. No, seriously! In fact, assuming the maximum annual contribution limit of $7,000 as of 2024 and investing in a diversified portfolio that achieves an average annual return of 8%, it would take approximately 30 years to grow a TFSA to over $1 million, which is why investing is a prime way to shorten that time frame.

Get into high-yielding ETFs

Turning your TFSA into a cool $1 million might seem like a daunting task, but with high-yield exchange-traded funds (ETF) on the TSX, you’ve got a pretty solid roadmap to get there. These ETFs, which bundle together a collection of dividend-paying stocks, can provide you with a steady stream of income that gets reinvested, allowing your investments to grow over time.

Now, the beauty of these high-yield ETFs is that they let you tap into a variety of top-performing Canadian companies without the hassle of picking individual stocks. Think of it as spreading the risk across a basket of goodies instead of putting all your eggs in one basket. Plus, the dividends these ETFs offer can be quite attractive, helping you stack those coins faster and making your million-dollar dream a little more tangible with each passing year.

Finally, the tax-free nature of the TFSA is the cherry on top. All those dividends and capital gains grow and accumulate without Uncle Sam (or, rather, Uncle Trudeau) taking a cut. This means that every dollar earned through your high-yield ETF stays in your pocket. Thus bringing you closer to that seven-figure goal. So, if you’re in it for the long haul, high-yield ETFs could be the secret sauce that spices up your investment portfolio and propels you toward that million-dollar milestone. But which do you choose?

Very good with VDY

If you’re dreaming of turning your TFSA into a million-dollar powerhouse, Vanguard FTSE Canadian High Dividend Yield Index ETF (TSX:VDY) ETF might just be your perfect partner in crime. With a yield of 4.56%, this high-dividend ETF lets your money work hard while you kick back. Its strong performance this year, boasting an 8.45% year-to-date daily total return, shows that it knows how to grow your wealth steadily. Plus, it holds a price-to-earnings ratio of 11.35, making VDY all about value.

The numbers don’t lie. VDY is backed by $2.76 billion in net assets, so you know it’s solid and here to stay. One of the best parts? VDY’s inception date goes back to 2012, meaning it’s been tried and tested through various market conditions. With a beta of 0.94, it’s slightly less volatile than the overall market, giving you a smoother ride while still aiming for that million-dollar goal. And did I mention the expense ratio is practically non-existent at 0.22%? More of your money stays right where it should. That’s in your TFSA, compounding and growing toward that million-dollar milestone.

So, while that million-dollar portfolio seems like a daunting task, it just became a whole lot clearer with VDY ETF, especially given you can buy it and continue to see it compound for decades to come without lifting a finger.