Many young savers wonder how they will be able to accumulate $1 million in their saving accounts — it’s a sum many believe is enough for a comfortable life in retirement.
I would like to dispel this impression that you will find a shortcut in these articles to build a million-dollar portfolio. The road to achieve financial independence starts with discipline and persistence.
You have to control your spending from the day your start earning. You have to develop a habit of saving aggressively, and you have to do it for a long time.
In Canada, you have a fantastic saving tool which has been designed to help you maximize your savings and get you the best tax benefits.
As evident from its name, Tax-Free Saving Accounts (TFSAs) have many advantages for young savers. They allow investments to compound tax free, and you can cash out your TFSA without anytime without incurring a tax liability.
Through your TFSA, you can start investing in safe, growth-oriented stocks which you plan to buy and hold for a long time.
Let’s say you maximize your yearly TFSA limit of $5,500 and start investing at the age of 20. If you continue to do so for the next 40 years, you could retire with $1 million in your TFSA. More precisely, you’ll have $1.187 million in your account, including $788,000 as an investment return on your contributions.
The assumptions here are that the rate of inflation will be 2%, and you’ll be able to maintain 5.5% rate of return on your portfolio.
Now, let’s talk about the stocks that can get you there. Here are my five favourite millionaire-making growth stocks.
Enbridge Inc. (TSX: ENB)(NYSE: ENB) is my top pick among the Canadian energy infrastructure companies. Through its constant growth and a smart acquisition strategy, the company has reached a scale that will enable it to produce a steady income stream for a long time.
Offering a 4.9% annual dividend yield based on its today’s price, Enbridge has paid dividends for over 64 years to its shareholders, producing 12.3% total annualized return during the past 15 years.
Canadian National Railway Company (TSX: CNR)(NYSE: CNI) runs a 100-year-old railway business and has a strong leadership position in the transportation sector. The Canadian rail industry is a quintessential duopoly, dominated by CNR and Canadian Pacific Railway Limited. CNR has delivered a ~17% annualized return for its investors for the past 15 years, if all dividends were re-invested.
Brookfield Infrastructure Partners L.P. (TSX: BIP.UN)(NYSE: BIP) is a solid stock for Canadian investors to have some global diversification. Its portfolio of critical infrastructure assets, such as electricity and gas distribution businesses in Australia and the U.S., and a portfolio of 36 ports in North America, helps the company generate stable cash flows for long-term investors who are keen to earn stable dividends.
Toronto-Dominion Bank (TSX: TD)(NYSE: TD) is one of the best stocks among large Canadian lenders. Its huge presence in the U.S. and dominant market share in the local market makes this lender a cash machine for long-term TFSA investors. In the past 15 years, the lender has provided a 12% annualized total return, and there is no reason why it shouldn’t continue with this trend.
BCE Inc. (TSX: BCE)(NYSE: BCE) is also a great long-term stock for a TFSA. The company is Canada’s largest telecom operator with a lot of media assets. BCE currently pays a $2.88 per share annual dividend, which translates into a juicy 4.8% yield — a solid payout in today’s low-return environment.
The bottom line
Amassing $1 million before you retire is not that hard. Keep saving and investing in great dividend-paying companies, such as Enbridge and TD Bank, and you will notice how quickly your saving nest grows as years tick by.
