How to Get Your TFSA to $1,000,000

Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) gives investors a great way to build wealth through a combination of both dividend income and capital appreciation.

| More on:
Businessperson's Hand Putting Coin In Piggybank

Image source: Getty Images

There’s no one strategy to building your portfolio’s value over the long term. Whether you choose to focus on dividends or growth stocks depends on several factors, including your risk tolerance as well as how many years you have left to invest. Below, I’ll show you a couple of ways that you can get your TFSA to $1,000,000 by retirement.

The conservative approach

The first strategy involves relying on a combination of both dividends and growth. And a bank stock is a great way to do that, since they often offer growing payouts and rise in value as well. They’re also fairly low risk and can keep your money relatively safe. A stock like Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) has more opportunities for growth than some of its peers due to its recent acquisition and expansion into the U.S. market.

Over the past 10 years, CIBC stock has grown by an average of 5.9% per year, and given its potential growth in the U.S., it might not be unreasonable to expect that the company can continue at that rate for the foreseeable future. On top of that, investors are currently earning about 5.4% in dividend income annually, and over the past five years, CIBC has hiked its payouts by an average of around 7%.

With those assumptions intact, it would take approximately 30 years for a $100,000 investment in CIBC stock to reach the $1,000,000 mark.

Year Portfolio Annual Dividend Cumulative Dividend Portfolio + Dividend
1 $105,868.77 $5,444.29 $5,444.29 $111,313.06
2 $112,081.97 $5,823.27 $11,267.57 $123,349.53
3 $118,659.80 $6,228.63 $17,496.20 $136,156.00
4 $125,623.67 $6,662.21 $24,158.41 $149,782.08
5 $132,996.24 $7,125.97 $31,284.38 $164,280.62
6 $140,801.49 $7,622.01 $38,906.39 $179,707.87
7 $149,064.80 $8,152.58 $47,058.97 $196,123.77
8 $157,813.08 $8,720.09 $55,779.06 $213,592.13
9 $167,074.76 $9,327.09 $65,106.15 $232,180.91
10 $176,880.00 $9,976.36 $75,082.51 $251,962.51
11 $187,260.68 $10,670.81 $85,753.32 $273,014.00
12 $198,250.58 $11,413.61 $97,166.94 $295,417.52
13 $209,885.46 $12,208.12 $109,375.06 $319,260.51
14 $222,203.16 $13,057.93 $122,432.99 $344,636.14
15 $235,243.75 $13,966.90 $136,399.89 $371,643.64
16 $249,049.67 $14,939.14 $151,339.03 $400,388.70
17 $263,665.82 $15,979.06 $167,318.09 $430,983.91
18 $279,139.77 $17,091.37 $184,409.46 $463,549.22
19 $295,521.84 $18,281.10 $202,690.56 $498,212.40
20 $312,865.34 $19,553.66 $222,244.22 $535,109.56
21 $331,226.70 $20,914.80 $243,159.02 $574,385.71
22 $350,665.63 $22,370.68 $265,529.70 $616,195.33
23 $371,245.40 $23,927.92 $289,457.61 $660,703.01
24 $393,032.94 $25,593.55 $315,051.16 $708,084.10
25 $416,099.15 $27,375.12 $342,426.28 $758,525.43
26 $440,519.05 $29,280.72 $371,707.00 $812,226.05
27 $466,372.11 $31,318.96 $403,025.96 $869,398.07
28 $493,742.42 $33,499.08 $436,525.04 $930,267.46
29 $522,719.04 $35,830.97 $472,356.00 $995,075.04
30 $553,396.22 $38,325.17 $510,681.18 $1,064,077.40

While $100,000 would be more than your TFSA limit is today, if you and your spouse or another family member are able to use multiple accounts, then it would certainly be attainable. The problem, however, is that 30 years might be a bit long for someone who’s a bit closer to retirement, as it would mean you’d need to be about 35 years of age today for this strategy to work.

The aggressive approach

If you’re looking for a shorter time frame to invest, then your best bet is to look at growth stocks. While there might be a bit more risk involved and you’ll benefit from minimal, if any, dividend income, it could get you to your goal a lot quicker. Take, for example, a tech stock like Facebook (NASDAQ:FB), which has risen 200% over the past five years. That’s an average growth rate of around 25% per year. That might be a bit optimistic to expect over the long term. To be conservative, we might use a rate of 15% instead, so it will take into account slower-growing periods as well.

Under this strategy, we might expect to see the same $100,000 investment grow to $1,000,000 by the end of year 17.

Year Portfolio
1 $115,000.00
2 $132,250.00
3 $152,087.50
4 $174,900.63
5 $201,135.72
6 $231,306.08
7 $266,001.99
8 $305,902.29
9 $351,787.63
10 $404,555.77
11 $465,239.14
12 $535,025.01
13 $615,278.76
14 $707,570.58
15 $813,706.16
16 $935,762.09
17 $1,076,126.40

This would mean that by age 47, investors would be able to make the same investment and achieve the same goal as if they had invested earlier using a safer strategy. Obviously, these models are based on a set of assumptions, and Facebook could grow at a slower rate or perhaps even a quicker one. However, investors could still adjust accordingly and move funds from Facebook shares into the latest big tech stock.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Fool contributor David Jagielski has no position in any of the stocks mentioned. David Gardner owns shares of Facebook. Tom Gardner owns shares of Facebook. The Motley Fool owns shares of Facebook.

More on Dividend Stocks

potted green plant grows up in arrow shape
Dividend Stocks

2 Canadian Stocks to Buy With Dividends Yielding More Than 3%

For those seeking top Canadian stocks to buy in this current market environment, here are two top ideas of companies…

Read more »

edit Person using calculator next to charts and graphs
Dividend Stocks

Got $500? Buy 2 Cheap (Under-$20) Dividend Stocks With +5% Yields

Grab these cheap TSX stocks now to earn reliable yields of more than 5% amid volatility.

Read more »

Woman has an idea
Dividend Stocks

2 Blue-Chip Stocks Every New Canadian Investor Should Own

Canadian blue-chip stocks such as Toronto-Dominion Bank have the ability to deliver market-beating returns to investors in 2022 and beyond.

Read more »

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

3 Canadian Dividend Stocks to Buy Hand Over Fist

These three Canadian dividend stocks each offer a unique opportunity, making them some of the best investments to buy at…

Read more »

A person builds a rock tower on a beach.
Dividend Stocks

Retirement Wealth: 2 Oversold Canadian Stocks to Buy Now and Own for Decades

These industry-leading dividend stocks look cheap right now and have increased their distributions annually for decades.

Read more »

Tired or stressed businessman sitting on the walkway in panic digital stock market financial background
Dividend Stocks

2 of the Safest TSX Stocks Right Now

The stock market is heading towards a crash. Investors are seeking the safety of dividends, and these two stocks provide…

Read more »

Payday ringed on a calendar
Dividend Stocks

Want Monthly Passive Income? Try These TSX Dividend Payers

In need of extra cash? These dividend stocks offer passive income each month, and you can pick them up cheap…

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

Want Safe Passive Income? Here Are 2 TSX Dividend Aristocrats for New Investors

Need some safe passive income? TSX Dividend Aristocrats like Fortis (TSX:FTS) are ideal stocks for new investors to hold in…

Read more »