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

thinking
Dividend Stocks

Should You Buy BCE Stock for its 8.6% Dividend Yield?

Down over 20% from all-time highs, BCE stock offers you a tasty dividend yield in 2024. But is the TSX…

Read more »

grow dividends
Dividend Stocks

How Long Would It Take to Turn $20,000 Into $100,000 With TSX Dividend Stocks?

Here's how high-quality TSX dividend stocks and the power of compound interest can help grow your investments by 400% or…

Read more »

Paper airplanes flying on blue sky with form of growing graph
Dividend Stocks

2 Soaring Stocks I’d Buy Now With No Hesitation

These two stocks may be the most expensive on the market, but they're high for a reason! And I'm still…

Read more »

Hour glass and calendar concept for time slipping away for important appointment date, schedule and deadline
Dividend Stocks

Invest $374.50 Each Month to Create Passive Income of $288 in 2024

Investing a specific amount each month to create passive income this year is possible with monthly dividend payers.

Read more »

Happy retirement
Dividend Stocks

2 Stocks to Help Turn $100,000 Into $1 Million

If you want to reach $1 million, $100,000 can certainly get you there. Even if you invest in some low…

Read more »

warning or alert
Dividend Stocks

Income Alert: These Stocks Just Raised Their Dividends

There's no shortage of companies that raised their dividends recently. Here's a trio of options to consider buying now.

Read more »

Business success with growing, rising charts and businessman in background
Dividend Stocks

Don’t Look Now, But These 3 TSX Stocks Look Poised for a Nice Rally 

Three TSX stocks are in a downtrend amid headwinds. 2024 may be rocky for them, but they are poised for…

Read more »

protect, safe, trust
Dividend Stocks

3 Safe Dividend Stocks to Beat Inflation

These three dividend stocks are excellent buys to beat inflation, given their solid underlying businesses and high yields.

Read more »