Youthful Canadians: $10,000 in Your TFSA Today Can Turn Into $1,791,931

Start investing in your TFSA early, and you’ll be very pleased in the long term. Choose great companies like Fortis stock that are proven recession performers.

| More on:
Growing plant shoots on coins

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

Young Canadians, you have the greatest investment advantage of all — the power of time. There is also the Tax-Free Savings Account (TFSA), arguably the best investment tool you have to help you grow your money. All your dividends, interest, and capital gains will not be taxed inside your account.

When combining the power of time with your TFSA, you can have astonishing growth in the long term. But it’s hard to see how this works, so let’s go through some examples.

Why the TFSA is so great

Here’s an illustration of why the TFSA is so great. Suppose you have two investment accounts. One of them is your TFSA; the other is a taxable account. Now imagine that you invest $10,000 in each of the accounts today, with an annual rate of return of 7% and an income tax rate of 30%.

By the end of 40 years, your taxable account will be worth $67,767. What do you think your TFSA will be worth? It will be worth $149,745. This is a huge difference, over double the amount of the taxable account, just due to taxes. This highlights the power of compounding interest and the benefits of starting to invest young.

Build massive wealth in your TFSA

Let’s take a look at how holding a stock like Fortis (TSX:FTS)(NYSE:FTS) can build enormous wealth in your TFSA.

Fortis, an electricity and natural gas distribution utility company, is a top Canadian TSX stock.

Fortis is part of the utility sector, which is defensive in times of recession and a dependable dividend payer. Companies that produce electricity and deliver natural gas are among the safest investment choices, as demand is relatively constant.

Fortis earns 99% of its revenue from regulated operations, therefore cash flows are stable and somewhat predictable. The business model offsets the risk. Demand for electricity and natural gas will not go away, even in times of recession.

Fortis is also one of two Canadian utility companies with the longest record of consecutive dividend increases, sitting at almost a half-century of 47 years. The stock pays a dividend of 3.65%, with a low payout ratio of 49.59%.

Had you invested $10,000 in Fortis 20 years ago, it would be worth $134,196 today, with dividends reinvested. This equals a 13.85% return per year, or about 13 times as much.

If you invest $10,000 in Fortis for the next 40 years instead of 20, and annual returns hold constant at 13.85%, it would be worth an insane $1,791,931, or 179 times as much as the initial investment!

These high returns are not guaranteed to repeat for the next 40 years, of course, but it gives you a good idea of how investing young can affect your investment outcomes.

Conclusion

If you’re young and earning money, start investing some of it in your TFSA. Buy great investments like Fortis stock, and sit back, relax, and watch the dividends roll in while you are saving up for retirement. You could be surprised, and that $10,000 that you invest today could be worth millions by the time you retire.

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.

Fool contributor Christopher Liew has no position in any of the stocks mentioned.

More on Energy Stocks

Man considering whether to sell or buy
Energy Stocks

When to Sell Suncor Energy (TSX:SU) Stock

Suncor Energy (TSX:SU) stock surged significantly in 2022. But the recent 20% dip got investors worried. Here’s when you should…

Read more »

Group of industrial workers in a refinery - oil processing equipment and machinery
Energy Stocks

2 Energy Stocks Fly Higher Amid Recession Fears

Despite growing recession fears, two energy stocks continue to fly high and deliver positive returns to shareholders.

Read more »

oil and natural gas
Energy Stocks

Forget About Oil Prices With This 1 Stock

Looking for the perfect investment that can make you forget about oil prices rising? Here’s one energy stock to buy…

Read more »

TSX Today
Energy Stocks

TSX Today: What to Watch for in Stocks on Thursday, June 30

Continued weakness in key global stock indexes and easing commodity prices point to a lower opening for the TSX Composite…

Read more »

Oil pumps against sunset
Energy Stocks

How Would a Price Cap on Russian Oil Impact Canadian Energy Stocks?  

Canadian energy stocks surged in the last three days, as G7 countries proposed a plan to impose a price cap…

Read more »

Group of industrial workers in a refinery - oil processing equipment and machinery
Energy Stocks

2 Energy Stocks (With Dividends) to Buy Amid the Market Correction

These dividend-yielding energy stocks look attractive to buy for the long term after their recent dip.

Read more »

energy oil gas
Energy Stocks

2 Energy Companies to Buy When the Sector Hits Rock Bottom

Multiple factors, including the TSX decline, are contributing to the current slump in the energy sector.

Read more »

think thought consider
Energy Stocks

Energy Stocks Dip: To Buy or Not to Buy?

Most energy stocks are risky investments, because of their unpredictable profitability. Investors should tread carefully.

Read more »