The Tax-Free Savings Account (TFSA) has been a revelation for all the Canadian families using it. TFSAs give you the perfect opportunity to save more of your hard-earned money tax-free.
If you’ve never contributed to a TFSA, you can enjoy a contribution room as high as $63,500 this year.
The TFSA is commonly considered an investment vehicle, but first and foremost, it’s a savings tool, which is why you can increase your contributions to the account every year.
In order to take full advantage of the TFSA and become a wealthy investor, you need to max out the contribution room annually.
From $10,000 to $1,000,000
While the maximum contribution room is $63,500 as of writing, I’m going to discuss the possibility of reaching the $1,000,000-mark with a more modest starting figure of $10,000.
An excellent way of turning the $10,000 into seven figures is by seeking a rate of 10% annual return in your TFSA while maxing out your contribution room every year.
The contribution room in TFSAs increases by $6,000 each year. Under that assumption, it’s possible to reach $1,050,000 in less than 30 years with a 10% return.
You can even achieve the millionaire figure as early as 26 years provided you manage to get a 12% return in your TFSA every year.
How to get 10% returns
Holding cash in your TFSA is never going to get you the returns you want to hit a million-dollar figure. You need to invest in stocks like Enbridge Inc (TSX:ENB)(NYSE:ENB), as it’s likely to give you the returns you require for this goal in the long haul.
In the past decade, Enbridge has appreciated by more than 111% to $50.30 per share at writing. ENB’s 1.65 price-to-book ratio indicates that it’s possibly an undervalued stock with the potential to grow further.
The stock’s year-to-date growth alone is 17.36% despite an incredibly tough year for publicly traded companies in the energy sector on the TSX.
Enbridge has global operations on a massive scale. The company has four primary areas of operations: liquids pipeline, renewable power generation and transmission and gas transmission and midstream.
Its expansive and consistently improving operations allowed ENB to earn a phenomenal quarterly earnings growth of 26,025% year over year.
All but 2% of ENB’s EBITDA is regulated, giving the company reliable cash flow. Its risk is further mitigated by the fact that 93% of its counterparty credit exposure comes through investment-grade clients.
Since August 2018, the company has also freed up over $8 billion in capital by strategically divesting some of its assets – a marker for further growth.
Enbridge’s dividend yield is almost 5.9% at the time of this writing. The dividend yield is on the juicier side of the spectrum and it follows an excellent track record of ENB’s dividend growth history.
It’s one of the best operators for the energy sector across North America, and it appears to be an excellent long-term buy.
By saving regularly, investing in stocks like Enbridge, and reinvesting in its shares for your TFSA with the aim of earning at least 10% annual returns, you can be the owner of $1,000,000 with a modest start of $10,000.
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Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Enbridge. Enbridge is a recommendation of Stock Advisor Canada.