TFSAs are simply incredible. They can permanently shield your capital from taxes, both as it grows and as it’s withdrawn. This can save you thousands or even millions of dollars.
While many people shoot for $1 million, having a lofty goal like this can actually reduce your odds of getting there. Breaking your savings goals into smaller steps can make each stage more attainable, accelerating the growth of your TFSA.
While $250,000 may seem like a large sum, it’s a reachable target for nearly every TFSA holder. All you need is a few secret weapons: automatic contributions, pipeline stocks, and time.
Use this proven method
While the majority of investors fail to implement automatic contributions, they’re simply the most powerful tool you can use to achieve financial independence. Here’s how they work.
Nearly every TFSA allows you to establish recurring deposits. That is, you can have a certain amount of money automatically deposited into your account on a regular basis. For example, you can have $50 withdrawn from your chequing account each week and placed into your TFSA.
Automating your contributions like this should be the first action of every TFSA holders. When combined with time, there’s simply no better way to compound your capital.
Here’s an example. Let’s say you’re 30 years old and opt to invest the annual TFSA maximum of $6,000. To do this, you can establish automatic contributions of $500 per month. If you earn 10% annual returns, you’ll reach $250,000 in just 17 years. Keep in mind that’s starting with zero dollars in savings.
If you can’t establish automatic contributions that max out your TFSA limit right away, fear not. The important thing is simply to get them set up, even if it’s just $20 per week. It’s much easier to change your contribution amount in the future than to get them started in the first place.
Stocks to own
Automatic contributions combined with ample time can help any TFSA holder reach $250,000 in savings. Of course, you’ll also need investments capable of growing your capital along the way.
In the previous example, we assumed 10% annual returns. Which securities are capable of generating such a return for decades at a time? Look no further than pipeline stocks.
Pipelines can cost billions to construct and take up to a decade to fully plan, permit, and build. These factors structurally limit available pipeline capacity, leading to extreme pricing power for existing operators.
High pricing power means ample free cash flow, which is used to pay industry-leading dividends. These dividends have helped each stock below achieve double-digit annual returns for more than 20 years.
Enbridge is North America’s largest pipeline company, with the ability to transport fossil fuels to both the Atlantic and the Pacific Oceans. This gives customers to option to target Asian or European markets, whichever offers the best pricing at the time. Enbridge stock pays a 6.2% dividend.
TC Energy is a bit smaller, but with a $64 billion market cap, it still packs a punch. Its 4.4% dividend is also smaller, but the company makes up for it with faster growth. Over the last 12 months, diluted EPS has grown by more than 15%. With billions of dollars earmarked for growth this year, TC Energy looks to continue its long-term success.
Inter Pipeline is the smallest stock on this list, with a valuation of only $9.3 billion. That size reflects its niche focus, however, which targets oil sands projects and natural gas-processing facilities. Smaller companies are often assigned a discounted valuation, and the same can be said of Inter Pipeline. Despite $3.7 billion in growth initiatives underway, the stock delivers a 7.7% dividend.
Pipeline stocks shouldn’t account for your entire TFSA portfolio, but their history of success makes them deserving of a spot within a diversified portfolio of wealth-generating stocks.
