A Tax-Free Savings Account (TFSA) is a great way to grow your portfolio over time without having to worry about the impact it will have on your tax bill. As earnings on eligible investments in a TFSA are tax free, it’s advantageous for investors to put their savings in there and invest in stocks that can help them rise in value.
Even if you can’t contribute the maximum amount possible to your TFSA, even a $10,000 investment can grow to be a significant part of your retirement later on in life. Below, I’ll show you how that’s possible.
Investing in the right stock
If you’re looking to generate some strong returns over a long period, your best bet is to invest in a stock that has decent growth and that pays a dividend as well. The dividend can help boost the stock’s overall returns. That way even if the stock isn’t performing as well as you were expecting, the dividend can help give your returns a boost.
Its dividend yield is around 4.1%, and with the company increasing payments on an annual basis, there’s the potential to earn a lot more than that just by holding onto the stock.
Over the past 12 months, the stock has also risen 30%. While that’s not a typical return for the energy company, the stock still holds the potential to rise further, as it is trading at 17 times its earnings.
With profits increasing by 17% in 2018, TC Energy is still growing and a stronger oil and gas industry can help boost that bottom line even further.
If we assume that the stock rises an average of 7% per year while also paying 4% in dividends, here’s how quickly a $10,000 investment in TC Energy can grow over the years:
Under this model, it would take a little more than 22 years for the $10,000 invested in TC Energy to grow to $100,000. That means that even if you didn’t invest the money in until the age of 42, you’d still have time to see it reach $100,000 by the time you reach retirement.
There are other, higher-yielding stocks that you can hold that may produce better returns overall. TC Energy is just one example and with cumulative TFSA limits being $69,500 for many individuals, this process can be replicated with several other stocks as well, allowing you to diversify and save for retirement.
A buy-and-hold strategy can be a very effective one in saving for retirement because of the impact that compounding has on your investment.
While $10,000 may appear insignificant today when thinking about retirement, it can grow to be a much more important piece of it years from now.
By investing in stable, blue-chip stocks, you can take advantage of their strong returns without exposing your portfolio to significant risk, giving you the best of both worlds.
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.