The Motley Fool

TFSA Investors: How to Turn $3,000 Into $600,000

Image source: Getty Images

TFSA investors have access to the most powerful investing vehicle in Canada. Tax-Free Savings Accounts (TFSAs) allow you to shield an unlimited amount of capital from taxes forever. Your TFSA can accrue millions of dollars, and you’ll never pay a cent to the CRA.

The only thing that’s capped is your total contribution amount. But with a $6,000 limit in 2020, that’s still plenty to build a fortune. In fact, you can accumulate a portfolio worth $600,000 or more by contributing half the annual maximum. All it takes is consistency, patience, and the right stock picks.

TFSA investors that want to build a fortune should follow these three rules.

Reap what you sow

As the old saying goes, it takes money to make money. This is particularly true when it comes to investing in the market. Your returns will always be a function of what you put in. The more money you contribute, the more valuable your potential gains become.

When it comes to building wealth, every TFSA investor should take advantage of automated deposits. These recurring transactions force you to continually invest in the stock market in both good and bad times.

Most TFSAs allow you to establish automated deposits through your contribution settings. For example, you can initiate monthly transfers of $500. At the start of each month, that amount of capital will move automatically from your bank account to your TFSA. You don’t have to lift a finger, taking human error and fallibility out of the equation.

As we’ll see, even small recurring deposits can amass a fortune for TFSA investors.

Time is essential

Let’s say you want to contribute half the annual contribution maximum in 2020. That would equal $3,000. The best way to do this isn’t through an annual lump sum, but through periodic investments. Automated contributions make this process a breeze.

To save $3,000 every year, TFSA investors need to contribute $250 per month, or roughly $8 per day. Believe it or not, the power of compound interest can transform these small numbers into remarkable sums.

Investing $250 per month at a 10% interest rate will net you $3,100 after 12 months. That’s not bad, but the real magic happens over a period of decades. The magic of compound interest can push your daily gains into the hundreds of dollars. After a decade, you’ll have $60,000. Two decades of investing results in $200,000.

After three decades, your portfolio’s value will reach $600,000. Not bad for a TFSA investor saving just $8 per day.

TFSA investor stock picks

Opening a TFSA is the smartest thing you can ever do for your financial well-being. Automatic contributions and a healthy dose of patience adds to this winning formula. The only missing piece is to identify stocks that can compound your capital over the long term.

As a TFSA investor, it pays to keep an eye on the long haul. Savers willing to think over a period of decades, not months, almost always amass the most wealth. When picking stocks to buy with your automated contributions, do the work necessary to identify long-term compounders. From there, you simply need to buy and hold with every additional deposit.

Want the best buy-and-hold stocks?

The 10 Best Stocks to Buy This Month

Renowned Canadian investor Iain Butler just named 10 stocks for Canadians to buy TODAY. So if you’re tired of reading about other people getting rich in the stock market, this might be a good day for you.
Because Motley Fool Canada is offering a full 65% off the list price of their top stock-picking service, plus a complete membership fee back guarantee on what you pay for the service. Simply click here to discover how you can take advantage of this.

Click Here to Learn More Today!

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 Ryan Vanzo has no position in any stocks mentioned.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.