The best investment strategy is to take a long-term view of the equity market and allocate capital to top-quality stocks. You can choose to build wealth by investing in dividend stocks or growth stocks or a combination of the two.
If you have a large risk appetite, then you can allocate a significant amount of wealth towards growth stocks. I’ll outline a couple of ways that you can get your TFSA to a million dollars by retirement.
The conservative approach to build a rock-solid TFSA
The first strategy is by relying on a combination of dividends and capital gains. For this, you need to identify a company that has strong financials with the ability to pay dividends in good times and bad. One such Canadian giant is TC Energy (TSX:TRP)(NYSE:TRP), a North American infrastructure heavyweight.
TC Energy has over $100 billion in assets and generates a stable stream of revenue due to a contract-based business model. A fee-based model enabled TC Energy to increase dividends at an annual rate of 7% in the last 20 years. Further, in the last 10 years, the stock has generated returns of 4.4%. TC Energy’s forward dividend stands at a tasty 5.7%.
If we consider this growth rate to be constant for TC Energy stock, it will take just over 32 years for you to convert a $100,000 investment in the stock to $1,000,000. The TFSA contribution limit for 2020 is $6,000 and the cumulative contribution room since the account’s inception is $69,500.
So, in order to start with $100,000, you can include your spousal TFSA limit, if applicable, or the account of another family member to attain your financial goals. One problem is that investing in dividend-growth stocks requires discipline, and 32 years might seem like a long stretch, especially if you want to accelerate your retirement.
The aggressive approach
If you are looking for a shorter time frame to achieve the $1 million mark, your best bet remains to identify growth stocks. Companies that grow top-line and earnings at a stellar rate tend to crush broader market returns and create massive wealth. These companies come with high risk, but the returns are significant, too.
For example, shares of Canada’s e-commerce giant Shopify have returned 5,858% since its IPO. This means if you had invested $10,000 in Shopify’s IPO in May 2015, your investment would have exceeded half-a-million dollars already. Similarly, a $10,000 each investment in tech giants south of the border like Apple, Amazon, and Netflix 10 years back would have returned a cumulative $6,56,000 today.
There are several growth stocks to consider right now. You can look to invest in Canada’s tech companies such as Kinaxis, Docebo, and Lightspeed, which are staging a comeback in the last few months. These companies have expanding addressable markets and should outperform broader markets in the upcoming decade. Investors can also look at U.S. growth stocks such as The Trade Desk, Splunk, Okta, and Twilio to diversify risk and create a robust portfolio of quality growth stocks.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. David Gardner owns shares of Amazon, Apple, and Netflix. Tom Gardner owns shares of Netflix, Okta, Shopify, The Trade Desk, and Twilio. The Motley Fool owns shares of and recommends Amazon, Apple, Netflix, Okta, Shopify, Shopify, Splunk, The Trade Desk, and Twilio. The Motley Fool owns shares of Lightspeed POS Inc. The Motley Fool recommends KINAXIS INC and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. Fool contributor Aditya Raghunath has no position in any of the stocks mentioned.