Reaching $1,000,000 in savings is a great target for retirement. Not necessarily because it’ll be enough money to last you during your old age but because that can be enough to generate some significant dividend income. A $1 million investment that’s paying you on average, 5% in dividends will generate $50,000 in recurring income for you.
Inside of a Tax-Free Savings Account (TFSA) that dividend income can also be tax-free, making it even more valuable. It’s a terrific source of cash flow that in conjunction with any other retirement income you have could make your golden years very comfortable.
Getting your TFSA to $1 million
The challenge, however, is to grow your TFSA over the years and to eventually get to the $1 million mark. It’s going to require patience and many investing years for this to happen. But it’s definitely doable if you’re able to max out your TFSA today.
Let’s suppose that you invested $69,500 into an exchange-traded fund (ETF) like the BMO NASDAQ 100 Equity Hedged to CAD Index ETF (TSX: ZQQ). The fund’s home to the best tech stocks you can find and even in 2020, amid the pandemic, the ETF’s up 26% thus far.
Over the last five years, it’s up more than 130%, averaging a compounded annual growth rate of over 18%. Even if you were to assume the fund would grow at a modest 15% per year, here’s how your portfolio’s returns could look over the next couple of decades:
| Year | Portfolio |
| 1 | $79,925.00 |
| 2 | $91,913.75 |
| 3 | $105,700.81 |
| 4 | $121,555.93 |
| 5 | $139,789.32 |
| 6 | $160,757.72 |
| 7 | $184,871.38 |
| 8 | $212,602.09 |
| 9 | $244,492.40 |
| 10 | $281,166.26 |
| 11 | $323,341.20 |
| 12 | $371,842.38 |
| 13 | $427,618.74 |
| 14 | $491,761.55 |
| 15 | $565,525.78 |
| 16 | $650,354.65 |
| 17 | $747,907.85 |
| 18 | $860,094.03 |
| 19 | $989,108.13 |
| 20 | $1,137,474.35 |
After about 19 years, your $69,500 TFSA could grow to more than $1 million if the fund were to continue growing at this rate. It’s by no means a guarantee that it will continue producing such impressive returns, and there will likely be fluctuations along the way, but the NASDAQ’s typically been the best place to invest your money in recent years:
The fund itself has outperformed the NASDAQ exchange.
With the ETF holding the hottest, most valuable stocks you can find on the markets, it’s hard to bet against it over the long term. By investing in an ETF you also simplify the investing process by not having to select individual stocks to invest in.
The one disadvantage here is the ETF is focused on tech and won’t give you a balanced mix of different sectors in your portfolio. But that diversification will likely cost you some more lucrative returns in the process.
And the COVID-19 pandemic’s proving that technology is going to be more important world than ever before, not less. That’s why betting on the NASDAQ’s not likely going to be a bad move, whether you’re looking at the short term or the long term.
Bottom line
Stocks generally increase in value over time and as you can see with the BMO NASDAQ 100 ETF, those returns can quickly grow in a short amount of time thanks to compounding. The key is leaving your investments alone, especially when they’re in good, blue-chip stocks.
Reaching $1 million isn’t impossible, but it’s also not easy. But if you’ve got a good chunk of savings to work with and many investing years left, it’s a realistic target to aim for.
