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Retirement Tip: How to Turn $10,000 Into $195,000 in 25 Years

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Canadian savers want to retire with enough funds to enjoy a comfortable lifestyle in their golden years.

COVID-19 and the Great Recession

The pandemic arrived just as many people started to feel like they were getting back on track after the challenges created by the Great Recession.

To say it’s frustrating is an understatement. However, market crashes also provide investors with unique opportunities.

Top-quality stocks normally sell off with the broader market during a correction. In fact, many top stocks fall to levels where they offer attractive long-term prospects for above-average returns.

Investors who already own positions in these stocks can take advantage of the dips to add shares to their holdings. New investors get a great opportunity to enhance a diversified retirement portfolio.

Let’s take a look at one top Canadian dividend stock that has delivered impressive gains for investors over the years and should continue to be solid picks for a personal pension fund.

Bank of Nova Scotia

Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) is Canada’s third largest bank. It is somewhat unique among its peers due to the large international operations focused on Latin America.

The company invested billions of dollars in the past decade to build market share in Mexico, Peru, Colombia, and Chile. COVID-19 continues to hit Latin America hard, and this might be the reason Bank of Nova Scotia still trades well below the 2020 high.

Near-term volatility should be expected, but the outlook in coming years is positive for these markets. The four members of the Pacific Alliance trade bloc rely heavily on strong commodity markets to support economic growth. Oil is important for Mexico and Colombia. Copper is a main driver of growth in Peru and Chile.

Copper prices rose steadily over the past five months and now trade near a two-year high. Oil bounced, as well. Analysts say oil could soar in the next five years, as improved demand runs into the impact of massive cuts in capital investment.

Risks?

Ongoing risks remain over the coming months, as the impact of the pandemic lockdowns becomes more apparent. Loan deferrals and government aid programs will expire, and defaults are expected to rise when this happens.

Another coronavirus wave or renewed lockdowns could force Bank of Nova Scotia and its peers to set more cash aside for potential loan losses.

Opportunity

Bank of Nova Scotia trades near $44 per share right now compared to a 12-month high above $76, so there is decent upside opportunity on an economic rebound.

At the time of writing, the dividend provides a 6.5% yield. The payout should be safe.

Bank of Nova Scotia has the capital to ride out the recession and the ongoing challenges already appear priced into the share price. The overall business remains profitable, even in these difficult times. Economic recovery in Canada appears to be on track. Latin American operations should benefit from a surge in commodity prices driven by global stimulus efforts.

Returns

Warren Buffett says investors should be greedy when everyone else is fearful. A quick look at the long-term chart of Bank of Nova Scotia suggests this is true.

The bank survived every major financial crisis in the past century. It will get through the pandemic as well.

Patience rewards buy-and-hold investors. A $10,000 position in Bank of Nova Scotia 25 years ago would be worth about $195,000 today with the dividends reinvested.

The bottom line

Advisors recommend building a balanced investment portfolio.

Bank of Nova Scotia is just one stock among many in the TSX Index that delivered fantastic long-term returns. A $100,000 position in such stocks just 25 years ago would be worth more than $2 million today with the dividends reinvested.

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The Motley Fool recommends BANK OF NOVA SCOTIA. Fool contributor Andrew Walker has no position in any stock mentioned.

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