Growth stocks are incredible. Just look at Constellation Software (TSX: CSU) and Shopify (TSX: SHOP)(NYSE:SHOP), both of which rose 40 to 60 times in value in under a decade.
Think of how lucrative those returns are. A $5,000 investment would have become $200,000 to $300,000. You could have become a millionaire by investing just $20,000!
The only issue is taxes. In some cases, you could lose up to half of your profits. Ouch.
Luckily, the Canada Revenue Agency gives every Canadian a way to avoid these taxes completely. You can invest a few hundred dollars, or even a few thousand dollars at a time, with the money permanently protected from taxes.
There are only two steps: learn how to spot lucrative growth stocks, and invest using a tax-advantaged account.
How to find lucrative stocks
Everyone wants to find stocks that can double, triple, or even quadruple in value. Most are fishing in the wrong pond. To find stocks with lucrative upside, you need to start with businesses that can scale rapidly. I’m talking about software companies.
“Software products can scale worldwide in a matter of hours,” I wrote recently. “They generate higher margins and greater returning customer rates.”
Software has several unique characteristics that make these businesses perfect for growth investors. Just compare these stocks to hardware businesses.
For Apple to sell an iPhone, it needs to physically create another iPhone. That takes time and money. To sell you another iPhone, it has to convince you to ditch your current device and buy another. That’s hard to do repeatedly.
For Constellation or Shopify to sell more software, however, all a user needs to do is go online or get a download link. They’re up and running in minutes, with no friction costs. And these products are usually sold on a subscription basis, so these companies generate recurring revenues for selling the same product.
If you want big growth, stick with software stocks. Now you just need to protect those gains from the CRA.
Buy growth stocks with this account
Surprise, surprise, but the best tax shield in Canada is the Tax-Free Savings Account (TFSA). These accounts permanently protect your money from dividend and capital gains taxes.
Many Canadians already use a TFSA, but did you know that most people use these accounts incorrectly?
Shockingly, the most popular asset for a TFSA is cash! Millions of Canadians are getting unlimited tax savings, and are squandering those powers to protect annual interest of 1% or less. That’s a tragedy.
The best way to maximize your TFSA is to buy growth stocks, which is the only way you can generate truly massive gains while paying $0 to the CRA. You get to keep it all.
If you don’t have a TFSA, open one today. It’s as close as it gets to free money.
If you already have a TFSA, take a close look at your holdings. Are you maximizing your tax advantages by investing in growth stocks, particularly software companies?
In order to grow your money as quickly as possible, stash your growth investments in a TFSA.
