Many Canadians have likely been forced to reshuffle their retirement plans in the face of the COVID-19 pandemic. The crisis has changed the very nature of work for millions of Canadians. Worse, it has put many more out of work entirely. The Canada Revenue Agency (CRA) has offered up new programs to help citizens in this crisis. Investors should continue to utilize the CRA-administered Registered Retirement Savings Plan (RRSP), which offers some fantastic near- and long-term benefits.
Today, I want to discuss how Canadians can use the RRSP to turn as little as $10,000 into $500,000 over the course of a decade. Back in September, I’d suggested that RRSP investors should stick to a strategy. That often involves constructing a retirement savings target.
CRA: Why the RRSP should not be ignored
In recent articles, I’d discussed the many benefits of the CRA administered Tax-Free Savings Account (TFSA). This account is great for its flexibility and tax-free income and growth offerings, but the RRSP possesses its own advantages. Like the TFSA, all income and capital gains in an RRSP are tax-free. Moreover, RRSP contributions provide investors with attractive annual tax boons that can really add up over time. There are penalties for dipping into this registered account, but that is just as well. These penalties should make it easier for investors to set and forget rather than giving into temptations to withdraw their retirement savings.
How to use this account to make a fortune this decade
While the pandemic gave the market a big scare to start this year, it has recovered nicely in the summer and fall. North American stocks have since soared to record highs, and there are high hopes, as vaccines are rolling out across the globe. The previous decade demonstrated that a few smart investments early on could make fortunes by the end of a 10-year stretch.
Constellation Software pursued an extremely aggressive acquisition strategy over the course of the 2010s. A $5,000 investment in Constellation on January 1, 2010 would have been worth $203,000 as at December 31, 2019. Shares of Constellation Software soared 4,060% over the course of the previous decade.
Dollarama is another TSX-listed stock that generated massive returns for its shareholders in the 2010s. The same $5,000 investment in Dollarama stock at the beginning of the previous decade would have been worth $51,500 on December 31, 2019. So, a $10,000 investment in these two stocks would have generated over $244,000 in gains. That growth will not be paid in a capital gains tax to the CRA. This should make any RRSP investors smile.
CRA: What stocks should you stash in your RRSP right now?
The past is just that, so investors should be looking for new stocks and opportunities in the early 2020s. Moreover, the RRSP dollar limit is going up in 2021. Now is the time to consider making moves. goeasy (TSX:GSY) is one financial services stock I love for RRSP investors.
Shares of goeasy have climbed 44% in 2020 as of close on December 17. The company released its third-quarter 2020 results on November 3. Its loan portfolio grew 14% year over year to $1.18 billion and adjusted diluted earnings per share shot up 56% to $2.00. Amazingly, goeasy suffered no reduction in its personnel during this crisis. This company is perfectly suited to face the challenges of the 2020s and appeal to a new generation of prospective clients.
goeasy stock last had a favourable price-to-earnings ratio of 16. It offers a quarterly dividend of $0.45 per share, representing a 1.8% yield. RRSP investors should be targeting stocks like goeasy before the new year.
Speaking of stocks to add to an RRSP...
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Fool contributor Ambrose O'Callaghan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Constellation Software.