How to Turn a $100K TFSA Into $1M in 12 Years

Here are three ways to turn a $100,000 TFSA into $1 million much sooner than you think possible.


Image source: Getty Images

Congratulations on building a $100,000 Tax-Free Savings Account (TFSA). By now, you should have gained some valuable stock investing experience, which can assist you in propelling your TFSA into $1,000,000 in 12 years.

Specifically, you’ll need to target a 20% rate of return on your stock investments. That’s right. There’s no other asset class that’ll deliver that kind of returns.

You might be skeptical about the feasibility of this goal because only the greatest investors — like  and Peter Lynch and Warren Buffett — have achieved long-term returns like this.

A market crash scenario is not necessary

It doesn’t necessarily require a market crash scenario, though, it would surely move ahead our 12-year deadline. Tonnes of blue-chip stocks that provided safe dividends were oversold during the pandemic crash last year.

For example, from a low to their current levels, TD and CNR stocks are up about 50%. In other words, you didn’t need to buy at the lowest point, just need to buy when the stock of a solid company crashes along with the rest of the market.

We’re not experiencing a market crash right now. In this case, large-cap growth stocks and small-cap stocks with a bright future can help us achieve a 20% rate of return.

Large-cap growth stocks

The great thing about investing in a TFSA is that most stock returns are tax free inside, including dividends and booked price appreciation. One exception is foreign dividends that have withholding taxes, which are lost.

For this reason, you should hold U.S. dividend stocks that pay decent qualified dividends in an RRSP/RRIF over a TFSA. Otherwise, there would be a 15% withholding tax on the U.S. dividends.

This makes TFSA the perfect place to invest growth stocks.

Alibaba is a wonderful business that provides diversity outside of North America. The e-commerce behemoth in China has established platforms to sell from consumer to consumer as well as from business to consumer.

At US$243 per share, BABA trades at a PEG ratio of close to one. And it’s expected to grow its earnings per share at a compound annual growth rate of 24% per year over the next three to five years. So, it’s very attractive.

Brookfield Asset Management is a super diversified business in terms of its operations and the geographies it operates in. It’s a global alternative asset manager with US$575 billion of assets under management across real estates, renewable power like hydro- and wind-powered facilities, infrastructure, private equity, and credit. From its current levels, analysts estimate a total return of about 28% over the next 12 months.

Small-cap stocks

Small-cap stocks are a riskier group of stocks to invest in. There’s a larger pool of investors who are looking for quick profits in small-cap stocks. Moreover, any news that impacts the company can drive a big rally or selloff in the stock. Therefore, small-cap stocks could be very volatile. Whereas it’s normal for the market to go up or down 3% in a day, it’s quite common for small-cap stocks to rise or decline 10-20% in a day.

You need to select extra carefully and invest in the ones that have a bright future. If you hit the jackpot, you’ll know fairly quickly because the stock could double or triple within a fairly short time.

You could go treasure hunting on the TSX Venture Exchange. Often, stellar companies graduate from the TSX Venture Exchange to the TSX sooner or later. WELL Health and Xebec both jumped from the TSXV to the TSX. Their three-year returns were approximately 150% per year, respectively.

Don’t let the past returns entice you, though. Their future returns can be much lower given that they are bigger companies and have had very nice runs over the past few years. You could better secure +20% returns by searching for the next jackpot among the top companies on the TSXV.

The Foolish takeaway

By generating 20% total returns per year from a TFSA that you continue to contribute $6,000 a year, you’ll arrive at $1,000,000 from $100,000 in 12 years. Specifically, you’ll reach $1,176,590 by the end of the period.

If you’re investing in large-cap growth stocks, divide your capital across 10-20 top ideas. If you’re investing in small caps, divide your capital across at least 25 ideas or size your positions accordingly.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Kay Ng owns shares of Alibaba Group Holding Ltd., Brookfield Asset Management, The Toronto-Dominion Bank, WELL Health, and Xebec. David Gardner owns shares of Canadian National Railway. The Motley Fool owns shares of and recommends Alibaba Group Holding Ltd., Brookfield Asset Management, and Canadian National Railway. The Motley Fool recommends BROOKFIELD ASSET MANAGEMENT INC. CL.A LV and Canadian National Railway.

More on Dividend Stocks

dividends grow over time
Dividend Stocks

1 Magnificent Dividend Stock That’s Down 10% and Trading at a Once-in-a-Decade Valuation

This dividend stock may be down around 10%, but there is a huge future opportunity for those wanting growth as…

Read more »

Canada national flag waving in wind on clear day
Dividend Stocks

RRSP Must-Haves: 2 Canadian Stocks to Secure Your Future

The TSX’s dividend pioneer and first Dividend King are must-haves in an RRSP to ensure financial security in retirement.

Read more »

stock research, analyze data
Dividend Stocks

How Much to Invest to Get $500 in Dividends Every Month

TSX dividend stocks such as Enbridge, TD Bank, and Telus, can help you earn $500 in monthly dividend payments.

Read more »

Golden crown on a red velvet background
Dividend Stocks

Dividend Powerhouses: Canadian Stocks to Fuel Your Portfolio

These two top Canadian dividend aristocrats are some of the top stocks on the TSX to buy now and hold…

Read more »

Dial moving from 4G to 5G
Dividend Stocks

This Undervalued Dividend Stock is Worth Buying Right Now

Want an undervalued dividend stock with long-term potential and a juicy yield? Here's an option you may regret not buying…

Read more »

A worker gives a business presentation.
Dividend Stocks

1 Stock I’m Buying Hand Over Fist in July Despite the Market’s Pessimism

This top dividend stock is going through a rough patch, but don't let that count out all the growth we've…

Read more »

person on phone leaning against outside wall with scenic view at airbnb rental property
Dividend Stocks

2 TSX Stocks Poised to Have a Big Summer

Restaurant Brands International (TSX:QSR) stock and another darling that could be too cheap to ignore this summer.

Read more »

Dividend Stocks

Forget Fortis Stock: Buy This Magnificent Utilities Stock Instead

Looking for high dividends and returns? Then I'm sorry, but Fortis (TSX:FTS) stock probably isn't for you.

Read more »