How to Create a Million-Dollar TFSA in Two Decades

Your TFSA could create riches you didn’t know were possible, but only if you commit again and again to your goals!

| More on:

Two decades. It’s true. That’s all it could take to create a million-dollar Tax-Free Savings Account (TFSA). But it’s going to certainly take at least one thing.

Commitment.

Commitment to consistently reinvesting in strong companies again and again. That means not spending your passive income but using it to reinvest in your chosen companies. So today, I’m going to go over the three top stocks I would choose to create that million-dollar TFSA on the TSX today. Then, we’ll see what you could create after 20 years.

The chosen few

If you want a TFSA that’s going to remain consistent, one that you can commit to for two decades, you need stocks that have performed well in the past. Therefore, the best Canadian stocks to consider in my view are Canadian Utilities (TSX:CU), Bank of Montreal (TSX:BMO) and BCE (TSX:BCE).

Each of these companies is at the head of the game in their chosen sectors, and has been around for decades on decades. At least 20 years, but in all three cases much longer. Plus, each is in sectors that are practically guaranteed to be around for the next 20 years as well.

CU stock is one of the best Canadian stocks on the TSX today for your TFSA as it’s in the utilities sector. It provides a stable flow of revenue, and that’s only growing stronger with the transition to renewable energy. It’s also the only Dividend King on the TSX today.

BMO stock is one of the Big Six Banks with huge market share, and providing a 4.29% dividend to boot. It’s also on the growth path from investing in the United States, putting it ahead of the pack in terms of current expansion opportunities. As for BCE stock, it holds 60% of the telecommunications market share, and that won’t be disappearing even with a potential merger from other telecoms.

Making that million

To aim for $1 million, we need to figure out a few things. You have 20 years, and let’s say you make about $65,000 per year. A great investment starting point then is about 10% of your income, so $6,500 per year, which is within the TFSA contribution limit. Then, you have $30,000 to get you going.

Based on the historic performance of these three stocks on the TSX today, we’ll give an average compound annual growth rate (CAGR) of 10%. Plus, a CAGR of 7% increase in dividends for your portfolio. Now, we’ll create a chart to see how this will add up over time.

YearPrincipalAnnual DividendYieldAfter DRIP ValuePrincipal IncreaseAnnual ContributionNew Balance
1$30,000.00$1,684.345.50%$31,684.34$3,000.00$6,500.00$41,184.34
2$41,184.34$2,247.965.35%$43,432.31$4,118.43$6,500.00$54,050.74
3$54,050.74$2,868.225.20%$56,918.96$5,405.07$6,500.00$68,824.04
4$68,824.04$3,550.685.06%$72,374.72$6,882.40$6,500.00$85,757.12
5$85,757.12$4,301.394.92%$90,058.51$8,575.71$6,500.00$105,134.22
6$105,134.22$5,126.904.79%$110,261.12$10,513.42$6,500.00$127,274.54
7$127,274.54$6,034.364.66%$133,308.90$12,727.45$6,500.00$152,536.36
8$152,536.36$7,031.504.53%$159,567.85$15,253.64$6,500.00$181,321.49
9$181,321.49$8,126.694.41%$189,448.18$18,132.15$6,500.00$214,080.33
10$214,080.33$9,329.044.29%$223,409.37$21,408.03$6,500.00$251,317.40
11$251,317.40$10,648.384.17%$261,965.78$25,131.74$6,500.00$293,597.52
12$293,597.52$12,095.384.06%$305,692.90$29,359.75$6,500.00$341,552.66
13$341,552.66$13,681.573.95%$355,234.23$34,155.27$6,500.00$395,889.50
14$395,889.50$15,419.433.84%$411,308.93$39,588.95$6,500.00$457,397.88
15$457,397.88$17,322.463.73%$474,720.34$45,739.79$6,500.00$526,960.12
16$526,960.12$19,405.223.63%$546,365.34$52,696.01$6,500.00$605,561.36
17$605,561.36$21,683.483.53%$627,244.83$60,556.14$6,500.00$694,300.97
18$694,300.97$24,174.243.44%$718,475.21$69,430.10$6,500.00$794,405.31
19$794,405.31$26,895.893.34%$821,301.20$79,440.53$6,500.00$907,241.73
20$907,241.73$29,868.243.25%$937,109.97$90,724.17$6,500.00$1,034,334.14

As you can see, after 20 years this portfolio would give you $1.034 million! What’s more, you could confidently hold this for another 20 years, renewing your commitment to creating income that lasts a lifetime.

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 Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Dividend Stocks

coins jump into piggy bank
Dividend Stocks

How to Use Your TFSA to Earn $1,057/Year in Tax-Free Income

Investing $5,000 in each of these high-yield dividend stocks can help you earn over $1,057 per year in tax-free income.

Read more »

Man in fedora smiles into camera
Dividend Stocks

How I’d Build a $20,000 Retirement Portfolio With These 3 TSX Dividend All-Stars

If you're worried about returns and want to focus on dividends, these dividend stocks are the first to consider.

Read more »

View of high rise corporate buildings in the financial district of Toronto, Canada
Dividend Stocks

If I Could Only Buy and Hold a Single Canadian Stock, This Would Be It

Here's why this high-quality defensive growth stock is one of the best Canadian companies to buy now and hold for…

Read more »

Concept of multiple streams of income
Dividend Stocks

3 Safe Dividend Stocks for Retirees

These three Canadian stocks are ideal for retirees due to their solid cash flows, consistent dividend growth, and healthy growth…

Read more »

dividends can compound over time
Dividend Stocks

3 Canadian Market Leaders Where I’d Invest $10,000 for Sustained Performance

Market leaders like Alimentation Couche-Tard Inc (TSX:ATD) are worth an investment.

Read more »

Hand Protecting Senior Couple
Dividend Stocks

How I’d Allocate $12,000 Across Canadian Value Stocks for Retirement Planning

Suncor Energy Inc (TSX:SU) is a Canadian energy stock worth investigating.

Read more »

Pile of Canadian dollar bills in various denominations
Dividend Stocks

Stocks You Can Buy Now and Get Monthly Payouts From for Decades

Are you looking for monthly payouts? There are more than a few great investments that can fuel a monthly income…

Read more »

e-commerce shopping getting a package
Dividend Stocks

Where I’d Put $1,000 Right Away in 2 Top Canadian Stocks for Growth

These two Canadian stocks are strong options and have been for decades, and that's not going to change anytime soon.

Read more »