There are a lot of investors out there who may be fearful that they’re reaching a point of no return and that it’s too late for them. They think they didn’t invest in time, and now they’ve missed out on funds they can never get back.
That couldn’t be more wrong.
Even if you’re a 75-year-old investor starting from scratch, it’s never too late. All it takes is a plan, a budget, and consistency. Let me show you how to create a $50,000 nest egg for your Tax-Free Savings Account (TFSA), starting with absolutely nothing.
First off, how much can you afford?
If you’re starting with nothing for your TFSA, that means, as of writing, you have contribution room of $88,000 in total. Of course, I’m not about to say you should put $88,000 into investments. Instead, you’re going to start small and work up to that $50,000 mark.
This could be done simply by putting aside $5,000 a year for a decade. Given that Canadians make on average about $61,000 per year, as of 2021 according to Statistics Canada, this could be a simple way to achieve it! But if you don’t have that cash on hand, you could still create that $50,000 nest egg.
But to do that, you need to figure out what you can afford. So, look over your budget. The last three months should definitely do the trick to figure out how your spending habits have changed since inflation and interest rates rose. Then you should be able to see where you can cut back and where you can afford to put money aside each paycheque.
And I do mean each paycheque
Rather than put cash into your TFSA whenever you feel like it, instead make automatic contributions that come out each paycheque. Treat it like a bill payment, and the sting won’t hurt at all. Instead, you’ll feel quite proud seeing your TFSA grow higher and higher!
From there, you simply need to drip feed into a strong stock that provides dividends. I would keep it simple and choose a Big Six bank. Right now is a great starting point, since they’re down a bit from the downturn. Further, you get stable passive income through dividends, and since there are provisions for loan losses, the stocks bounce back quickly even from recessions.
A great option to consider is Toronto-Dominion Bank (TSX:TD). It’s a solid growth stock among the banks and is one of the top 10 banks in the United States as well. Further, it’s been expanding with credit card partnerships into wealth and commercial management, and more. And with so many loan payment options, revenue continues to come in.
Creating a $50K nest egg
Now, for the proof behind this. We need to first look at the growth that TD stock has experienced to figure out how much it would take to create $50,000 in a decade. TD stock has grown at a compound annual growth rate (CAGR) of 11.7% in the last decade. TD stock’s dividend has also grown at a CAGR of 9.4% year after year. With that in mind, you can see in the chart below what growth could be like over the next 10 years.
| Year | Shares Owned | Annual Dividend Per Share | Annual Dividend | After DRIP Value | Annual Contribution | Year End Shares Owned | Year End Stock Price | New Balance |
| 1 | 55 | C$3.71 | C$204.07 | C$5,020.39 | C$1,500.00 | 72.47 | C$97.75 | C$7,083.52 |
| 2 | 72.47 | C$4.06 | C$294.16 | C$7,382.29 | C$1,500.00 | 88.94 | C$109.19 | C$9,711.06 |
| 3 | 88.94 | C$4.44 | C$394.97 | C$10,112.09 | C$1,500.00 | 104.53 | C$121.96 | C$12,748.28 |
| 4 | 104.53 | C$4.86 | C$507.82 | C$13,263.74 | C$1,500.00 | 119.32 | C$136.23 | C$16,255.29 |
| 5 | 119.32 | C$5.31 | C$634.19 | C$16,898.82 | C$1,500.00 | 133.41 | C$152.17 | C$20,300.69 |
| 6 | 133.41 | C$5.81 | C$775.71 | C$21,087.58 | C$1,500.00 | 146.86 | C$169.97 | C$24,962.76 |
| 7 | 146.86 | C$6.36 | C$934.21 | C$25,910.16 | C$1,500.00 | 159.75 | C$189.86 | C$30,330.80 |
| 8 | 159.75 | C$6.96 | C$1,111.73 | C$31,457.90 | C$1,500.00 | 172.14 | C$212.07 | C$36,506.61 |
| 9 | 172.14 | C$7.61 | C$1,310.54 | C$37,834.90 | C$1,500.00 | 184.08 | C$236.88 | C$43,606.17 |
| 10 | 184.08 | C$8.33 | C$1,533.17 | C$45,159.68 | C$1,500.00 | 195.62 | C$264.60 | C$51,761.60 |
As you can see, you would just need 55 shares and the addition of $1,500 per year to reach over $50,000 in your portfolio. Those 55 shares cost $4,813.05 at this point. That $1,500 per year is just $58 bi-weekly! And your total investment would come to $19,813.05 over that decade from simple reinvesting.
