TFSA Investors: How Much to Invest for a Legit Shot at $1 Million

If you invest $100,000 in a diversified portfolio with stocks like Enbridge (TSX:ENB), you may eventually get to $1 million.

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Do you want to reach a $1 million Tax-Free Savings Account (TFSA) balance?

If so, you’ve got a worthy goal, but it’ll be a tall order to get there. As of March 2023, the maximum accumulated TFSA contribution room a person can have is $88,000 worth. That’s a decent chunk of change, but it would take vastly superior returns to grow it to $1 million in a short time period.

In this article, I will explore how much money you’d have to invest to have a legit shot at $1 million in your TFSA.

About $100,000 could do it

It would be possible to get to $1 million in a TFSA starting with $100,000. If you have $88,000 worth of contribution room now, then you will arrive at about $100,000 worth of contribution room in two years’ time (the government adds around $6,000 worth of room each year).

We can illustrate this point with an example. Enbridge (TSX:ENB) is a Canadian oil stock that has a 6.9% yield. “Dividend yield” means dividends paid as a percentage of the amount you paid for a stock. If you have a 6.9% yield, then you get $6,900 in cash each year on a $100,000 investment. If you get a $6,900 dividend plus a meagre $3,100 capital gain each year, then you’re making a 10% annualized return.

How quickly can you get to a million with that return? Well, it takes 7.2 years for an investment growing at 10% to double in value. It takes 3.3 “doubles” for something to rise to 1,000% of its current value. So, if Enbridge can maintain its 6.9% dividend yield and rise 3.1% per year, then it will take 23.75 years for a $100,000 position in it to grow to a million (if you re-invest the dividends).

The above example is purely for illustration purposes, of course. Enbridge is in no way guaranteed to rise 10% per year. It’s a solid company that has long-term contracts shipping oil all over North America, but it faces risks too. Notably, it has a large amount of debt and a tendency to get into legal battles when building new pipelines. It is not guaranteed to rise at 10% or even deliver a positive return. But a 10% return is only about average for stocks over the last few decades, so there’s definitely a chance ENB could make it happen.

The bottom line

As we’ve seen, it doesn’t take enormous returns to get to a $1 million TFSA. If you invest $100,000 in one stock, you could get there in just a little over two decades at just a 10% annual return! The magic of compounding is truly remarkable to behold.

However, in the world of investing, nothing is ever truly guaranteed. I showed above how Enbridge could grow to $1 million in 23.75 years with its dividend and some very small capital gains. But you never know: the dividend could be cut or the stock price could go nowhere. The future is always hazy. Therefore, it is best to invest in a diversified portfolio, let’s say 25 stocks minimum, to make sure you don’t have all your eggs in one basket.

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 Andrew Button has no position in any of the stocks mentioned. The Motley Fool recommends Enbridge. The Motley Fool has a disclosure policy.

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