How to Invest $88,000 for a Real Chance of a $227,800 TFSA

TFSA investors can maximize portfolio gains and grow their balances quickly through regular contributions and the power of compounding.

| More on:
Businessperson's Hand Putting Coin In Piggybank

Image source: Getty Images

Canadians are fortunate to have the Tax-Free Savings Account (TFSA), a one-of-a-kind investment account, where money growth is tax free for a lifetime. Another outstanding feature is that withdrawals are also tax exempt. You need to contribute without exceeding the yearly contribution limits.

Holding cash in a TFSA is okay, although it’s not advisable, because you can’t maximize portfolio gains with it. Accountholders can hold income-producing instruments such as bonds, guaranteed investment certificates (GICs), mutual funds, and exchange-traded funds (ETFs). However, most TFSA investors prefer dividend stocks.

The TFSA’s value increases over the years, so you can use it to build wealth or boost your retirement fund. However, despite the fantastic advantages, do you have a real chance of growing the balance substantially?

Blue-chip stocks

Owning shares of Toronto-Dominion Bank (TSX:TD) and Canadian Natural Resources (TSX:CNQ) ensures uninterrupted income streams, because both are blue-chip stocks. With the $6,500 TFSA contribution limit for 2023, the cumulative contribution room for someone who turned 18 in 2009 or earlier is $88,000.

Let’s assume you qualify or is eligible to invest the maximum and contribution limit and equally allocate it between the TD and CNQ. Please note that we at the Fool prefer a more diversified portfolio and don’t recommend putting such a large sum into only a couple stocks. Instead, we suggest you mix and match a diverse group of dividend-paying stocks to achieve your target yield.

CompanyPriceDividend YieldHolding Period / Yrs.TFSA in 2043Tax-Free Profit

The computation above is for illustration purposes only and did not consider fees and others to arrive at the final balance and tax-free profit in 20 years. However, the assumption is that all quarterly dividends received were reinvested with the holding period.

Investment takeaways

TD has been paying dividends for 166 years (since 1857) and counting. The $145.21 billion financial institution is the second-largest bank in Canada. Notably, it was the only company that reported revenue and income growth during the 2008 financial crisis.

Big banks are setting aside or raising their provisions for credit losses (PCLs) in anticipation of harsher economic conditions or a recession. The recent collapse of American banks is negatively impacting bank stocks. Still, TD won’t wilt or wither due to the headwinds. Most industry experts agree that Canada’s banking sector is the bedrock of stability.

Canadian Natural Resources boast a top-tier asset base that distinguishes it from industry peers. The $76.73 billion company produces crude oil (light, medium, and primary heavy), bitumen (thermal oil), synthetic crude oil (SCO), natural gas, and natural gas liquids (NGLs).

In 2022, net earnings and cash flows increased 42.7% and 33.9% year over year to $10.9 billion and $19.4 billion. Because of the solid financial position and balance sheet, the board approved two dividend hikes last year (45% combined increase). Management plans to allocate 100% of free cash flow to shareholder returns when net debt goes decreases to $10 billion.

Power of compounding

The power of compounding is always at play, regardless of the investment amount. As long as you maximize your TFSA limit every year and keep reinvesting the quarterly dividends, your balance should grow quickly. Moreover, holding dividend heavyweights TD and CNQ in your TFSA is a definite advantage.

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 Christopher Liew has no position in any of the stocks mentioned. The Motley Fool recommends Canadian Natural Resources. The Motley Fool has a disclosure policy.

More on Dividend Stocks

Happy diverse people together in the park
Dividend Stocks

Gen Z Investors: How to Make $2.8 Million Before Retirement

Gen Z investors have one thing to their advantage: time. Invest wisely and practically any investment could turn into millions.

Read more »

A plant grows from coins.
Dividend Stocks

The 2 Top Monthly Dividend Stocks for March 2023

These are the top two monthly dividend stocks you can buy in Canada in March 2023.

Read more »

Canadian Dollars
Dividend Stocks

Got $6,500? Earn $48/Month Tax-Free Passive Income

High-dividend-paying Canadian stocks include Diversified Royalty. Let's see how a TFSA investment of $6,500 can help you earn $48 in…

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

Need $100? The Best Dividend Stocks for Monthly Income

Here are two of the best monthly dividend stocks you can buy in Canada right now for passive income.

Read more »

Businessperson's Hand Putting Coin In Piggybank
Dividend Stocks

TFSA Investors: Make $100 Per Month With This TSX Dividend Stock

This top TSX dividend stock could help you earn $100/month in tax-free, passive income.

Read more »

Wireless technology
Dividend Stocks

2 TSX Stocks I’d Buy With a Tax Refund

If you have a tax refund coming your way, these two TSX stocks could provide you with stellar long-term income…

Read more »

man window buildings
Dividend Stocks

How to Invest in Retail Stocks When Everyone’s Talking About a Recession

Canadian retail stocks like grocery stores provide stable performance. If you like more yield, you can seek an entry point…

Read more »

Canadian energy stocks are rising with oil prices
Dividend Stocks

The 3 Industrial Stocks That Keep Canada’s Economy Going

Three industrial stocks with solid fundamentals are safer options in the current market environment and should add stability to your…

Read more »