Got $5,000? Buy These 2 Stocks and Hold Until Retirement

Are you looking to turn $5,000 into tens or even hundreds of thousands? These Canadian stocks could do the trick.

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You don’t need to start with a lot of capital to build a substantial stock portfolio for retirement. However, you do need a tonne of patience and an iron stomach when investing for the long term.

In the near term, stocks are volatile based on a wide array of factors. The economy, geopolitics, the weather, seasonality, sentiment, and business fundamentals can all cause any stock to swing drastically at a moment’s notice.

Give top-quality stocks time to compound, and they can build wealth for retirement

Stocks in high-end businesses tend to perform very, very well for very, very patient investors. This is especially so for stocks that can compound their earnings at very high rates of return. Books like 100 to 1 in the Stock Market by Thomas Phelps and 100 Baggers by Christopher Mayer provide many examples how one big stock home run can make life-changing wealth.

In fact, in Canada we have several examples of stocks that have generated substantial returns over a 10- or 20-year period. Here are two stock examples that turned a $5,000 investment into tens or even hundreds of thousands. Given how well their businesses continue to perform, chances are very good that strong returns will continue.

Constellation Software: The model of compounding

One of the first Canadian stocks we have to consider in this case study is Constellation Software (TSX:CSU). Over the past 15 years, it has delivered an average annual return of 35.7%. That is a 9,740% total return. That means a $5,000 investment then would be worth $492,000 if held to today!

Constellation operates over 650 niche software businesses across the world. These businesses focus on specific verticals, where it can become a leading provider in its geography or core market. These small businesses collectively generate a lot of excess cash.

Rather than pay a big dividend, Constellation re-invests its cash flows into acquiring more businesses into its fold. Right now, it has over 60,000 businesses that it sees in its investable universe. Its growth opportunity remains large.

With a market cap of $54 billion today, it seems unlikely that this stock will continue growing at 35% annually. However, even if its annual rate of return halves, investors could stand to do very well.

The company has very smart managers and a strong balance sheet. Likewise, given the essential nature of its software services, it is generally a defensive business. Even if returns were strong in the past, it could still deliver for long-term shareholders in the future.

TerraVest: An unknown stock with a great track record

TerraVest Industries (TSX:TVK) is a largely unknown Canadian growth stock. Yet it has averaged a 26% annual return since 2013. A $5,000 investment 10 years ago would be worth $51,000 if held to today. TerraVest operates and acquires niche businesses in the energy services industry.

Given how cyclical energy can be, TerraVest has been able to swipe up niche service companies at very low valuations. It can then apply operating and financial expertise to help juice up profitability and overall returns.

TerraVest only has a market cap of $480 million. Most people have never heard of this business. Yet, its track record is impressive. Given its exposure to the energy industry, this stock may be more volatile than other Canadian compounders. So, this stock may not be for everyone.

However, if you are willing to do the work to understand its business and how well it allocates capital, it may be a worthwhile stock to buy and hold long into retirement.

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 Robin Brown has positions in Constellation Software and TerraVest Industries. The Motley Fool recommends Constellation Software and TerraVest Industries. The Motley Fool has a disclosure policy.

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