The Canadian stock market has only returned about 5.1% per year in the last 10 years, because of the lacklustre market performance in the last 12 months. It means if you started a Tax-Free Savings Account (TFSA) with $6,500 today, keep contributing $6,500 annually, for the same 5.1% annual return, you would arrive at about $228,292 in 20 years.
Under normal market conditions, the long-term Canadian market returns are usually a tad higher at about 7%, which would result in about $285,123. That’s a good $56,831 more in wealth but not nearly close to our target of $1 million.
I’ll have you know that with TFSA contributions of $6,500 per year, you need an exact 17.09% annual return over 20 years to arrive at $1 million. That’s a very high return to strive for. Only the best of investors, like Warren Buffett, have achieved this kind of return over a long period.
If you were eligible for the TFSA since its inception in 2009 but never contributed to an account before, you would have contribution room of $88,000. $88,000 this year plus future annual contributions of $6,500 would require returns of only 10.28% over the next 20 years to arrive at $1 million. It goes to show that it’s much easier to achieve your financial goals the earlier you start saving and investing regularly.
Here are a couple of TSX stocks that can help you achieve $1 million.
goeasy stock
Leading Canadian non-prime lender, goeasy (TSX:GSY), delivered extraordinary growth for its long-term investors. For example, from 2012 to 2022, it delivered annualized returns of 32.8%. This return would turn $6,500 per year of investments into about $7,633,159 in 20 years! This is the magic of high compound interest in action.
Of course, past returns don’t dictate future returns. In fact, the TSX stock took a dive of over 15% in the last few days. The news is that the Government of Canada is planning to reduce the maximum allowable rate of interest to an annual percentage rate of 35%. If this change were to materialize, it will negatively impact the non-prime lending industry. However, it shouldn’t impact goeasy, which has a larger scale and operating leverage.
In fact, in its press release, goeasy stated, “Since its inception, the weighted average annual interest rate the company charges its customers has decreased from approximately 45% to 30%, with its loan products starting at rates as low as 9.9%.” Therefore, the company expects to continue to increase its earnings per share.
Brookfield Infrastructure stock
Brookfield Infrastructure Partners (TSX:BIP.UN) stock sold off about 16% in the last 12 months. However, its 10-year annualized returns is about 16.6%. So, it could be an excellent buy-the-dip opportunity.
The utility owns and operates a diversified portfolio of long-live, quality infrastructure assets. It’s diversified across countries and continents and infrastructure type, including utility, transport, midstream, and data assets.
A part of BIP’s strategy is to make acquisitions, optimize the operations, and sell mature assets. Ultimately, it aims for a rate of return of 12-15% on its investments. It also generates sustainable cash flows. Consequently, it achieved healthy dividend growth of about 9% per year in the past 10 years. At writing, BIP offers a decent cash distribution yield of 4.6%.
Start investing early and regularly in solid stocks to have a legitimate chance of hitting the jackpot of $1 million in 20 years. Right now, goeasy and BIP appear to be good buys on corrections.
