Your Tax-Free Savings Account (TFSA) has a limit of $6,500 contribution in 2023. And probably this limit will continue for a long term. Is it possible to become a millionaire by investing $6,500 every year? If you harness the power of compounding and reinvest your investment income, you can convert an annual investment of $6,500 into $1 million in 19 years. As they say, instead of timing the market, spend time in the market.
On the journey to a million-dollar retirement
It doesn’t take a genius to become rich through investing. It takes perseverance. See the simple math in the table below.
| Year | Investment | Investment Return @ 20% | Total Amount |
| 2023 | $6,500 | $6,500.0 | |
| 2024 | $6,500 | $1,300.00 | $14,300.0 |
| 2025 | $6,500 | $2,860.00 | $23,660.0 |
| 2026 | $6,500 | $4,732.00 | $34,892.0 |
| 2027 | $6,500 | $6,978.40 | $48,370.4 |
| 2028 | $6,500 | $9,674.08 | $64,544.5 |
| 2029 | $6,500 | $12,908.90 | $83,953.4 |
| 2030 | $6,500 | $16,790.68 | $107,244.1 |
| 2031 | $6,500 | $21,448.81 | $135,192.9 |
| 2032 | $6,500 | $27,038.57 | $168,731.4 |
| 2033 | $6,500 | $33,746.29 | $208,977.7 |
| 2034 | $6,500 | $41,795.54 | $257,273.3 |
| 2035 | $6,500 | $51,454.65 | $315,227.9 |
| 2036 | $6,500 | $63,045.58 | $384,773.5 |
| 2037 | $6,500 | $76,954.70 | $468,228.2 |
| 2038 | $6,500 | $93,645.64 | $568,373.8 |
| 2039 | $6,500 | $113,674.77 | $688,548.6 |
| 2040 | $6,500 | $137,709.72 | $832,758.3 |
| 2041 | $6,500 | $166,551.67 | $1,005,810.0 |
You start with $6,500 this year and invest another $6,500 next year. With only four months left in 2023 and a muted growth in the remainder of the year, I calculated 20% average returns from 2024. If your $13,000 investment ($6,500 x 2) generates a 20% return, you will earn $1,300 tax-free investment income in TFSA. Instead of withdrawing the returns, if you invest them in stocks and replicate a 20% return, you can reach the $1 million goal by 2041.
Two stocks to build a million-dollar retirement fund
Two decades is a long time, but so is the retirement. No stock can generate 20% guaranteed returns every year. There are ups and downs, but the long-term compounded average comes to 20% returns.
If you are 20 years away from retirement, you can invest in the following growth stocks that have the potential to generate 20% compounded average returns in the next five to seven years.
Descartes Systems
Descartes Systems (TSX: DSG) has a track record of giving a 22% compound annual growth rate (CAGR) return in the last five years, which has been a roller-coaster ride for the company. The year 2018 saw the U.S.-China trade war, followed by Brexit, then pandemic-induced e-commerce boom, the return of air travel and supply chain disruption due to the Russia-Ukraine war. At every level, the demand for Descartes’s supply chain solutions increased.
In these five years, Descartes’s net margins improved from 11% to 21%. It is just the beginning. As world trade becomes more efficient and e-commerce volumes pick up, Descartes could benefit from its logistics solutions offerings like last-mile delivery.
Now is a good time to buy the stock as it trades below $100 due to market weakness. Trade and e-commerce volumes could pick up during the holiday season, driving Descartes’s stock price. But if a recession is imminent, then Descartes’s stock could fall. If it falls further, you could buy more as this stock will likely recover in a strong economy.
Nuvei
Nuvei (TSX: NVEI) is another e-commerce stock. This stock fell 47% in early August after it reported lesser-than-expected earnings and reduced its 2023 outlook. The company lowered its outlook, as it cut ties with a large customer, and new business from Paya is taking longer to pick up momentum.
Amid this weakness, Nuvei showed confidence in its business by announcing its first-ever cash dividend of $0.10 per share. While the stock lost almost 50% value, I am still bullish, as it has strong fundamentals. The company is focusing on repaying debt and returning excess capital to shareholders.
Now is a good time to buy the stock while it trades at its all-time low. Value stocks are found at difficult times. While the stock price might remain weak for a few months, it could grow severalfold when the economy recovers.
The two stocks have the potential to generate multiple-fold growth in the next five to seven years, as they cater to future business needs. They can give your retirement portfolio a boost and help you retire a millionaire.
