Do you want to build a nest egg for retirement in the fastest and most efficient manner? The TFSA (Tax-Free Savings Account) is a serious tool that can help Canadians accelerate wealth creation.
As its name describes, any investment income (capital gains, interest, or dividends/distributions) inside the TFSA is tax-free. The beauty of it being tax-free is that you keep all your income. The more income you keep and reinvest, the more it has the power to compound into substantial wealth given long periods of time.
You don’t need a lot of cash to build something significant. In fact, $30,000 can become $300,000 (or more) sooner than you might think. Here are some examples of some Canadian stocks that have 10X’d in 10 years or less.
A financial stock for huge TFSA returns
goeasy (TSX:GSY) has become one of Canada’s largest non-prime lenders. Over the past 10 years, its stock has increased by 1,328%. That is a 28% average annual return.
A $10,000 investment in goeasy 10 years ago would be worth $142,000 today. If you reinvested its dividend, your investment would be worth $164,000.
With a market cap of only $1.94 billion, it still has substantial potential to multiply in the years ahead. goeasy has been increasing the number of products it provides while also strengthening the quality of its loans. Over time, this has resulted in improving margins and a wider market audience.
Despite such strong historical results, this stock only trades with a price-to-earnings (P/E) ratio of 11 times. It also happens to yield a 3.9% dividend today.
An acquirer with elevated returns
Another TFSA stock with a great record of returns is TerraVest Industries (TSX:TVK). Over the past 10 years, this stock has returned 1,360% for patient shareholders.
That is a 28.4% average annual return. A $10,000 TFSA investment 10 years ago would be worth $145,970. If you reinvested its dividends, that $10,000 would be worth $204,652 today!
TerraVest is a boring blue-chip business. It has a portfolio of businesses that provide energy services, specialized energy storage solutions, energy transportation, and heating products. Its secret sauce is its capital allocation. It buys boring industrial companies at very low valuations. It reaps their cash flows and repeats the cycle.
With a market cap of $700 million, this company is still a small-cap stock. If it can continue to keep compounding through smart investments, there is no reason this stock couldn’t have more upside ahead.
A Canadian SaaS stock
Descartes Systems (TSX:DSG) would have been another smart TFSA stock to buy 10 years ago. Its stock is up 1,016% since 2013. This stock has returned an average 25.2% annual total return. A $10,000 investment would be worth $111,714 right now.
Descartes provides a crucial global network to the logistics industry. It complements this with a wide mix of industry-supportive SaaS (Software-as-a-Service) products and services.
Given supply disruptions from COVID-19, rising geopolitical tensions, cross-border shipping complexity, and increasing e-commerce, Descartes has been enjoying several business tailwinds.
Descartes has demonstrated strong organic growth. However, acquisitions have fuelled most of its expansion. While Descartes is not the cheapest stock, it still should have profitable growth ahead if you take a long investment horizon.
The TFSA takeaway
Look for high-quality companies that consistently deliver strong results (like the three above) and let those compound for years and decades in your TFSA. If you put $30,000 to work in the three stocks above, it would be worth $399,684 today. Look for stocks like these, hold them for years, and you stand to do exceptionally well.