TFSA Wealth: How to Turn $25,000 Into $250,000 for Retirement

TFSA investors can create a diversified portfolio of stocks, bonds, and cryptocurrencies to generate outsized gains over time.

The primary goal behind investing is to build wealth for retirement. But investing can be quite tricky as you need to have clear financial goals and invest savings across asset classes to lower overall risk and enjoy the benefits of diversification.

You can also leverage the flexibility offered by registered accounts such as the TFSA (Tax-Free Savings Account) and start investing a retirement fund with as little as $25,000. The TFSA is a tax-sheltered account and can be used to hold a portfolio of quality stocks and exchange-traded funds in addition to other qualified investments.

The cumulative contribution limit for TFSA holders who have never contributed and were of age at its inception has increased to $88,000 in 2023. So, let’s see where TFSA users should invest $25,000 right now.

Invest in Guaranteed Investment Certificates

The recent interest rate hikes have made fixed-income instruments, such as Guaranteed Investment Certificates, or GICs, popular among Canadians. Here, you open an account with a bank or credit union and deposit your savings for a specific period of time, which may range from a few months to multiple years.

In case you withdraw your principal amount before the lock-in period is over, the bank may levy penalties. GICs are considered low-risk investments and are ideal for those nearing retirement.

Invest in ETFs

Around 95% of large-cap mutual funds in the U.S. have failed to beat their benchmarks, making ETFs an ideal investment option for most retail investors. You can buy an ETF that tracks indices such as the S&P 500, providing you with exposure to the largest companies in the world, including Apple, Amazon, Tesla, and Alphabet.

In the last six decades, the S&P 500 index has returned an average of 10% each year, allowing investors to create massive wealth over time.

Invest in dividend-growth stocks such as goeasy

You can allocate a certain portion of your savings towards quality dividend growth stocks such as goeasy (TSX: GSY). Valued at a market cap of $1.9 billion, goeasy is part of the cyclical lending industry but has returned 950% to shareholders in dividend-adjusted gains since October 2013.

Despite these outsized returns, goeasy currently offers you a dividend yield of 3.4%. Moreover, the company has increased dividends by more than 15% annually in the last 20 years, showcasing the resiliency of its cash flows.

Invest in Bitcoin and cryptocurrencies

For those with a large risk appetite, investing in cryptocurrencies can help you generate exponential returns. Historically, Bitcoin has experienced a four-year bull-bear cycle, and the next uptick in prices is forecast to begin in early 2024.

The Bitcoin halving event (scheduled in April 2024) has traditionally acted as a key catalyst for prices. Here, the mining rewards and the number of BTC that can be mined are reduced by 50% every four years. The deflationary nature of Bitcoin has allowed the digital asset to gain significant momentum over the past decade.

The Foolish takeaway

As stated earlier, you need to diversify your risk by investing across asset classes. For instance, young investors can invest just 20% in fixed-income or debt and have a higher exposure toward ETFs, stocks, and cryptocurrencies.

An investment of $25,000 can turn into $250,000 over 20 years, given annual returns of 12%.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Fool contributor Aditya Raghunath has positions in Bitcoin. The Motley Fool recommends Alphabet, Amazon.com, Apple, Bitcoin, and Tesla. The Motley Fool has a disclosure policy.

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