Achieving $100,000 in savings is no small feat. You should be proud of this milestone! Since 2022, interest rates have climbed higher, so investors who are eyeing risk-free investing could put $100,000 in a one-year guaranteed investment certificate (GIC) for an interest rate of about 5.7% today.
By taking on greater risk if you don’t need the capital for a long time, you could potentially get higher returns in the long run by investing $100,000 in a diversified portfolio of stocks. For example, in the last 10 years, the Canadian stock market’s total return was about 7.6% per year versus the U.S. stock market return of close to 11.4% annually.
XIU, SPY, CP, CSU, and BIP.UN Total Return Level data by YCharts
Here are a few stocks that have outperformed the returns of both stock markets in the last decade.
Canadian Pacific Kansas City
Canadian Pacific Kansas City (TSX:CP) is one of two Class I railways in Canada. After acquiring Kansas City Southern in December 2021, Canadian Pacific officially merged with Kansas City in April of this year, expanding its footprint into Mexico. Its revenue exceeded $10 billion and net income was close to $4.3 billion in the trailing 12 months.
CPKC stock’s annualized return was 14.7% over the last decade. Currently, CPKC is estimated to increase its earnings per share by about 12.5% per year over the next three to five years. At $97.60 per share at writing, the analyst consensus 12-month price target, according to TMX, represents a decent discount of 20%. So, it’s possible for CPKC stock to deliver annualized returns of north of 17% over the next five years.
Constellation Software
Constellation Software (TSX:CSU) is one of the best-performing TSX stocks. It has been an extraordinary acquirer of vertical market software businesses, which typically provide mission critical software solutions that address the specific needs of its customers in certain markets. This strategy has allowed the tech company to generate substantial cash flow and revenue growth that are resilient to economic cycles. Management has been adept at allocating capital, as suggested by its five-year return on equity and return on invested capital of about 45% and 25%, respectively.
The top tech stock’s annualized return was approximately 32% over the last decade. Some investors are concerned about how long Constellation Software can continue its acquisition’s story. At about $2,835 per share at writing, analysts believe CSU stock is fairly valued.
Brookfield Infrastructure Partners L.P.
Despite declining by almost a third over the last year, Brookfield Infrastructure Partners L.P. (TSX:BIP.UN) stock has still miraculously outperformed the U.S. and Canadian stock markets over the last decade. Today, the global infrastructure owner, operator, and investor offers magnificent value, and it pays to wait with a 6.6% cash distribution yield. Its portfolio is comprised of quality utilities, transport, midstream, and data assets.
The top utility stock delivered annualized returns of almost 12.6% per year over the last decade. At $31.86 per unit, the stock is a deep value play with a discount of close to 42%, according to the recent analyst consensus price target shown on the TMX website. In any case, management targets to grow its funds from operations per unit by north of 10% per year, a long-term rate of return of 12-15%, and cash distribution growth of 5-9% per year.
Assuming a $100,000 equal-weighted portfolio across the three stocks and a long-term rate of return of 15%, investors could retire in 16.5 years with $1,000,000. If you continued to add savings of $10,000 into the portfolio every year for the same rate of return of 15%, you could retire with $1,000,000 in 13.3 years.
