Canadian investors likely are pretty stressed out right now. Not only are we edging in on the holiday season, but we also have a market that continues to be quite volatile. Yet that’s exactly what investors are told the same thing over and over again: stay focused on your goals!
If you do this, long-term growth will end up getting you richer than you thought possible. So, let’s go through the process of getting you there, and one smart stock to grab today.
Get a TFSA
If you don’t already, the Tax-Free Savings Account (TFSA) is certainly what investors should consider grabbing these days — and before the new year, if possible. That way you can max out your contributions just as more are set to be added on Jan. 1 by a further $7,000.
The TFSA is perfect for long-term investing for a number of reasons. Investors don’t have to worry about capital gains, as it’s a tax-free account. You can also take out all the cash at once if you choose, tax-free, for any reason!
So, if you’re saving to retire in five years, or 30, the TFSA is a great option to get you there.
Why leaving it matters
Here’s the thing. When I say leave a smart stock in your TFSA for years and years, I don’t mean leave it alone completely. Instead, I do mean add to it over that period. This can be done in two ways. First, make sure you’ve gone over your budget and identified an amount you can contribute to your TFSA each and every paycheque, if possible. Then create automated contributions to your TFSA, so you don’t have to worry about it.
From there, reinvest again and again in the smart stock you’ve chosen. This should be done through the new cash you’ve put in there and through dividend income if you have it.
By investing again and again, you can create thousands, if not tens of thousands, more in long-term income by investing this way. So, let’s see a smart stock that could take you there.
An example
Let’s say that you want to invest in a strong long-term dividend stock. One that has a strong future as well as a solid past. These would likely be Dividend Aristocrats — companies that have increased their dividend each and every year for the last five years at least. A great option is Sun Life Financial (TSX: SLF).
Sun Life stock is a Dividend Aristocrat with over 20 years on the market for investors to look back on. It continues to expand around the world, creating further opportunities for its insurance and asset management strategy. It offers a 4.52% dividend yield as well, with shares up 10% in the last year. But in the long term, the company has seen shares double in the last decade. So, let’s see what happens if you invest $3,600 each year for five years, or $300 per month, towards this stock, reinvesting as you go.
| Year | Share Price | Shares Owned | Share Value | Annual Dividend Per Share | Annual Dividend | After DRIP Value | Annual Contribution | Year End Stock Price | New Shares Purchased | Year End Shares Owned | New Balance |
| 1 | $70.00 | 51.00 | $3,570.00 | $3.12 | $159.12 | $3,729.12 | $3,600.00 | $75.04 | 50.00 | 101.00 | $7,579.04 |
| 2 | $75.04 | 101.00 | $7,579.04 | $3.37 | $340.42 | $7,919.46 | $3,600.00 | $80.44 | 49.00 | 150.00 | $12,066.43 |
| 3 | $80.44 | 150.00 | $12,066.43 | $3.64 | $546.18 | $12,612.61 | $3,600.00 | $86.23 | 48.00 | 198.00 | $17,074.48 |
| 4 | $86.23 | 198.00 | $17,074.48 | $3.93 | $778.85 | $17,853.33 | $3,600.00 | $92.44 | 47.00 | 245.00 | $22,648.70 |
| 5 | $92.44 | 245.00 | $22,648.70 | $4.25 | $1,041.11 | $23,689.81 | $3,600.00 | $99.10 | 47.00 | 292.00 | $28,937.09 |
And there you have it. After investing $21,600, or $3,600 each year and starting off with $3,600, you’ll have $28,937.09 in your portfolio. That’s returns of $7,337.09 in just five years! Imagine if you hold out for even longer.
