Investing in specific TSX stocks can be a great way to grow your wealth for retirement. The TSX Index has only earned a 6.7% compounded annual return over the past five years and a 4.5% annual return over the past 10 years.
Don’t invest in the TSX Index if you want $1 million
If you want a shot at $1 million in 20 years or less, you are going to have to do better than that. That is why a stock-picking approach might be more appropriate. The TSX Index has not performed very well, but Canada does have several stocks that could really deliver for shareholders.
Say you are starting out with $50,000 of cash to invest. If you could earn an average portfolio rate of return of 16%, you could reach about $1 million in 20 years. That is a rate of return that many top fund managers won’t even reach.
10% and $1,000/month will get you to $1 million in 20 years
A 10% average rate of return might be more realistic if you pick your TSX stocks wisely. If you earn only 10% per year but also save and invest $1,000 every month, it is realistic that your wealth could grow to $1 million in 20 years or less.
If this approach seems realistic, here are two stocks that could deliver 10-15% average returns and help you reach your $1 million goal in 20 years.
A top TSX transport stock
The first TSX stock you might want to consider is TFI International (TSX: TFII). At first glance, a trucking and shipping business may not sound too exciting. The reality is it isn’t an exciting business at all. Shipping tends to be capital heavy and low margin.
However, TFI has found a way to navigate the industry in a spectacular fashion. Its stock is up 332% in the past five years (a 34% compounded annual rate of return) and 539% over the past 10 years (a 20.4% annual rate of return).
The trucking industry is incredibly fragmented. TFI has made over 125 acquisitions since 2008. There is good reason to believe it can continue its strong acquisition pace.
Firstly, the industry has been soft in the past few years. Small operators are tired and financially strapped. TFI is a well-known operator that could provide liquidity.
Secondly, the company has a strong balance sheet to continue acquiring shipping businesses. Lastly, TFI has a smart chief executive officer, a decentralized operating model, and operational expertise to help expand profitability faster than many peers. Bet on this management team, and you stand to do very well in the long term.
A top TSX Venture software stock
Another TSX stock that could deliver substantial double-digit returns is Topicus.com (TSXV: TOI). Most people have never heard of this business. That is largely because it operates solely in Europe.
Topicus was spun out from acclaimed software consolidator Constellation Software a few years ago. Topicus is replicating Constellation’s vertical market software consolidation strategy but with a focus on the European market.
Europe has many different countries, cultures, languages, and governments. This means there are niche software providers aplenty. That means a large market for Topicus to consolidate.
While Topicus is not yet well known, it might be an ideal time to buy. Constellation compounded returns by +30% per year for a decade. Even if Topicus did half as well, it could deliver very strong market-beating returns for a long-term investor.
