The flexibility associated with the TFSA (Tax-Free Savings Account) can be used to create massive wealth over time. You can hold a variety of qualified investments in this registered account, ranging from stocks and bonds to mutual funds and exchange-traded funds.
Further, any returns generated in the TFSA are sheltered from Canada Revenue Agency taxes. Investors can also withdraw the funds from the TFSA at any time, providing them with liquidity.
The TFSA contribution limit is indexed to inflation. Due to elevated inflation levels, the annual TFSA contribution room has increased from $6,000 in 2022 to $6,500 in 2023 and $7,000 in 2024. So, let’s see how you can turn $6,500 into a retirement goldmine.
Invest in quality growth stocks such as Shopify
One way to create game-changing wealth is to invest in high-growth tech stocks such as Shopify (TSX:SHOP). A tech heavyweight, Shopify provides the tools for businesses across sizes to create an online presence and sell products on digital platforms.
To date, Shopify has onboarded more than two million merchants on its platform, making it the second-largest e-commerce company in the United States. Part of a rapidly expanding addressable market, Shopify stock has already returned 3,160% to shareholders since its IPO (initial public offering) in May 2015. It suggests an investment of $6,500 in Shopify stock soon after it went public would be worth over $210,000 today.
Despite Shopify’s outsized gains, the TSX stock trades 52% below all-time highs. Similar to other tech stocks, investors were worried about Shopify’s lofty valuation, decelerating top-line growth, a sluggish macro environment, and consistent losses, driving share prices lower in the last two years.
However, Shopify remains part of an expanding addressable market and is positioned to grow sales from $7.5 billion in 2022 to $11 billion in 2024. Its exit from unprofitable businesses and a lower cost base should also enable the Canadian tech giant to improve earnings to $1.37 per share in 2024 from just $0.05 per share in 2022.
Invest in dividend growth stocks such as goeasy
TFSA investors can consider buying shares of dividend growth stocks such as goeasy (TSX:GSY). Valued at $2.7 billion by market cap, goeasy offers you a dividend yield of 2.4%. These payouts have increased by more than 15% annually in the past two decades, which is remarkable for a cyclical stock part of the lending industry.
goeasy stock has returned 907% to shareholders in the last decade. After adjusting for dividend reinvestments, total returns are closer to 1,180%. So, an investment of $6,500 in GSY stock in December 2013 would be worth over $83,000 today.
Despite these market-thumping gains, goeasy stock is priced at 9.5 times forward earnings, which is very cheap. Moreover, analysts forecast goeasy to improve adjusted earnings by 12% annually in the next five years, showcasing the resiliency of its business model amid a challenging macro backdrop.
The Foolish takeaway
While past returns don’t matter much to current and future investors, the key to creating long-term wealth is to invest in quality companies across multiple sectors, diversifying your portfolio and lowering overall risk.