Every Canadian resident can contribute $7,000 into their TFSA (Tax-Free Savings Account) in 2024. If you plan on investing in the stock market, you might as well invest tax-free. The TFSA is the simplest and most straightforward way to do that in Canada.
Turn a $7,000 TFSA into $70,000
When you don’t pay tax, you can compound your investment returns faster than almost anywhere else. If you pick your portfolio wisely, it’s possible to turn a $7,000 investment today into $70,000 in the future. Now, this is no easy feat. It will take prudence, patience, and a very long period of time (likely 10 to 30 years).
However, that’s the beauty of the stock market. Nowhere else can you invest capital and earn a return without doing much else than waiting and being patient. If you are wondering what kinds of stocks will increase 10 times in value at a good pace, here are a couple of examples.
Descartes: A winner with more wins ahead
Descartes Systems (TSX: DSG) has steadily been building value for shareholders for more than 20 years. If you bought this stock in 2013, you would be sitting on a more than 11 times return. That is a compounded annual growth rate (CAGR) of 25% over the past 11 years.
In 2013, Descartes was pretty small with a market cap of only $550 million. Today, it has a market cap of $9.3 billion.
The company has a secret sauce. It operates an essential logistics network. The more carriers/transporters that use it, the better and more efficient it operates. The more dislocation in geopolitics and trade, the more demand it gets. As a result, it has an excellent flywheel effect.
The company has been very smart to grow by acquisition. It has added many transportation-related software businesses to its portfolio. These provide complimentary services to its network. Once a carrier starts using its software, it is very hard to stop.
The company is extremely profitable, and it generates a lot of cash. It is sitting on a large $280 million pile of cash (and no debt), so the same acquisition and growth strategy should continue to be successful for a TFSA investor going forward.
goeasy: A financial growth stock
goeasy (TSX: GSY) is another stock to consider for a TFSA. If you bought this stock in 2013, you would be sitting with a 16 times return. It has earned a 30% CAGR over the past 11 years.
It had a market cap of $115 million in 2013. Today, its market cap is $2.5 billion. In fact, in 2024, it will pay total annual dividends that are worth almost half its 2013 market cap.
goeasy started out as a furniture and appliance leasing business. It still does that, but its focus is on providing non-prime loans to Canadian consumers. Canadian banks have largely pulled away from the non-prime market. That has left ample room for goeasy to capture market share.
The company has seen the quality of its loan book continue to improve. Likewise, it is innovating new loan products for point of sales, vehicles, and recreational products. It still has a substantial runway to grow, and it’s a reasonably valued stock.
The TFSA takeaway
Finding a stock that will 10X your TFSA capital won’t be easy. However, if you look for small cap stocks with innovative products, large markets, smart managers, and long-term strategies, you can stand to do very well. These are the kind of stocks you don’t want to pay tax on, so be sure to keep them safe in your TFSA.
