Got $3,000? 1 Stocks to Build TFSA Wealth in the Next 3 Years

Bank of Montreal (TSX:BMO) stock looks underrated and undervalued going into the Easter season.

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It doesn’t take a massive amount to begin your Tax-Free Savings Account (TFSA) wealth-creation journey. With a smaller amount, say $3,000 or less, you can grow your wealth at a decent pace over years and decades. Of course, it helps if you frequently “top up” your TFSA funds with any amount you’re able to each year so that you can make that TFSA snowball that much larger!

The magic of compounding might not be realized in a few months or even a few years. However, when you start looking past the 10-year horizon, you’ll see that compounding can make all the difference. It’s a profoundly powerful force that can help you build a pretty nice nest egg for yourself.

In any case, the sooner you get started investing and contributing to your TFSA (the contribution limit was set at $7,000 for this year), the sooner you can get excess cash to work for you.

Now that inflation is winding down and interest rates (and rates on those low-risk Guaranteed Investment Certificates) are beginning to retreat, it makes sense to examine some of the low-cost dividend stocks on the TSX Index while they’re still trading at reasonable multiples.

TFSA: Playing the long-term game is playing to win

Indeed, a long-term investment horizon is needed if you’re to grow your wealth in a risk-averse way. Nobody knows when the stock market will crash, correct, or just go sideways for a prolonged duration. That’s why it’s always wise to commit for several years, so you can ride out the rough patches as they hit and still be there for the ensuing rebound.

Short-term investors with nearer-term financial commitments may not be in the investing game long enough to stick around for any potential relief rallies that follow some of the worst sell-offs. That’s like getting indigestion without a meal. It just doesn’t make a whole lot of sense unless you’re convinced that a rough ride won’t be in the cards!

Without further ado, let’s check out a strong stock candidate that new TFSA investors may wish to stash in their TFSA and forget they own for years at a time.

Bank of Montreal: Banking on a bargain?

Bank of Montreal (TSX:BMO) stock has been finally catching a break of late, with the stock recently pushing above the $130 level once again. However, shares seem a tad expensive at 17.95 times trailing price to earnings (P/E). Undoubtedly, that’s quite high given many of the bank stocks tend to trade in the low-teens or even the high single digits at times.

Either way, I think the next two years will be far better than the past two years as the big bank looks to power through headwinds. The latest first-quarter results were a mixed bag. Capital markets aren’t exactly scorching hot these days, and with loan-loss provisions creeping higher (it’s not just BMO), it seems tough to go against the grain.

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That said, I think BMO’s digital strengths (and its robust exchange-traded fund business) could help it come roaring back as the banks finally catch a break. Sure, it’s tough to get behind the first quarter of BMO. But if you have faith in management and their ability to weather a storm in Canada (and the U.S.), I’d not bet against the name. There’s a nice 4.66% dividend yield to collect in the meantime for buyers of the bank stock.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joey Frenette has positions in Bank Of Montreal. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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