After the tax season, you may wish there was a source of income the Canada Revenue Agency (CRA) couldn’t touch. There is such a source if you look properly. If you are investing your after-tax money in your Tax-Free Savings Account (TFSA), the CRA won’t touch it. You can grow your investments to the best of your knowledge and withdraw them tax-free, with no restrictions on how much and when you can withdraw. If you use the TFSA benefits optimally, you can make a million-dollar portfolio tax-free.
The only restriction to the TFSA is how much you can invest in a year. The CRA started TFSA in 2009. If you were 18 years old in 2009, your contribution has kept accumulating. The 2024 limit is $7,000, accumulating a TFSA contribution room of $95,000.
Investing strategy for a tax-free, million-dollar portfolio
The first step in investing is determining the end goal, then dividing it into small attainable goals, and sticking to it. Just as you contribute to your Canada Pension Plan (CPP) for 35-40 years, if you max out on your TFSA contribution every year, you could convert it into a million-dollar portfolio in 23-30 years by reinvesting your returns. You should focus on building a portfolio that gives 12-15% compounded annual growth rate (CAGR). Assuming the TFSA contribution remains $7,000 for future years, your portfolio could grow like this.
| Year | TFSA Contribution | 15% CAGR | Total Portfolio |
| 2009 | $5,000 | $5,750.00 | $10,750.00 |
| 2010 | $5,000 | $12,362.50 | $17,362.50 |
| 2011 | $5,000 | $19,966.88 | $24,966.88 |
| 2012 | $5,000 | $28,711.91 | $34,211.91 |
| 2013 | $5,500 | $39,343.69 | $44,843.69 |
| 2014 | $5,500 | $51,570.25 | $61,570.25 |
| 2015 | $10,000 | $70,805.78 | $76,305.78 |
| 2016 | $5,500 | $87,751.65 | $93,251.65 |
| 2017 | $5,500 | $107,239.40 | $112,739.40 |
| 2018 | $5,500 | $129,650.31 | $135,650.31 |
| 2019 | $6,000 | $155,997.85 | $161,997.85 |
| 2020 | $6,000 | $186,297.53 | $192,297.53 |
| 2021 | $6,000 | $221,142.16 | $227,142.16 |
| 2022 | $6,000 | $261,213.49 | $267,713.49 |
| 2023 | $6,500 | $307,870.51 | $314,870.51 |
| 2024 | $7,000 | $362,101.08 | $369,101.08 |
| 2025 | $7,000 | $424,466.25 | $431,466.25 |
| 2026 | $7,000 | $496,186.18 | $503,186.18 |
| 2027 | $7,000 | $578,664.11 | $585,664.11 |
| 2028 | $7,000 | $673,513.73 | $680,513.73 |
| 2029 | $7,000 | $782,590.79 | $789,590.79 |
| 2030 | $7,000 | $908,029.41 | $908,029.41 |
| 2031 | $1,044,233.82 |
There would be years when your portfolio may not give 12-15% return, but years of high returns can normalize the years of low returns and give you the desired average.
Two stocks worth investing for a 15% long-term average return
High-yield dividend stocks alone cannot generate a 15% long-term average return. Dividend stocks are relatively safer than growth stocks and can help you mitigate risk. However, you need a mix of growth and dividend stocks to earn a 15% return.
goeasy stock
goeasy (TSX: GSY) is a hybrid stock that gives long-term growth while paying dividends and even growing it. A $5,000 investment in the stock in January 2010 would have bought you 563 shares at $8.88. If you opted for the dividend-reinvestment plan (DRIP), your share count would grow to 817, and its value would be $144,527 at the current price of $176.9. The calculation was arrived at using goeasy’s investment calculator. Such stocks can help you build a million-dollar portfolio tax-free if only you buy and hold.
goeasy stock may not give you instant returns, but it can give gradual and consistent returns with its business model of carefully lending small amounts to sub-prime individuals. It charges high interest and encourages borrowers to make timely payments to improve their credit scores. It is in a long-term growth trend as it expands its radius to include more borrowers and increases its revenue per borrower by offering new loans.
Hive Digital Technologies
While goeasy is a stock to buy and forget, Hive Digital Technologies (TSXV:HIVE) is a high-risk growth stock that you should consider buying only at the dip. The company mines Bitcoin and is sensitive to Bitcoin’s price. The past few years have shown that Bitcoin’s price rises in a strong economy.
The rising oil prices due to escalating tensions in the Middle East have inflated inflation, slimming hopes of faster interest rate cuts. Hence, Bitcoin prices fell, and so did Hive’s stock price. It is a stock you can keep buying in small quantities whenever its price falls to $4. When economic growth returns, the stock has the potential to grow 80-100%.
Along with these growth stocks, add a few dividend stocks to your TFSA portfolio to diversify risk.
