Building a Million-Dollar TFSA: A Step-by-Step Guide for 2024

To get that million-dollar TFSA, it will take consistency and commitment. But if you can be patient, it doesn’t have to take a lot of your present-day cash!

| More on:

The Tax-Free Savings Account (TFSA) is one of the best ways for Canadian investors to create enough passive income to help reach their long-term goals. While those goals are and should be different for everyone, having a goal around $1 million could certainly be a strong one if you’re aiming for retirement in the next few years.

With that in mind, today, we’re going to look at how investors could build a million-dollar TFSA by investing in a solid exchange-traded fund (ETF). All you need is $500 to put towards it on a monthly basis. So, let’s get into it.

1. Get the basics

The TFSA is a powerful investment tool available to Canadians, allowing for tax-free growth and withdrawals. ETFs are investment funds traded on stock exchanges, much like stocks. They hold a diversified portfolio of assets, which can include stocks, bonds, or other securities. 

Vanguard FTSE Canada All Cap Index ETF (TSX: VCN) is a popular choice, providing broad exposure to the Canadian market, which makes it a suitable candidate for long-term growth. VCN has historically provided a robust compound annual growth rate (CAGR) as well. Over the last decade, Canadian equities have generally shown strong performance, and VCN captures a broad spectrum of the Canadian market, which reduces risk compared to sector-specific ETFs.

What’s more, the Canadian market has a solid future outlook, with a stable financial sector, strong natural resources, and growing technology and industrial sectors. VCN’s broad exposure to the Canadian market positions it well for future growth.

2. Consistency

Now, you’ll want to open a TFSA with a reputable financial institution or brokerage. Ensure that the provider offers a wide range of investment options, including ETFs like VCN. Compare fees and services to find the best fit for your needs.

From there, commit to investing $500 per month into your TFSA. Consistency is key, as regular contributions harness the power of compounding over time. Automating these contributions can help ensure that you stick to your investment plan without fail.

3. Buy and reinvest 

Within your TFSA, purchase shares of the VCN ETF. Vanguard FTSE Canada All Cap Index ETF offers broad exposure to Canadian equities, including large-, mid-, and small-cap stocks. This diversification helps mitigate risk while positioning your portfolio for steady growth. 

One of the significant advantages of ETFs like VCN is their dividend income. Ensure that any dividends received are automatically reinvested to purchase additional shares of the ETF. This reinvestment strategy accelerates the compounding effect, significantly enhancing your long-term returns.

4. Take advantage of increases

While staying at $500 is a strong choice, try to increase it when possible. Each year, the Canadian government increases the TFSA contribution limit. Ensure you maximize your contributions annually to take full advantage of the tax-free growth. If your financial situation allows, consider making lump-sum contributions to use any unused contribution room from previous years.

Investing for the long term requires patience and discipline. The stock market can be volatile in the short term, but maintaining a long-term perspective is crucial. Avoid making impulsive decisions based on market fluctuations. Trust in the power of compounding and the historical performance of diversified investments like VCN.

Bottom line

Using this method, with a CAGR of around 7% and including dividends, investors can put that $500 towards VCN ETF on a monthly basis. While it will take patience, it should take about 35 years to reach $1 million. Start early, contribute often, and you’ll retire in style.

Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Stocks for Beginners

woman gazes forward out window to future
Dividend Stocks

The 5 Canadian Stocks So Safe I’d Tell My Mother to Buy Them

These five Canadian stocks combine durable businesses, strong competitive positions, and long-term resilience for cautious investors.

Read more »

Couple working on laptops at home and fist bumping
Dividend Stocks

$200 a Month in Tax-Free Income Is Closer Than You Think With These 2 TSX Stocks

Turn unused TFSA room into a $200 monthly, tax-free “paycheque” with two steady Canadian dividend payers.

Read more »

fast shopping cart in grocery store
Dividend Stocks

This 3.3%-Yielding Stock Could Turn a $7,000 TFSA Contribution Into $231 a Year

A single $7,000 TFSA contribution can start a tax-free dividend snowball with North West Company’s steady grocery business.

Read more »

A meter measures energy use.
Energy Stocks

The 1 Canadian Dividend Stock I’d Buy in Any Market

This Canadian dividend stock offers reliable income, steady growth, and a defensive business built to perform through almost any market.

Read more »

real estate and REITs can be good investments for Canadians
Dividend Stocks

The Dividend Stock I’d Buy Today and Hold Until 2036

A “meh” 2% yield can be far more valuable than a flashy 7% if it keeps rising for a decade.

Read more »

stocks climbing green bull market
Stocks for Beginners

If You Missed Shopify’s First Run, I’d Watch This Canadian Growth Stock Next

WSP may not be “the next Shopify,” but its record backlog and repeatable growth engine in infrastructure services can still…

Read more »

A child pretends to blast off into space.
Stocks for Beginners

Bombardier Stock Has Been Falling: Is It a Buy?

Bombardier stock has been falling after U.S. President Donald Trump’s recent remarks, but its improving financials, growing backlog, and stronger…

Read more »

people apply for loan
Dividend Stocks

This Canadian Stock Could Be a Millionaire-Maker Without Becoming the Next Shopify

A million-dollar portfolio doesn’t require finding the next Shopify if you invest consistently and own profitable compounders like CGI.

Read more »