TFSA Gold Mine: How to Turn $6,500 Into $318,000 in 25 Years

These two top stocks are stellar long-term stocks for stable growth and income. In fact, they could easily create a $318,000 portfolio.

Amy Legate-Wolfe

Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances. Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities. She also provides investors with a daily newsletter, Canada Stock Digest, for daily market updates. Before joining Motley Fool Canada, she wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog, and travel with her husband. Follow Amy on LinkedIn and Canada Stock Digest. Favorite Investment Quote: “October: This is one of the particularly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” – Mark Twain

Published August 15, 2024 4:30 pm EDT

| More on: CSUGSY

The growth potential of a Tax-Free Savings Account (TFSA) in Canada is substantial, particularly when contributions are maximized and invested wisely. If an individual contributes the maximum annual amount each year of around $6,500 and invests in a portfolio with an average annual return of 8%, the TFSA could grow to approximately $318,000 over 25 years!

This figure assumes all returns are reinvested, and no withdrawals are made. The tax-free nature of the TFSA means that all gains, whether from dividends, interest, or capital appreciation, are not subject to taxation. This allows for more efficient compounding and faster growth compared to taxable accounts. This makes the TFSA an extremely powerful tool for long-term wealth accumulation. Today, let’s look into some top stocks to get even more gains.

The TFSA is a powerful savings vehicle for Canadians who are saving for retirement. — Source: Getty Images

goeasy

If you’re on the lookout for a long-term gem to grow your TFSA, goeasy (TSX:GSY) on the TSX should definitely be on your radar. With a trailing price-to-earnings (P/E) ratio of 12.06 and a forward P/E of 10.67, GSY is not just another stock. It’s a potential powerhouse for substantial returns. This consumer lender has been quietly climbing, boasting a 52-week jump of 40.72%. That’s nearly double the S&P 500’s performance! The company’s focus on delivering financial services to Canadians with non-prime credit has positioned it as a unique player in the market, making it an attractive option for those looking to supercharge their tax-free savings.

GSY’s profitability is nothing short of impressive. The company enjoys a robust profit margin of 33.40% and an operating margin of 43.11%, which is quite remarkable. The return on equity (ROE) sits at a healthy 25.28%, highlighting its efficiency in generating profits from shareholders’ equity. What’s more, GSY has been consistently growing its revenue, up 15.40% year over year, showing that it knows how to scale its operations while maintaining strong margins. This is a company that’s not only making money. It also knows how to keep it, which is exactly what you want in a long-term investment.

And let’s not forget about the dividends! GSY offers a forward annual dividend yield of 2.52%. This is solid, considering the stock’s growth potential. With a payout ratio of just 27.70%, there’s plenty of room for those dividends to grow over time. So, whether you’re in it for capital appreciation or steady income, GSY offers a balanced approach to wealth building in your TFSA.

Constellation Software

If you’re looking to supercharge your TFSA with a stock that’s built for the long haul, Constellation Software (TSX:CSU) is one to watch. This software giant has been making waves on the TSX, boasting an impressive 52-week increase of 48.30%, far outpacing the S&P 500. With a trailing P/E ratio of 93.84 and a forward P/E of 35.84, CSU shows strong potential for continued growth, making it a top contender for investors seeking substantial returns over time.

CSU’s ability to generate consistent revenue growth, rising 21% in the latest quarter, is no small feat. This growth is primarily fuelled by strategic acquisitions, which have become CSU’s bread and butter. The company’s focus on acquiring and managing vertical market software businesses allows it to maintain an enterprise value to earnings before interest, taxes, depreciation, and amortization (EBITDA) ratio of 32.68. This showcases its profitability and strong market position. This approach not only boosts CSU’s revenue but also enhances its cash flow. It provides a solid foundation for future expansion and shareholder value.

But it’s not just about the numbers. CSU’s steady dividend payments, with a forward annual yield of 0.14%, add an extra layer of security for those eyeing long-term growth. Even with a payout ratio of just 13.05%, there’s plenty of room for dividend increases. This makes CSU a perfect candidate for those looking to build a tax-free fortune in their TFSA. Whether you’re in it for the growth or the income, CSU has the track record, the strategy, and the market savvy to deliver substantial returns over the years.

Bottom line

Now, it’s not likely we’ll see another 40% increase year after year. However, we certainly are likely to see continued long-term high growth of 8% or higher from both of these stocks. Add in dividends, and investors could certainly reach that $318,000 mark, if not even higher, with reinvesting dividends.