Becoming a Tax-Free Savings Account (TFSA) millionaire is easy if you work with a hefty amount of capital and only need a reasonable growth factor to reach the target, say less than 5X. You should also have ample time to achieve that target. But that’s where a problem arises.
If you are working with a timeline that is too long to become a TFSA millionaire, the probability that the stocks you have chosen will sustain their current growth pace gradually decreases. If nothing else, a long timeline increases the likelihood of negative catalysts like recessions, market crashes, or industry-specific challenges to the growth equation.
When you consider all these factors, the choices for stocks that can make you a millionaire by retirement become severely limited. Thankfully, the choices don’t shrink to zero.
A railway stock
Canadian Pacific Kansas City (TSX: CP) is one of the two railway giants operating in the country. It has significantly expanded its geographic reach and North American footprint via one of the most significant acquisitions of the decade.
It’s currently the only single-line rail network connecting Canada, the U.S., and Mexico. It’s financially healthy (though not exactly thriving), and the expanded reach has opened up several new growth opportunities for the company.
While its organizational and operational strengths make it a solid pick for your TFSA, the company’s capital-appreciation potential (and the dividends, to a much lesser extent) make it a millionaire-maker stock.
The stock has risen roughly 77% in the last five years and 150% in the previous 10, which indicates a highly consistent growth pace.
More importantly, it can lead to three-fold growth in the next two decades and 4.5-fold in the next three. The timeline can be shortened a bit if we include dividends in the return potential (reinvesting them). With appropriate capital, this realistic growth pace is enough to make you a millionaire before retirement.
A financial stock
If you are looking for a relatively higher growth factor, goeasy (TSX: GSY) is a compelling stock to consider. This alternative financial company has become a significant financial institution in the country by tapping into a relatively ignored market (by Canadian banks) segment — people with bad/weak credit scores.
goeasy offers multiple products to such clients, but the most significant are arguably small personal loans.
The company has come a long way from a furniture-leasing company (following a lease-to-own model) in 1990 and currently has over 400 locations across the country. The stock has experienced even more impressive growth.
If we add the dividends, the stock returned about 880% to its investors in the last decade. This includes a brutal bear market phase from which the stock has just recovered. Even if the stock slows down its pace a bit and achieves similar growth at a more extended time period (say 15 years), it can still offer 15-fold growth in three decades. That would require less than $100,000 in capital for a million-dollar nest egg.
Foolish takeaway
The two stocks offer two very different versions of millionaire-maker stocks. The railway stock is slow, sure, and relatively safer, even if you are planning for a massive timeline (three decades). goeasy is much faster and may offer you similar growth at a fraction of the time, but if we stretch the timeline too long, the risk of not reaching the desired nest egg size might increase.
However, if you hit the best-case scenario with both stocks, you might become a TFSA millionaire with a modest capital amount years before your actual retirement (considering you are in your 30s now).
