Last month, Parliament approved $7,000 worth of new Tax-Free Savings Account (TFSA) contribution room for all eligible contributors in 2025. The newly added room takes the absolute maximum amount of available TFSA room from $95,000 to $102,000 — assuming that you were 18 or older in 2009. If you turned 18 in 2010 or later, then your cumulative amounts are less than those just cited. Your exact contribution room depends on how much you accumulated in the years in which you were eligible to open an account as well as the amounts you’ve already accumulated.
One way or another, you’ll have some TFSA contribution room next year, whether that’s the year’s $7,000 or $102,000 accumulated over a lifetime. In this article, I will explore how you can potentially double your TFSA in value over seven short years — without taking undue risks when seeking superior returns.
Compound at 10% per year over seven years
By simply compounding your TFSA wealth at 10% per year for seven years — more precisely 7.2 years — you can double your money. This is a return that is achievable with a broad market index fund assuming only moderately favourable circumstances. This might seem remarkable, but you need to remember that investment returns are compounded, not added. That means that you multiply the returns by one another instead of adding them up. The result is exponential growth that adds up surprisingly quickly. In the table below, you can see how compounding at 10% per year leads to an investment roughly doubling in seven years.
| Period | (1 + rate)^N | Amount |
| Year 1 | 1 | $10,000 |
| Year 2 | 1.1 | $11,000 |
| Year 3 | 1.21 | $12,100 |
| Year 4 | 1.331 | $13,310 |
| Year 5 | 1.4641 | $14,641 |
| Year 6 | 1.61 | $16,100 |
| Year 7 | 1.771 | $17,710 |
| Year 8 | 2.143 | $21,430 |
As you can see, by the end of year eight, the amount has more than doubled. And thanks to “the Rule of 72,” we know that 7.2 years is the precise amount of time needed for the amount to double.
Investments that can actually make this happen
Now, as we’ve seen, the Rule of 72 dictates that it takes 7.2 years for an investment to double at a 10% annual rate of return. The next logical question is which types of investments can make that happen in reality.
And the answer is broad market index funds. Nothing is ever a sure thing, but Canadian index funds usually return close to 10% per year, and they have enough diversification to make it plausible that the returns will continue in the long term.
Consider iShares S&P/TSX Capped Composite Index Fund (TSX:XIC), for example. It’s a Canadian index exchange-traded fund (ETF) made up of 220 large-cap Canadian stocks. This is a significant amount of diversification. And, because the stocks in XIC are spread across different sectors, they are not too strongly correlated with one another. So, the prospect of high returns here going forward is very real.
What does XIC have going for it apart from its diversification?
First, it has a very low 0.05% management fee and a 0.06% management expense ratio (MER). These low fees mean that you don’t lose too much of your money to fund managers.
Second, it is highly liquid, which means tight bid-ask spreads and little money lost to market makers.
Third and finally, it is a Canadian ETF, meaning no dividend withholding taxes and greater take-home returns than with foreign funds.
It all adds up to a pretty compelling fund. And, costing just $40.82, you can easily afford to buy it in a no-commission account today.
