Do you want to take your Tax-Free Savings Account (TFSA) and grow it to $100,000?
If you’re just starting off with investing, that will take some time. However, it can be done. By depositing as little as $350 per week in your TFSA, you can build up an account that will grow to $100,000 in under a decade. In fact, you don’t need outsized returns to make that happen.
In this article, I will explore how you can turn $350 per week into a $100,000 TFSA after just three years of investing. The method outlined below does not require investing any further funds after three years and will turn a $350 weekly contribution into six figures in eight years. If you keep investing continuously beyond three years, the $100,000 goal can be achieved much faster.
How it works
To turn three years’ worth of $350 weekly TFSA contributions into $100,000 takes eight years, including the three years you spent contributing to the TFSA. This result assumes a 10% rate of return.
$350 per week is approximately $1,400 per month. $1,400 per month is $16,800 per year. If you spend three years contributing $350 per month to your TFSA, here’s how much each year’s contributions grow to after each year (assuming the amounts are invested at the beginning of year one).
- First year’s contribution: $36,000 after eight years.
- Second year’s contribution: $32,738 after seven years.
- Third year’s contribution: $29,762 after six years.
Ultimately, you end up with $98,500 after eight years, just a hair shy of $100,000. And, of course, this whole exercise assumes you stop investing after three years. If you keep contributing $350 per week year in and year out for eight years, you’ll probably end up with over $200,000.
Investments that can make this happen
Having explored how three years’ worth of TFSA contributions can grow to $100,000 in eight years, it’s now time to explore investments that can make such an outcome happen.
Currently, 10% is higher than the return you can get on “risk-free” investments like treasuries. However, given a long enough time period, such an outcome can be achieved with index funds.
Index funds are pooled investment vehicles that invest in whole stock market indexes, like the S&P/TSX Capped Composite Index. Such funds are highly diversified, making them suitable for new investors who don’t want to take too much risk.
Consider iShares S&P/TSX 60 Index (TSX:XIU), for example. It’s a great index fund with lots of diversification. It holds 60 stocks, which is enough to prevent the dangers of “holding too many eggs in one basket.” The stocks are in many different sectors, so there isn’t too much correlation in the portfolio. The fund’s fee — 0.12% — is so small you probably won’t even notice it. Finally, as Canada’s most popular index fund, XIU is liquid and has a low bid-ask spread.
Over the years, index funds like XIU have delivered returns of about 10% per year. So, by investing $350 per week into such funds, you can easily achieve a $100,000 TFSA balance. In normal market conditions, it shouldn’t even take very long!
