The Tax-Free Savings Account (TFSA) is a powerful tool for Canadians looking to build long-term, tax-free wealth. With the 2025 contribution limit set at $7,000, regularly investing that amount every year could have a surprisingly big payoff — far more than many imagine.
Let’s break it down: what could happen if you invest $7,000 annually in your TFSA over the next 10 years?
The magic of compounding: Turning consistent savings into wealth
A $7,000 annual contribution translates to about $583 per month — a realistic target for many. The real growth engine, however, is compounding: reinvesting returns over time to generate earnings on both your original investment and its gains.
Let’s consider some historical market returns over the past decade:
- The iShares S&P/TSX 60 Index ETF, a proxy for the Canadian stock market, delivered annualized returns of 6.2%.
- The SPDR S&P 500 ETF, representing the U.S. stock market, posted an impressive 11.2% annualized return.
Split the difference, and you get a blended annual return of around 8.7%. If you consistently invested $7,000 a year and achieved this return, your TFSA portfolio would have grown to approximately $104,840 by the end of 10 years.
Of that total, $70,000 would be your direct contributions — the rest, over $34,000, would be pure, tax-free growth. That’s the kind of performance that makes the TFSA such a beloved savings vehicle.
Balancing risk with return
In the early years, your TFSA balance will mostly reflect your own contributions. But as time passes, your returns start to snowball. By year 10, your investment gains could make up a significant portion of your portfolio. That’s when your money truly begins working for you.
An 8.7% return is a solid benchmark. While it’s possible to aim higher, it’s important to remember that higher returns usually come with higher risk. Investors who chase returns without a plan often panic during downturns and sell at a loss — a mistake that can undo years of progress.
That’s why balancing growth with quality is key. And that brings us to a stock worth considering for long-term TFSA investors.
A potential TFSA gem: Brookfield Infrastructure Partners L.P.
Brookfield Infrastructure Partners L.P. (TSX:BIP.UN) is a strong candidate for investors seeking long-term compounding in their TFSAs. The company owns and operates essential infrastructure assets across the globe — from utilities and pipelines to transport and data networks. These are cash-generating, recession-resistant assets that are hard to replicate.
BIP follows a disciplined value-investing strategy: it buys quality assets at attractive prices, improves operations, and occasionally sells mature assets to recycle capital. Since its inception, it has completed 34 sales totalling over US$9 billion — with an average internal rate of return of 24%, which is fabulous.
Importantly, Brookfield Infrastructure Partners has grown its cash distribution for 16 consecutive years. Looking forward, it expects to grow its funds from operations (FFO) by +10% annually, which should fuel 5–9% dividend increases each year.
With a current yield of 5.1% and conservative expectations of 5% annual price appreciation, investors could reasonably see returns of around 10.1% per year — all within the tax-sheltered benefits of a TFSA.
The Foolish investor takeaway
Consistently investing $7,000 a year in your TFSA, targeting quality assets like Brookfield Infrastructure Partners, could build a six-figure portfolio in just 10 years — and that’s completely tax-free. Your future self will thank you.
