The TFSA (Tax-Free Savings Account) is an excellent place for accumulating wealth. Since you pay no tax on any income or gains, all your capital growth stays with you. If you pick stocks wisely, contribute annually, and invest long-term, it is foreseeable that a TFSA could eventually be worth $1 million or more one day.
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How to become a TFSA millionaire (quickly)
Here’s how the math could work. Today, Canadians who were 18 years or older in 2009 can contribute a lifetime total of $102,000. For a simple investing strategy, you could put all that cash into the S&P 500 Index. That Index has earned a 12.2% total annual return over the past 10 years.
For illustration purposes, let’s assume that the rate of return could continue for the coming decade (certainly, there is debate whether that is possible and should be a part of an investor’s due diligence). At a 12.2% rate of return, it would take approximately 20 years for your $102,000 TFSA cash to grow into more than $1 million.
However, if you add in future contributions at $7,000 per annum, at the same rate of return, it will only take 16.5 years before your initial investment becomes $1 million.
The whole point is to demonstrate that even index investors can still build a huge fortune inside their TFSA. The strategy requires patience and discipline. However, it can really pay off. If you want some stocks that could earn above-index returns for your TFSA, here are a couple to consider buying for a TFSA.
Trisura Group: A perfect TFSA holding for long-term upside
With a market cap of only $2 billion, Trisura Group (TSX: TSU) is one of the smallest publicly listed insurers in Canada. While it is small, it does have a large growth opportunity ahead of it.
Trisura provides specialty insurance and fronting solutions in Canada and the United States. It has been very successful in several niches, such as surety in Canada. It is applying that same growth strategy in the U.S. (a market that is several times larger than Canada).
Trisura has been in build-mode, establishing its U.S. platform and strategy. As a result, its stock has been stagnant over the past three years. However, now it is ready to start reaping from those investments.
Right now, you can buy this TFSA stock at a serious discount to other specialty insurance businesses. Once it recovers its growth posture, there could be significant upside ahead. Historically, this stock has compounded at a +20% annual rate.
Firan Technology: A small-cap with a long runway ahead
Another stock worth adding to a TFSA is Firan Technology Group (TSX: FTG). This company is only worth $287 million today. However, it could be multiples larger in the years to come.
Firan designs and manufactures circuit boards and cockpit accessories for the aerospace industry. It recently acquired a high-tech company called FLYHT. This gives it a new array of technology offerings (including some with recurring revenues). Likewise, it opens it up to business with Airbus (the world’s largest aircraft manufacturer).
The aerospace industry has decades of backlog, given a strong global demand to update fleets. Firan has seen its backlog grow substantially over the years. With a strong balance sheet, one can expect Firan to continue to see high single-digit organic growth supplemented by annual acquisitions.
It has a target to grow earnings per share by a mid-teens rate. If it can, TFSA investors will be very happy to own this stock for the years ahead.
