If you have accumulated a $100,000 portfolio through regular long-term investing in stocks, give yourself a pat on the back. It is not easy to achieve this level of investment. According to Statistics Canada, the average Canadian between the ages of 35 and 44 has $51,765 in non-pension financial assets, including stocks, mutual funds, bank deposits, and Tax-Free Savings Accounts (TFSAs).
If you have $100,000 in financial assets reserved purely to build wealth, a TFSA is an ideal tool to implement your investments. It makes investment income and withdrawals tax-free, which means that if you convert $100,000 to $1 million, $900,000 will be tax-free. That’s a significant tax savings.
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Three stocks that can help you build a $1 million portfolio
Now it is time to convert that $100,000 into $1 million, which requires a portfolio that can give a compounded annual return (CAGR) of 20% for the next 13 years, or 15% for the next 17 years, or 12–13% for the next 20 years. Ten years is a long time. You cannot tell if a stock will continue on the high growth trajectory, as profits and growth tend to normalize. Therefore, it is important to review your portfolio annually, even if it is a buy-and-forget stock.
A stock that can generate over a 20% CAGR in five years
A company growing revenue at 50% could see growth normalize to 20% in three to five years. Shopify’s (TSX: SHOP) revenue growth rate slowed from 95% in 2015 to 26% in 2024. However, it has now turned profitable, reporting positive operating profit for eight straight quarters.
Shopify’s next growth story will unfold by sustaining and even increasing profits through economies of scale. Excluding the pandemic bubble, SHOP stock has surged 308% since January 2023. The stock is growing at a 100% annual rate, which could slow to 50% in the next three to five years until Shopify finds a new growth driver.
For now, you can consider investing in Shopify for the next five years and expect a 20–30% average annual return, taking a conservative forecast. This investment can help you get closer to converting $100,000 to $1 million in 13 years.
A stock that can generate a 20% CAGR in 10 years
Topicus.com (TSXV: TOI) can generate a 20% CAGR through the power of compounding. The European software firm keeps buying companies with stable cash flows from maintenance contracts. There have been a few years of losses, but revenue and cash flow keep growing.
Since the company’s business model hinges on cash flow, you should focus on sustainable double-digit revenue and cash flow. The net income may fluctuate depending on the time it takes for some acquisitions to show cost efficiencies. However, the cost will normalize in the medium term.
Topicus.com doesn’t rely on a single consumer trend or market price but on earnings accretion from acquired companies. Its diversified portfolio of companies across different verticals and geographies helps it mitigate risk.
Topicus.com stock has surged 156% in four and a half years, growing at a CAGR of 20%. This growth could continue and even grow as compounding works in ascending order, with slow returns at the start and higher returns later. You can consider investing in this stock and expect a 20% CAGR for 10 years.
Opportunity to diversify and invest in the future
Advanced Micro Devices (NASDAQ: AMD) is a stock that has immense growth potential as it unlocks artificial intelligence (AI) potential. The company is offering full-stack AI systems from data centre to software, network infrastructure, embedded devices and computers with a wide range of chips from central and graphics processing units to field-programmable gate arrays.
While I don’t expect an Nvidia-like breakout, I do expect a cyclical rally when the next phase of AI investment triggers. Until then, the stock might show tepid growth. You can consider holding the stock for the next five years and expect an average return between 15% and 50%.
Investor takeaway
Investors should periodically review their portfolio to see if the stock still has the catalyst that is driving its price, measure the CAGR, cash out at stock peaks, and look for the next investment that can sustain the 20% return or to increase your investment tenure.
