The TFSA (Tax-Free Savings Account) is one of Canada’s best wealth-building tools. When you don’t pay tax on your investment income, you can compound your investments at a significantly faster rate.
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You don’t want to pay tax on 10X or better returns
The TFSA is the best place to hold long-term investments that you expect to multiply many times. You don’t want to pay any tax on a massive 10 times, 20 times, or 100 times gain.
The TFSA contribution increase for 2026 is $7,000. It is possible to turn that $7,000 investment into $70,000 (10 times return) or more.
If you want to know what to look for in stock that returns increase by 10 times, here are a couple of examples of Canadian stocks that massively multiplied wealth in the past. Look for stocks like these in the early innings of their growth cycle, and you could drastically multiply your TFSA in the years ahead.
An industrial stock that 10X’d in five years
TerraVest Industries (TSX:TVK) is an unlikely stock to find substantial returns. Yet, this company has defied the odds and made many shareholders wealthy. Five years ago, it had a market cap of only $285 million. Today, it has a market cap of $3.5 billion.
TerraVest provides energy services, tank manufacturing, and boiler heaters. Those are hardly exciting businesses. Yet, its secret sauce is wise capital allocation.
It can acquire small mom-and-pop industrial companies at very attractive valuations. When integrated into its broader business, they can become significantly more profitable and cash generative.
In the past five years, revenues are up by a 30% compounded annual growth rate (CAGR), and earnings per share are up by a 27% CAGR.
TerraVest stock is up 954% in the past five years (a 60% CAGR). Add in the dividends it has paid, and your return is closer to 1,024%. A $7,000 investment would be worth $73,400 had you bought this stock five years ago inside your TFSA.
A TFSA stock that 18X’d in five years
Hammond Power Solutions (TSX:HPS.A) is another unlikely multi-bagger candidate. This is not a flashy tech stock. However, it positioned itself at the right place at the right time.
Hammond produces specialized transformers for the electrical industry. Factors like rising electric vehicle demand, onshore manufacturing, and surging data centre demand have rapidly propelled this business.
Five years ago, Hammond had a market cap of $98 million. Today, it has a market cap of $1.9 billion. In the past five years, revenues have increased by a 20% CAGR and earnings per share have soared by a 43% CAGR.
In 2021, Hammond was relatively cheap and unknown. Today, it is a market leader in transformers, allowing it to enjoy record backlog and sales.
Hammond Power’s stock is up 1,823% in the past five years for an 80% return CAGR. A $7,000 investment in Hammond in 2021 would be worth $132,000 today.
The Foolish takeaway
If you want to enjoy substantial multi-bagger returns in your TFSA, small-cap stocks are a smart place to look. Look for undiscovered, boring businesses that can execute well and compound capital at high rates of return. You only need a couple of these stocks in your portfolio to make up for your entire TFSA portfolio returns.
