Introducing the Tax-Free Savings Account (TFSA) in 2009 was perhaps one of the best things the government has done for Canadians in light of the financial crisis that impacted everyone in the world.
You contribute to a TFSA with after-tax dollars. The account has a special status that lets you enjoy the returns on assets held in a TFSA without incurring taxes on any interest income, capital appreciation, or dividends. Besides using the account to hold cash, as the name might imply, you can use it to build a portfolio of TSX stocks.
Since the account lets the growth compound without tax drag, it can be an excellent investment vehicle to achieve your financial goals. With the 2026 update, Canadians have $7,000 of additional TFSA contribution room to use to their advantage. Today, we will discuss how you can make the most of the contribution room.
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10-fold returns
It might seem far-fetched, but you can turn an amount as little as $7,000 into $70,000, or even more, with the right approach. To effectively get tenfold returns on your initial investment, you need two crucial ingredients: Solid returns, and plenty of time and patience for compounding to do its magic.
It would be unwise to think that you can get 10-bagger returns in a year or two. It has definitely been done in the past, but it’s rare and luck-based for those who have experienced it. Most often, such substantial returns come along when a business keeps growing through market cycles, and the market eventually pays for it.
Even with some of the best growth stocks, it can take some time to get there. Roughly speaking, a 22% annual return can take about 11-12 years to turn $7,000 into about $70,000. If you get 25% annual returns, it can take as little as 10 years to achieve tenfold returns. The difference might not sound like a lot, but it’s the result of stronger compounding doing more of the heavy lifting for your portfolio earlier.
The key is not chasing whatever can help you hit 25% returns next year. Rather, you should look for investments that can realistically compound at a high rate over a long time. Once you can figure that out, the amount of time you remain invested will do most of the work, not the timing. Picking a business that can keep growing and letting its shares grow inside a TFSA without panic-selling each time there’s a market crash can help you get there.
Foolish takeaway
Against this backdrop, Dollarama (TSX: DOL) might just be my favourite stock to consider. It offers capital appreciation that can realistically achieve 10-fold returns for a self-directed TFSA portfolio. The stock also appeals highly to investors with a low risk tolerance due to its defensive business model that protects the underlying business and investor returns through market cycles.
Dollarama is Canada’s largest discount retailer that sells everyday essentials and small discretionary items at low and fixed prices. By selling similar items for less than an average business does, Dollarama’s business model keeps its customers coming back.
When the economy is doing well and people have a lot to spend, Dollarama enables people to get more bang for their buck. During harsh economic environments, people tend to cut costs. In times like these, Dollarama makes necessities more accessible for them. The business model has yielded excellent returns for Dollarama investors over the years, through every market cycle. Based on its 10-year performance, Dollarama stock has had an average compounded annual return of around 22-25%. The growth stock with excellent defensive qualities is my pick for a multi-bagger investment. It might warrant allocating at least a portion of your $7,000 TFSA contribution room for 2026.
