The TFSA (Tax-Free Savings Account) contribution limit increased by $7,000 in 2026. While it doesn’t seem like much, it is another opportunity to compound some capital completely tax-free.
Inside the TFSA, you don’t have to pay a cut to the government. All investment income (capital gains, dividends, and interest) stays with you. You can take all that income and reinvest it again and again. It doesn’t start as much, but it can become a substantial sum.
In fact, if you could invest your $7,000 of TFSA cash at a 15% average rate of return for 20 years, your investment could increase by 10 times to over $70,000. If you could increase your rate of return to 26%, you could hit a $70,000 valuation in half that time.
While these are pretty high rates of return, they are not unheard of. That is especially true when you are looking for small- and mid-cap stocks.
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Hammond Power: A 10X in fewer than four years
Hammond Power Solutions (TSX:HPS.A) is a particularly impressive example. This would have been a great TFSA stock. Just under 3.5 years ago, this stock was trading for $25.36. Today, it is trading for $279! That would have turned $7,000 into over $70,000 today!
This is a bit of a unicorn. However, if you find the combination of a good company in a good sector hitting a mega tailwind, you can see massive, fast returns.
Generally, Hammond is a very boring business. It manufactures a mix of electrical transformers and components. However, it has steadily grown, expanded its product line, and enhanced its manufacturing capacity.
That was just in time for the massive build-out of data centres across North America. This has substantially bolstered Hammond’s backlog this year. With a supply deficit, it should continue to enjoy very strong demand in the coming years.
Hammond used to trade for a low single-digit price-to-earnings (P/E) multiple. After becoming somewhat of a hype stock today, it trades with a P/E multiple of 46!
Groupe Dynamite: Swinging for the fence
Groupe Dynamite (TSX:GRGD) is another example of a mid-cap stock that became a large-cap stock very quickly. Group Dynamite completed its initial public offering (IPO) in November 2024, shortly after President Trump took office.
It wasn’t long after that that President Trump imposed broad tariffs that impacted Canadian clothing retailers like Group Dynamite. The stock collapsed 49%!
However, shrewd investors would have seen that this is a great business that was getting discounted unjustly. Investors could have picked it up with a P/E ratio of only nine in April 2025.
Shortly thereafter, the company proved that it could overcome tariff concerns by delivering three quarters of consecutive revenue growth of over 35%. Expansion of its brand into the United States has proved very successful. It just announced its expansion into the U.K. market. The company generates so much cash that it paid out a special $2.30 per share dividend this year.
Groupe Dynamite stock is up 567% in the past year. If you held this stock in your TFSA, it would have turned a $7,000 investment into $39,830 today. In a year, you would be more than halfway to your goal of $70,000.
While it is not likely to keep delivering those types of returns year over year, the company still has a long growth runway ahead. There is still a good chance that TFSA shareholders could drastically multiply their money in the years ahead.
The Foolish takeaway
The TFSA is the perfect place to swing for a home run. Paying no tax means you get to keep all your big gains. Look for good businesses trading at attractive valuations with tailwinds that the market doesn’t see yet. When these types of stocks hit the bat, they can really fly out of the park.
