Yahoo Finance 3 TFSA Hacks to Build a $1 Million Tax-Free Nest Egg
Written by Puja Tayal at The Motley Fool Canada
To build a million-dollar portfolio from a $5,000 to $6,000 annual investment, you need to take the fundamental investing route and buy stocks with the potential to be future market leaders. Let’s say you started investing in the Tax-Free Savings Account (TFSA) when it began in 2009. In 16 years, your maximum contribution would have been $95,000. Only growth stocks can provide the returns you need to convert $100,000 into $1 million.
The question is which growth stocks have the potential to grow tenfold in 10 to 15 years. Companies that have a futuristic outlook and are working today to address problems of tomorrow could be a good choice.
Three hacks to build a $1 million tax-free nest egg
The TFSA allows you to invest in stocks listed on popular stock exchanges in Canada and the United States. It also allows you to reinvest your returns or dividends tax-free as long as they are not withdrawn from the account.
TFSA Hack 1: Keep accumulating trending stocks
The first hack is to invest in trending Nasdaq stocks as the TFSA allows you to invest in US stocks without giving up on the tax-free benefit. Nvidia (NASDAQ:NVDA) is a trending stock you might want to buy, especially after its 10-for-1 stock split, which has made the stock easier to buy for US$135. Nvidia’s growth story will continue for another three to five years as the artificial intelligence (AI) landscape reshapes the digital world.
Nvidia could also take a lead in the smart cities, robotics, or autonomous cars trends. With a US$135 stock price, it will become accessible to more investors, keeping the trade momentum strong. You can keep adding more Nvidia stocks whenever its price falls or you have money.
Other ongoing trends you could consider investing in are the electric vehicles (EV) trend and 5G trend.
TFSA Hack 2: Buy and hold futuristic stocks
The second hack is buying futuristic stocks like those making hydrogen fuel cells. Ballard Power Systems (TSX:BLDP) makes hydrogen fuel cells for commercial vehicles like buses, trucks, forklifts, and marines that assemble at the depot for refuelling. This gives the company bulk orders and addresses the problem of a lack of refuelling infrastructure. The volume-based approach works well as hydrogen fuel cells are still expensive.
Ballard Power System is working towards making them economically feasible and meeting the future demand for zero-emission transportation.
The company enjoys government subsidies but continues to face losses as the fuel cell technology is still in a nascent stage. It may take 5 to 10 years to reach the inflection point. And when the growth triggers, it could grow your money 10 times in less than five years. Nvidia achieved 10 times growth in two years as Chat GPT triggered a generative AI frenzy.
Thus, you can invest $10,000 in Ballard Power System and hold it forever.
TFSA Hack 3: Reinvesting returns to benefit from compounding
Another strategy that can make your TFSA a millionaire is the power of compounding. In compounding, you reinvest the returns to earn interest on the returns. In over 10 to 15 years, the returns multiply at a higher rate and the true power of compounding is unleashed.
BCE (TSX:BCE) stock can help you automate compounding with its dividend reinvestment plan. You can invest a large amount now as the stock trades closer to its 10-year low and lock in a yield of close to 9%. The high yield and telco’s 3% annual dividend growth can accelerate the compounding effect. There is a risk of a dividend growth pause, but the telco will likely compensate for any pause with even higher growth in the following years.
Investor take away
You could consider allocating a certain percentage of your TFSA contribution to each of the above three strategies focusing on growth while mitigating the downside with dividends.
The post 3 TFSA Hacks to Build a $1 Million Tax-Free Nest Egg appeared first on The Motley Fool Canada.
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Fool contributor Puja Tayal has no position in any of the stocks mentioned. The Motley Fool recommends Nvidia. The Motley Fool has a disclosure policy.
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