Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

The Easiest Way to Get Your TFSA to $1,000,000

Published 2019-09-12, 10:30 a/m
Updated 2019-09-12, 10:36 a/m
© Reuters.

© Reuters.

It’s never too late to start saving and putting money into your TFSA. Below, I’ll show you how saving $500 a month could help you get your portfolio to the $1,000,000 mark.

The key is to find a good dividend stock to begin with. For this example, I’ll use Emera Inc (TSX:EMA). The utility company has a stable business model, and yet it has grown over the years, with sales more than doubling in just three years.

And there are still more opportunities for the company to continue to expand. With a strong dividend of around 4.2%, there are many potential ways that the stock can rise in value.

It’s a perfect stock to put inside of a TFSA, as it won’t matter whether you earn income from dividends or capital appreciation. Either way, your profits from that income will be will be tax free.

The model Previously, I had looked at how you can grow a big lump sum amount into $1,000,000. However, not everyone has that capability, and being able to save $500 per month may be much more realistic.

The reason I chose $500 is that would allow you to maximize your TFSA contribution limits, which are currently set to $6,000 a year. However, if you have the contribution room from previous years, you can certainly invest more.

In this model, I’ll assume that TFSA is still around 35 years from now and that annual contribution limits remain at $6,000. I’ll also assume that investors will invest $6,000 in Emera stock at the beginning of each year and that its dividend will average 4.1% on both new and old contributions, as opposed to complicating the calculations too much by incorporating dividend growth into the mix. Another assumption is that the dividends will not be reinvested back into the stock.

Finally, in five years, Emera’s share price has risen by about 42%, which means that on average, it has risen by approximately 7.26% per year. I’ll assume that the stock will continue to grow at this rate. Based on the above assumptions, here’s how the results could look like over the next 35 years:

Year Contribution Total Contributions Beginning Balance Growth Ending Balance Dividends Total Dividends Portfolio + Dividends
1 $6,000 $6,000 $6,000 $436 $6,436 $246 $246 $6,682
2 $6,000 $12,000 $12,436 $903 $13,339 $492 $738 $14,077
3 $6,000 $18,000 $19,339 $1,405 $20,744 $738 $1,476 $22,220
4 $6,000 $24,000 $26,744 $1,943 $28,687 $984 $2,460 $31,147
5 $6,000 $30,000 $34,687 $2,520 $37,207 $1,230 $3,690 $40,897
6 $6,000 $36,000 $43,207 $3,139 $46,346 $1,476 $5,166 $51,512
7 $6,000 $42,000 $52,346 $3,803 $56,149 $1,722 $6,888 $63,037
8 $6,000 $48,000 $62,149 $4,515 $66,664 $1,968 $8,856 $75,520
9 $6,000 $54,000 $72,664 $5,279 $77,943 $2,214 $11,070 $89,013
10 $6,000 $60,000 $83,943 $6,098 $90,042 $2,460 $13,530 $103,572
11 $6,000 $66,000 $96,042 $6,977 $103,019 $2,706 $16,236 $119,255
12 $6,000 $72,000 $109,019 $7,920 $116,939 $2,952 $19,188 $136,127
13 $6,000 $78,000 $122,939 $8,931 $131,871 $3,198 $22,386 $154,257
14 $6,000 $84,000 $137,871 $10,016 $147,887 $3,444 $25,830 $173,717
15 $6,000 $90,000 $153,887 $11,180 $165,066 $3,690 $29,520 $194,586
16 $6,000 $96,000 $171,066 $12,428 $183,494 $3,936 $33,456 $216,950
17 $6,000 $102,000 $189,494 $13,767 $203,261 $4,182 $37,638 $240,899
18 $6,000 $108,000 $209,261 $15,203 $224,463 $4,428 $42,066 $266,529
19 $6,000 $114,000 $230,463 $16,743 $247,206 $4,674 $46,740 $293,946
20 $6,000 $120,000 $253,206 $18,395 $271,602 $4,920 $51,660 $323,262
21 $6,000 $126,000 $277,602 $20,168 $297,769 $5,166 $56,826 $354,595
22 $6,000 $132,000 $303,769 $22,069 $325,838 $5,412 $62,238 $388,076
23 $6,000 $138,000 $331,838 $24,108 $355,945 $5,658 $67,896 $423,841
24 $6,000 $144,000 $361,945 $26,295 $388,240 $5,904 $73,800 $462,040
25 $6,000 $150,000 $394,240 $28,641 $422,882 $6,150 $79,950 $502,832
26 $6,000 $156,000 $428,882 $31,158 $460,039 $6,396 $86,346 $546,385
27 $6,000 $162,000 $466,039 $33,857 $499,897 $6,642 $92,988 $592,885
28 $6,000 $168,000 $505,897 $36,753 $542,650 $6,888 $99,876 $642,526
29 $6,000 $174,000 $548,650 $39,859 $588,509 $7,134 $107,010 $695,519
30 $6,000 $180,000 $594,509 $43,191 $637,699 $7,380 $114,390 $752,089
31 $6,000 $186,000 $643,699 $46,764 $690,463 $7,626 $122,016 $812,479
32 $6,000 $192,000 $696,463 $50,597 $747,061 $7,872 $129,888 $876,949
33 $6,000 $198,000 $753,061 $54,709 $807,770 $8,118 $138,006 $945,776
34 $6,000 $204,000 $813,770 $59,120 $872,889 $8,364 $146,370 $1,019,259
35 $6,000 $210,000 $878,889 $63,851 $942,740 $8,610 $154,980 $1,097,720
If you were to start by the age of 30, then you’d still have time to spare before retirement to hit the $1,000,000 mark. Under this model, it would take about 34 years to reach the target amount. However, that can be accelerated by investing more at any point in time or if the returns from holding Emera stock change.

Bottom line There are many assumptions built into the above approach, and it’s impossible to know how things will play out, especially over 35 years. Emera could be part of a different company by then. However, what’s undeniable is the impact that having a good growth stock can have on a portfolio.

Of the total $1,097,720 ending balance at year 35, $210,000 is made up of the annual contributions, $732,740 came from the growth accumulated over the years, and $154,980 is from the dividend income.

Even if dividend payments increase over the years, the bulk of the increase in value will come from the growth the stock achieves over time rather than the dividend income earned.

It’s important to note that this example is purely for illustrative purposes and by no means is it a guarantee. But the key takeaway from all this is that by contributing to your TFSA into a good growth stock every year, you could be setting yourself up for a great retirement.

Fool contributor David Jagielski has no position in any of the stocks mentioned.

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool Canada’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Motley Fool Canada 2019

This Article Was First Published on The Motley Fool

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.