How to Easily Turn a $40,000 TFSA or RRSP Into $850,000!

Market corrections can be great times for Canadians to turn TFSA (Tax-Free Savings Account) or RRSP (Registered Retirement Savings Plan) contributions into outsized, long-term gains. Why?

Well, high-quality stocks are devalued and investors are given the opportunity to upgrade their portfolios. When bearish market sentiment improves, these are often the stocks that bounce back fastest.

Use a TFSA or RRSP (or both) to grow your wealth over time

Since high-quality stocks tend to outperform over long periods of time, it’s best to hold them in a tax-advantaged registered account. The TFSA allows you to earn income and capital gains completely tax-free. The RRSP gives you a tax refund on contributions and the ability to defer taxes to a later date.

If you want to accumulate wealth over long periods of time, you need to maximize the effects of compounding Everyone your returns! Using both accounts can be a tax-efficient way to maximize total returns over the longer term.

If you’re just starting out, here’s how $40,000 invested in a TFSA or RRSP could grow to $850,000 or more given enough time. Here are two top stock picks that might help get you there.

WSP Global

WSP Global (TSX:WSP) is an under-the-radar TSX stock that has been quietly delivering excellent shareholder value for years. Through strong organic growth and intelligent acquisitions, it has developed into one of the world’s leading engineering, architecture and consulting companies.

Over the past 10 years, it has produced an average annual return of 21% (or 435% overall). The exciting part is that returns have accelerated over the past five years to a 25% annual return.

This year, WSP has already made three very large acquisitions in the field of environmental consulting. The environment now accounts for a large part of his business. Given energy and climate change concerns, this should drive strong growth for several years.

Let’s assume WSP maintains a 20% compound annual return going forward. If you invest half your TFSA or RRSP ($20,000) in WSP stock, it could be worth $123,000 in 10 years and $308,000 in 15 years!

constellation software

constellation software (TSX:CSU) is a great technology stock for a long-term RRSP or TFSA investment. Its strategy of consolidating small software companies for vertical markets around the world has resulted in a staggering 34.75% compound annual returns over a decade. That equates to a total return of 1,874%!

Constellation isn’t a cheap stock, but it’s down 16.4% this year. Historically, every major decline has been an excellent buying opportunity.

This company has an incredible focus on intelligent compounding of shareholder capital. It has a liquid balance sheet. If we go into a recession there will be a lot of acquisition opportunities. In the past two years, Constellation has committed the largest amount of capital in its history. While it may take some time for these actions to surface, these actions should translate into very strong cash flow growth.

Because Constellation is a fairly large company today (with a market cap of $41 billion), returns could slow over the next decade. Let’s say the annual return drops to 25%. If you invest $20,000 in this stock today, your investment could still be worth $186,260 10 years from now and $568,400 15 years from now.

The final result

No historical return is guaranteed for the future. However, strong past returns may indicate that a stock has a “secret ingredient” to success. When you find these great companies, the best thing you can do is buy them in a TFSA or RRSP, hold them, and grow your wealth for very long periods of time.