How to Easily Turn a $50,000 TFSA Into $500,000 by 2040

Investing in the stock market involves certain risks. We’ve seen the S&P 500 index already fall 25% year-to-date on a series of macroeconomic challenges. Investors are worried about the double whammy of rising interest rates, and scorching inflation could weigh heavily on corporate earnings next year, which could also trigger a global recession.

With the impossibility of timing the dip, the ongoing bear market presents a perfect long-term buying opportunity. Additionally, if you can identify quality growth stocks that can outperform the broader market, your wealth can grow exponentially over the next two decades.

How a TFSA can be used to build generational wealth

Canadian investors can buy and hold growth stocks in their TFSAs (Tax-Free Savings Accounts). The TFSA is a tax protected account. Therefore, any returns in the form of capital gains, interest, or even dividends are exempt from federal taxes.

The TFSA may hold a variety of qualifying investments, including stocks traded south of the border. Despite the ongoing pullback, investors should be aware that the US is the world’s largest economy and home to several multi-billion dollar companies. These companies generate income from multiple international markets, providing investors with diversification.

Here, I’ve shortlisted two US tech stocks that could turn $50,000 TFSA into $500,000 by 2040.

A cloud-based data giant

The first company is snowflake (NYSE:SNOW), which enables organizations to mobilize data with a focus on scale and performance. Snowflake provides the data cloud where organizations can easily bring disparate data together and run a variety of analytical workloads.

Driven by tremendous demand for cloud-based solutions, Snowflake has grown its revenue from $96.6 million in fiscal 2019 to $1.21 billion in fiscal 2022 (which ended in January). In the second quarter of fiscal 2023 (Q2), Snowflake’s product revenue increased 83% year over year to $466.3 million.

The company ended the quarter with more than 6,800 customers and a net revenue retention rate of an amazing 171%. So it shows that existing customers have increased their spend on the Snowflake platform by 71% over the last 12 months. In addition, 246 customers generated over $1 million in annual revenue.

Snowflake ended the quarter with a remaining performance obligation of $2.7 billion, which provides ample insight into the company’s future revenue.

SNOW’s share price is down 61% from its all-time high and is trading at a 35% discount to widely estimated price targets.

An e-commerce heavyweight

Etsy (NASDAQ:ETSY) is one of the largest e-commerce companies in the world and is valued at a market capitalization of $13.9 billion. It has gained popularity as an online marketplace for handmade and vintage products.

Unlike brick-and-mortar retailers, Etsy doesn’t keep inventory, which allows it to benefit from higher profit margins. For the past four quarters, the company posted revenue of $2.4 billion and free cash flow of $530 million.

Etsy is part of the fast-growing e-commerce market and is projected to grow sales to $2.5 billion in 2022 and $2.74 billion in 2023. Although the company has a strong foothold in North America, Etsy is gaining a massive foothold in other markets across Europe and Asia.

Etsy stock is valued at 5.5 times forward sales and 49 times forward earnings, which is still pretty high. But growth stocks are yielding premium multiples, and Etsy shares are trading at a 12% discount to estimated price targets.

The stupid snack

The two stocks discussed here are examples of quality growth companies that can outperform the broader markets over time. You should identify similar companies for your TFSA and build a robust portfolio of US growth stocks.