How to Turn a $20,000 TFSA Into $500,000 Over Time

Glass piggy bank

Glass piggy bank

Written by Ambrose O’Callaghan at The Motley Fool Canada

In early 2022, the Canada Revenue Agency (CRA) estimated that the average balance in a tax-exempt savings account (TFSA) was $32,224. Over the past decade, Canadian investors have probably read their fair share of stories about the vaunted million-dollar TFSA. This was seen as a particularly impressive feat when the cumulative contribution space in a TFSA was well below the $81,500 he has today. Today I want to discuss how Canadians can turn a $20,000 balance in a TFSA into half a million over time.

Investors would have to double their portfolio 25 times to own a $500,000 TFSA. This may seem insurmountable, but the last decade has shown us that persistent and opportunistic investors can accumulate capital gains at an impressive rate.

Here’s an undervalued bank stock I’d grab in a TFSA today

The first stock I want to target in our TFSA isn’t a big gamble. We have time on our side and are looking at a market full of discounts in the last quarter of 2022. Scotiabank (TSX:BNS) is my favorite target out of the big six Canadian bank stocks right now. These winning machines offer a delicious balance of capital growth and income. However, the financial sector is in a bind as the Bank of Canada (BoC) has pursued its more aggressive trajectory of rate cuts for over a decade.

Shares of this bank stock are down 29% in 2022 as of the Oct. 11 close. That pushed Scotiabank well into negative territory year-over-year. In the third quarter (Q3) of 2022, the bank still delivered solid net income growth driven by strong domestic and international banking volume growth.

Scotiabank currently has a very cheap price-to-earnings (P/E) ratio of 7.6. This bank stock slipped below the $50 price level during the 2020 market decline. It hit an all-time high of $95 per share in the spring of 2022 and has nearly doubled over a two-year period. TFSA investors can also gobble up the quarterly dividend of $1.03 per share. That equates to a tasty 6.4% yield.

This growth stock offers a big opportunity in early October

cargo jet (TSX:CJT) is a growth stock that TFSA investors should be watching closely in the final quarter of 2022. Based in Mississauga, this company provides time-sensitive overnight air freight services across Canada. Its shares are down 30% year-to-date. The stock is down 42% from the same point in 2021.

In the second quarter of 2022, the company reported net income of $160 million — up from a net loss of $11.1 million in the second quarter of fiscal 2021. Meanwhile, adjusted free cash flow increased to $44.8 million from 36 $.0 million last year.

This growth stock rose from a valuation of $20 in 2015 to an all-time high of $250/share in November 2020. This shows how explosive stocks like Cargojet can be in your TFSA over a relatively short investment period. The Cargojet share currently has an attractive P/E ratio of 10.

Another stock I would target in your TFSA right now

Well (TSX:GSY) is the third stock I would target in a TFSA in this turbulent market. The Company provides non-prime leasing and lending services to Canadian consumers. This financial stock has achieved great growth and qualifies as a Dividend Aristocrat. This is a stock you can trust in your TFSA over the long term.

This financial stock plunged below $30 during the March 2020 market decline. It quickly recovered in the months that followed, eventually reaching an all-time high of $218/share in September 2021. goeasy has slumped by 41% year-to-date.

goeasy shares currently have a very cheap P/E ratio of 9.8. It offers a quarterly dividend of $0.91 per share, which translates to a 3.5% yield. TFSA investors should be keen to snag these discounted growth stocks in the first half of October.

How to Turn a $20,000 TFSA into $500,000 Over Time first appeared on The Motley Fool Germany.

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Fool contributor Ambrose O’Callaghan has held positions at goeasy Ltd. The Motley Fool has positions in CARGOJET INC. and recommends CARGOJET INC. The Motley Fool recommends BANK OF NOVA SCOTIA. The Motley Fool has a disclosure policy.


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