And yet exclusively focused on transformation just now $5,000 means you’re shortchanging the opportunity. The TFSA is one of Canadians’ most powerful tools for building wealth, and its contribution room has quietly grown into a financial powerhouse.
Since the introduction in 2009 of $5,000 per year, the annual TFSA limit has increased to $7,000. Everyone eligible from the start now has $102,000 in cumulative contribution room – a huge runway for long-term tax-free compounding.
The key is simple: contribute consistently and invest intelligently.
Why regular TFSA investing wins the long game
To understand the power of compounding within a TFSA, look at how the Canadian stock market has performed. Over the past decade, the TSX has achieved an annualized return of approximately 11.7%. At that rate, a one-time investment of $5,000 would grow to about $15,170 over ten years. That alone is meaningful, but the real magic happens with recurring contributions.
If you had invested $5,000 every year since 2009 and achieved the same 11.7% annual growth rate, your TFSA would be worth about $237,606 today. That’s almost five times the contribution total, and miles above the $50,000 goal. In fact, an 11.7% return would see you reach $50,000 in just over seven years – proving that the mix of consistent investing and tax-free compounding is extremely effective.
Achieving (or beating) those returns obviously requires investments with strong growth potential. One of those candidates today is a well-known Canadian lender that offers high reward potential, but also comes with higher risk.
A fast-growing competitor: goeasy
For investors looking for outsized long-term returns within their TFSA, easy (TSX:GSY) is a top idea. The company specializes in providing loans to non-prime consumers.
The rising cost of living may cause consumers to increase their budgets, but goeasy is not blind to the risk. The company expects a net depreciation rate of 8.75% to 9.75% this year, and the year-to-date rate of 8.8% is right on target.
What makes goeasy attractive is its proven ability to navigate economic turbulence. Over the past two decades, the company has survived two recessions and not only recovered but thrived since.
Return on equity (ROE) over the past decade has ranged from 16% to 40% – with a median of 20% and an average of 23% – demonstrating consistent, disciplined profitability.
Investors are also directly rewarded: goeasy has increased its dividend for ten years in a row, with a remarkable dividend growth of 30%.
With the stock down more than 40% from its 52-week high, the current yield is almost 4.7% and the shares trade at a bargain 7.7 times earnings, about 35% below their long-term valuation norm. If market conditions normalize, the stock could reasonably deliver an annual return of 15% to 25% over the next three to five years.
Takeaway for investors
For TFSA investors with a high risk tolerance and a long time horizon, goeasy is a candidate worth serious consideration. A disciplined strategy, combined with the TFSA’s tax-free structure, could turn a modest starting amount of $5,000 into a meaningful retirement nest egg – and possibly much more.
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