A $1,000 monthly investment in your Tax-Free Savings Account (TFSA) can compound to $1 million in seven years if your portfolio gives an average return of 10%. But to get that 10% average return is a challenge. The recent US banking crisis has reiterated the importance of a diversified portfolio across different sectors and asset classes.
While some sectors could earn you 30%, 50%, or even 100% returns in the short term, they could also take away these returns if profits are not booked in a timely manner. The stock marketâs last three years show that buying the dip is not enough. To build a $1 million TFSA portfolio in seven years, you have to do more than that.
| Year | Investment | Investment Return @ 10% | Total Amount |
| 2023 | $12,000 | $12,000.0 | |
| 2024 | $12,000 | $1,200.0 | $25,200.0 |
| 2025 | $12,000 | $2,520.0 | $39,720.0 |
| 2026 | $12,000 | $3,972.0 | $55,692.0 |
| 2027 | $12,000 | $5,569.2 | $73,261.2 |
| 2028 | $12,000 | $7,326.1 | $92,587.3 |
| 2029 | $12,000 | $9,258.73 | $1,13,846.1 |
How to build a $1 million TFSA portfolio
The volatile stock market is going through the worst recession since 2008, with the TSX Composite Index down 6.5% in less than 10 days. The US banks couldnât keep up with rising interest rates and falling prices of tech stocks, creating a sell-off in global bank stocks. The liquidity crunch stressed oil stocks, and they came crashing down. All sectors that depend on economic growth took a dip. Even the resilient stocks fell prey to investors’ market exit.Â
In fear lies the opportunity of value investing. Now is the time to buy into value stocks and book a 30%, 50%, or 100% gain from a recovery rally. But remember to keep booking profits during bull cycles and lock in the 10% average return. Letâs see how.Â
One stock to buy in your TFSA during the market crash
A recession impacts the overall market and forces some companies to revise their guidance. At times like these, the ones with lower debt and fixed expenses thrive. The current market crash has created an opportunity to buy Bombardier (TSX:BBD.B) stock in your TFSA. The business jet maker is resilient to a recession as its client base is unaffected by the recession.
The company has already paid off its 2023 and 2024 debt and is gradually reducing its 2025 debt maturity. This two-year buffer can help the jet maker withstand a recession and handle any delays in orders. However, the turbulence in the market has sent Bombardier stock down more than 16% in less than 10 days. A deeper dip is coming. I expect the stock to fall 30â40%.Â
A good strategy would be to buy a small quantity of Bombardier shares throughout the dip and reduce your overall share cost. After the slump, the stock could pick up momentum as it delivers on its order book. Bombardier stock could grow 30â50% in a recovery rally.
Like you buy shares in tranches, you can also sell tranches, with the first tranche sold for a 30% return and the next for a 50% return. You can use the past returns of dividend aristocrats that are less volatile as a guide, not a guarantee, to generate a 5â8% yield in every market condition.Â
One growth stock to buy from investment gains
BCEÂ (TSX:BCE) is a dividend aristocrat worth investing your capital gains from Bombardier. This is because BCE has an average dividend yield of 5% and grows it at an average annual rate of 5%. The telco is resilient to a recession as it has locked in a weighted average cost of public debt of about 2.8%. And ~85% is fixed-rate debt, reducing the impact of rising interest rates on its profits. Moreover, the companyâs infrastructure is not significantly affected by property prices. And the demand for telecom services is recession-proof.Â
Final thoughts
Diversify your portfolio of growth stocks and keep booking profits in a timely manner. Some stocks may give you a 30% return while others may give 10%. Keep booking a 10% return and lock it in with less volatile dividend stocks. Diversification can spread your risk and ensure a minimum return every year.
The post How to Build a $1 Million TFSA Portfolio in 7 Years appeared first on The Motley Fool Canada.
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Fool contributor Puja Tayal has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.