How $12,000 In CERB Money Can Make You a Millionaire

Many Canadians are collecting $2,000 per month from the federal government despite not really needing the cash.

That’s not to say these folks don’t deserve the assistance, it’s a good thing Ottawa is helping out people who have lost their jobs. The economy was devastated by COVID-19, and millions of Canadians lost their jobs through no fault of their own. Many just need a little help to make it through a lean few months.

Fortunately, many other Canadians are in a little better shape. Whether it’s because they have other savings, alternate sources of income, or perhaps a spouse that’s still working, they really don’t need their Canada Emergency Response Benefit (CERB) money.

If you’re in this group, don’t let this glorious opportunity go to waste. Here’s how you can make a smart move with your CERB money, perhaps even leveraging it into a big chunk of your retirement savings in a few decades.

Can CERB make you a millionaire?

You might not think a mere $12,000 can make a big difference, but it can. Especially if you invest it smartly over a few decades.

Say you’re 25 today and you live in your parents’ basement. You qualify for CERB but you don’t really need the cash because you’re already a smart saver with low expenses. You decide to put the cash into a TFSA and invest it over the long-term.

You don’t touch that cash for 40 years, choosing to keep it invested until you retire. Let’s say you earn a reasonable 10% return on the investment. Just how much will it be worth in 2060?

The result is pretty impressive. You’re looking at a nest egg of a little more than $512,000 if you invest your CERB money over the long-term. Although it’s not enough to make you a millionaire, it’s an excellent start towards retirement.

Sure, $512,000 won’t be worth nearly as much in 2060 as it is today, but it should still be a substantial amount of money.

For your CERB money to make you a millionaire over a 40 year time horizon you’d need to get an 11.7% annual return. Although it’s unlikely the TSX Composite will earn that kind of return over the next few decades, individual investors can do better than the index by choosing excellent companies with out-sized growth potential.

One stock to potentially make you a millionaire (TSX:GSY)

Putting all of your money into one stock is silly, even if it was free cash from the government. We’re not recommending that at all. But I’d still like to profile one stock that could easily deliver a 12% annual return over a few decades.

That stock is alternative finance company Goeasy (TSX:GSY), which provides short-term loans for Canadian borrowers who simply don’t have many other options. This has been a fantastic growth story over the last decade as the company evolved from financing furniture into one of Canada’s leading subprime lenders.

Goeasy has grown annual revenue from $174 million in 2010 to $609 million in 2019. The bottom line increased at an even faster rate, growing from $8.8 million in 2010 to $80 million in 2019. That translates into recent annual earnings of $5.17 per share. The stock, meanwhile, trades at just over $56. Approximately 11x earnings is a great price to pay for a company with such fantastic potential.

The company has a few interesting growth paths it can explore…

  • It is looking into financing consumer purchases for other retailers.
  • It has dipped a toe into lending against real estate.
  • It’s also planning to enter the auto finance market as a niche lender specializing in high risk borrowers. The company figures that part of the market is worth close to $30 billion alone.

Goeasy has also delivered excellent returns over the last decade. Including reinvested dividends the stock has returned 24.9% per year. There’s no guarantee the stock does that kind of return going forward of course, but it goes to show a 12% annual return from the name is quite possible.

The bottom line

Even if you don’t hit our magical 12% return level, it still makes a lot of sense to invest any extra CERB payments you might not need. Putting this cash to work will undoubtedly pay dividends in the future.