Best Investment Options in Canada for 2022

Enjoying the year so far? Have you gotten through “Veganuary” without wanting to murder someone? Good. Now it seems you’re ready to invest.

We totally get that you’ve come for the best investment options for 2022, but first, a word of caution about the word “best.” There is no such thing as a one-size-fits-all investment strategy, so one person’s “best” investment for providing a lifetime of financial smooth sailing might be another’s Titanic iceberg. That’s especially true in the turbulent markets we’ve seen in the first months of this year. The only thing we can say with any certainty is that your “best” strategy should be to completely research any investment option before committing any actual money.

We have a sneaking suspicion you already know what investing is, but just in case: investing involves committing money in order to earn a financial return. This essentially means that you invest money to make money and achieve your financial goals. Politically, it’s never been a more divided world, but when it comes to investing, everybody loves making money from investing but really hates losing it. Speaking of losing money, it’s important to note that any strategy can result in your losing a considerable part of your investment.

In these modern times, it’s also never been easier to start investing: online banks, online discount brokerages, and automated investment providers have sprung up alongside more traditional financial institutions to widen the pool of potential investors. Before you get started investing, ask yourself two important questions:

What is your investing goal?

How you invest depends on what exactly you’re investing for. You might be investing money for a down payment on a house you intend to buy in 6 months. Maybe you’re investing to help your 14-year-old with her sooner-than-you-think university tuition. You might want to invest money to live off of when you retire in 30 years or so. Notice the biggest difference among these three goals? The time horizons. Your investing decisions will be considerably different based on when you’ll need your money.

Also: if you don’t have an emergency fund set up or still owe high-interest debt, such as credit card debt, then you should focus on that before you start investing. An emergency fund should cover at least 3 to 6 months of living expenses if the unthinkable should happen and should be stored somewhere where it isn’t touched.

What is your overall investment risk tolerance?

Regardless of exactly when you need to access your investment, you may have a different risk tolerance than other investors. Risk tolerance is a term that simply means how much of your investment you can afford to lose. If your entire investment was abducted by aliens and your life wouldn’t be materially affected in any way, you have an incredibly high risk tolerance. (You are also very fortunate. Congrats.) If without the money you intend to invest you might have to file for personal bankruptcy, your risk tolerance is extremely low.

Assessing your answers to the two above questions will go a long way to deciding how exactly to invest and what kind of asset allocation you want in your portfolio. Those with a shorter investment horizon, as well as a low risk tolerance, should probably invest much more conservatively — for example, in something a Guaranteed Investment Certificate — or consider saving instead. Just understand that the more conservative the investment, the lower the investment returns will likely be. Those investing money they won’t need for a long time could choose the riskier investments, which might provide the opportunity for the highest returns. No matter what, it’s always wise to speak with a finance professional or take a risk survey offered by many investment providers before you invest even a dollar.

With that out of the way, let’s get investing. Here are some options to consider.

1. Automated investing: the one-stop investing strategy

Already bored and/or confused and raring to do anything — sock drawer organization! Cover-to-cover 1981 World Book encyclopedia reading! — so you don’t have to spend another second thinking about investing? You’re a particularly great candidate for automated investing. See, most automated investing services, or robo-advisors as they’re sometimes called, will be able to accommodate investors with any risk tolerance or investment horizon by creating a diversified investment portfolio that includes different types of investments in a combination that reflects your personal goals, from higher risk stocks to more conservative bonds.

The absolute best robos will offer high-interest savings accounts for those who can’t afford to lose a penny of their investment, or, on the other end of the spectrum, growth portfolios filled with low-cost stock ETFs that will provide possibilities for high returns for those with the longest investment horizon and highest risk tolerance. The absolute best of the bunch will require no account minimums, have low management fees, and provide free unlimited telephone support with investment specialists, at a fraction of a cost that a financial advisor would charge. Many robo-advisors also offer a wide variety of investment products and investment accounts, including retirement-oriented, tax-advantaged investing accounts such as tax-free savings accounts or registered retirement savings plans.

2. Stocks

These are tiny pieces of a public company that anyone can buy. Stocks are by nature volatile and, while you could make a lot, you might also lose a lot. Just about everybody has a friend who has an uncle who knows a guy who invested $700 in Amazon in 1997 and now owns his own continent. Less heralded but more prevalent are the tales of other guys who went all in on Groupon and now can only afford to eat off fast food dollar menus.

As this illustrates, when investing in stocks, you can’t underestimate the importance of diversification — that is, investing in a large group of stocks representing multiple economic sectors and even countries’ economies. It can do a lot to cushion your investment downside. Should you like to delve a bit more deeply into the subject, check out “A Deep (But Not TOO Deep) Explanation of What We Mean by ‘Diversification.’”

Even Warren Buffett, who will probably be remembered in history books as the world’s best stock picker, consistently advises anyone who’ll listen not to try to pick individual stocks, but rather diversify in order to benefit from the growth of the broader market. Once quoth Buffett, the Omaha oracle:

“The goal of the non-professional should not be to pick winners…but…to own a cross-section of businesses that in aggregate are bound to do well.”

3. Investment funds (ETFs and mutual funds)

One of the cheapest, simplest ways to diversify a stock portfolio is by buying exchange-traded funds, or ETFs. Many track an entire index, like the S&P 500. So with one purchase, you get a tiny sliver of the 500 most valuable companies on the stock market. Online investment providers allow you to invest in ETFs and they typically charge lower fees than big banks or traditional investment providers.

Stock investors generally do best when they invest for the long term. Many studies demonstrate that investors who hold onto stocks for more than 10 years will be rewarded with higher returns that offset short-term risks. Risk never disappears, but you might say it (traditionally, at least) mellows with age.

4. Real estate

The most common way to invest in real estate is through actually purchasing your own apartment or house. Depending on where you live (cough, Toronto), there can be a very high barrier to entry, as property is expensive. Home ownership has been for generations a kind of forced savings plan for undisciplined investors. Without that monthly mortgage payment, many might not have saved anything at all. And as many homeowners will attest, it’s hard to put a price tag on owning a place of one’s own in which to raise a family (be it human or furry).

But real estate investing has rapidly become a more speculative endeavor for many; watch enough cable TV and you’d assume that anyone with a tape measure and a barrel of hair gel can make millions flipping real estate. In reality, it’s a business with huge risks that have been known to ruin unwise speculators.

As the global financial crisis of 2007-2008 taught us, real estate investments aren’t considerably less volatile than stock investments, and the upside doesn’t historically match that of equities. Mega-successful Canadian entrepreneur Joe Canavan, who built GT Global (Canada) and Synergy Asset Management from scratch, found he could make a lot more money investing in equities than real estate and has since become a renting-over-owning evangelist. When adding up the hidden fees of real estate, like property taxes, insurance, and necessary maintenance, he realized that he could amass much more money in the stock market than owning property.

Those who would like to invest in real estate without having to fix leaky toilets or service whiny tenants might consider investing in real estate investment trusts, or REITs, companies that sell shares in their various real estate investments. Just as diversification is important in stock holdings, REIT investors can spread their risk among dozens — or even hundreds — of REITs through REIT ETFs, of which there are literally hundreds to choose from. REITs also offer some major tax benefits that neither home ownership, nor investments in stocks or bonds, offer.

5. Bonds

Bonds are kind of like a loan agreement or an IOU passed between strangers. One party pays money today to another party who needs the money. They do this with the agreement that at some specified date the borrower will pay back that loan with interest.

Bonds are super-formalized agreements. Unlike a stock, which makes no guarantees about fixed payments to its investors, a borrower, otherwise known as a bond issuer, sets out these terms to the lender, or bondholder. They do this the same way a mortgage or auto loan sets out all the terms at the home closing or car sale. (Bonds are about as varied as dog breeds, and if you want to go a bit deeper on the topic, check out this “Beginners Guide to Bond Investing.”)

There are bonds that may offer very high returns, equalling and possibly surpassing those of stocks; the higher the risk the bond issuer is of defaulting on its obligation, the more it will have to shell out to the bondholder to assume that risk. Among the highest risk and highest yielding bonds are called “junk bonds.” Although you can also invest in corporate bonds that are issued by private corporations, for our purposes, we’ll just focus on the safest of them, which are called…

Treasuries

These government-issued bonds are kind of like the Raisin Bran of the bond world — super reliable, but owing to their low-yield, not exactly the kind of thing that’s going to get anyone’s resting heart rate up. Because bonds typically offer more stability, they can be an excellent counterpoint to stocks. In bad stock market periods, investors tend to rush to the exits for the safety of bonds (an effect that may create opportunities for stock market bargain hunters with the patience to hold their equities for a while.)

Once you get to know treasuries, you’ll feel comfortable enough to start calling them by their various nicknames, which, depending on their maturity dates, in the United States are called T-Bills, T-Notes, or T-Bonds. They can be bought for as little as $100 and for a term as short as 45 days and can be purchased directly from the government, as well as on the secondary market.

Treasuries don’t actually pay interest; they are auctioned for less than the face value of the treasury and, upon redemption, you’ll receive the face value, often called the “par amount.” Because they are so secure and are guaranteed by the government, treasuries offer about the lowest return on an investment — returns low enough to be close to what you might expect to get from putting money in a savings account.

Anyone with significant retirement investments should have exposure to both stocks and bonds. They’re the Mick Jagger and Keith Richards of the financial world: their solo work’s okay, but they’re infinitely better when they team up. Just as with stocks and REITs above, a nicely diversified mix of bonds can be purchased at one price through various bond ETFs.

6. Cash equivalents

Cash equivalents are the kind of investments that should be made by anyone who can’t afford to lose a penny of their investment. These are great places to hold, for instance, the money you’re going to need for next year’s vacation or the down payment on a house you plan to buy imminently.

Cash equivalents include savings accounts, money markets, and certificates of deposit (CDs). Many cash equivalents will be 100% liquid, meaning that you could march down to the bank with a suitcase and collect your money any time you like. Although, some CDs will require you to keep your deposit in place for a fixed time in order to receive a somewhat higher interest rate than you might receive from a savings account.

If you’re depositing with an institution that’s insured by the FDIC in the U.S. or CDIC in Canada — and you absolutely should be — your deposit will be safe up to $1,000,000 in case of bank failure. Cash equivalents should not be used for the long term since inflation will almost always outpace the interest rate that you’ll be able to get on any savings account (something that’s proven especially true in 2022). So if you stick with a cash equivalent year in and year out, you’ll effectively be saving and losing money at the same time.