Best Investment Options in Canada for 2021

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You may have heard about the turmoil in the stock market these days and that might have triggered your interest in investing. That’s great!

Just in case you’re not sure you know what investing involves, it means committing money in order to earn a financial return. This means that you invest money to make money and achieve your financial goals.

There’s no one-size-fits-all approach when it comes to investing. It isn’t for everyone and many of the strategies we’ll introduce may result in you losing a considerable part of your investment.

Online banks, online discount brokerages and automated investment providers make it so easy to widen the pool of potential investors. Before you get started investing, ask yourself two important questions: 1. What is your investing goal? 2. What is your overall investment risk tolerance?

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 six months.

  • Maybe you’re investing to help your 14-year-old with her upcoming university tuition.

  • You might want to invest money to live off when you retire in 30 years or so.

What’s the biggest difference between 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 three to six months of living expenses just in case the unthinkable happens and you should store it somewhere you can’t touch it.

What is your overall investment risk tolerance?

Do you know your risk tolerance? “Risk tolerance” refers to how much of your investment you can afford to lose. Assess where you might be in these to scenarios so you know exactly how to invest and what kind of asset allocation you want in your portfolio:

  • If your entire investment was abducted by aliens and you wouldn’t flinch at all, you have an incredibly high risk tolerance.

  • On the other hand, if you need to file for personal bankruptcy if you lose your investment, your risk tolerance is extremely low.

Or maybe you’re somewhere in the middle. If you have a short investment horizon and a low risk tolerance, you should probably invest very conservatively, such as in bonds or a Guaranteed Investment Certificate (GIC). The more conservative your investment, the lower your returns.

On the other hand, if you don’t need to tap into money for a long time and you have a rich uncle on speed dial who’s just dying to bail you out no matter what, you want to go for riskier investments, which might provide opportunity for the highest returns.

Not sure where you fall on the spectrum? Speak with a finance professional or take a risk survey offered by many investment providers before you invest.

So, let’s get to investing. Learn more about a few options.

What are the best investment options?

  1. Stocks

  2. Bonds

  3. ETFs and Mutual Funds

  4. Real Estate

  5. Cash Equivalents

  6. Initial Coin Offerings (ICOs)

1. Stocks

A stock is one tiny piece of a public company that you can buy. A few quick facts about stocks:

Stocks, volatible by nature, means you could either make or lose a lot of money. When investing in stocks, you can’t underestimate the importance of diversification, which means your money is spread out across multiple assets. Stock units, called shares, are bought and sold predominantly on stock exchanges.

Stocks traditionally outperform most other investments over time and you can purchase them using an online broker.

2. Bonds

Bonds function as an IOU. One party pays money to another party who needs the money. At some specified date in the future, the borrower will pay back that loan with interest.

Unlike a stock, which makes no guarantees about fixed payments to its investors, a borrower (bond issuer) sets out these terms to the lender (bondholder).

Some bonds offer high returns, possibly surpassing stock returns. 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. Some of the riskiest and highest-yielding bonds are called junk bonds.

Curious about learning more? Check out the Beginners Guide to Bond Investing.

Treasuries

The safest bond: Treasuries. Treasuries are a kind of bond sold to keep the U.S. government’s cash flow flowing so it can pay its bills. These U.S. government-issued bonds are super reliable, but their low yield might not get your heart pumping. A few quick facts:

  • Because bonds are typically so stable, they are an excellent counterpoint to stock holdings, which can swing wildly during periods of economic volatility.

  • In bad stock market periods, investors tend to rush to the exits for the safety of bonds.

  • They have various nicknames: T-Bills, T-Notes or T-Bonds.

  • You can get them 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 U.S. 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 like the Mick Jagger and Keith Richards of the financial world — their solo work’s okay, but they’re infinitely better when paired together). Just as with stocks and REITs, a nicely diversified mix of bonds can be purchased at one price through various bond ETFs.

3. ETFs and Mutual Funds

One of the cheapest, simplest ways to diversify a stock portfolio is by buying exchange-traded funds (ETFs).

  • Exchange-traded funds (ETFs), also known as passively managed vehicles, track an entire index, like the S&P 500. One share gets you access to 500 of the most valuable companies on the stock market. Online investment providers allow you to invest in ETFs and typically charge lower fees than big banks or traditional investment providers.

  • A mutual fund is an investment that pools money from many investors and invests the money in diversified securities such as stocks, bonds and short-term debt. They’re actively managed and typically carry higher fees than an ETF.

Why invest in ETFs or mutual funds? Investors who hold onto stocks for more than 10 years often get rewarded with higher returns that offset short-term risks, many studies show. Note that risk with ETFs or mutual funds never disappears — you might say it mellows with age.

4. Real Estate

You might have heard that real estate is the holy grail of investing. The most common way to invest in real estate is through purchasing your own apartment or house. Depending on where you live, you can face a very high barrier to entry, as the national average home price stood at CA$500,200 in 2019, up by a modest 2.3% from a year earlier, according to CREA.

British Columbia and Ontario had the most expensive housing markets in the country, with average prices of CA$699,300 and CA$606,400. Homeownership has always been a sort of forced savings plan for undisciplined investors.

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.

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 (REITs), companies that sell shares in their various real estate investments. REIT investors can spread their risk among dozens — or even hundreds — of high-yield ETFs. REITs also offer some major tax benefits that neither home ownership, nor investments in stocks or bonds, offer.

5. Cash Equivalents

Nothing beats cash, but some things equal it. You can invest in cash equivalents if you can’t afford to lose a penny of your investment.

Cash equivalents include the following:

  • Savings accounts

  • Money markets

  • Certificates of deposit (CDs)

Many cash equivalents will be 100% liquid, which means you can get your money out at any point. Some CDs will require you to keep your deposit in place for a fixed time in order to receive a higher return rate than you might receive from a savings account.

Cash equivalents should not be used for the long term since inflation will almost always outpace the interest rate. If you stick with a cash equivalent year in and year out, you’ll save and lose money at the same time.

6. Initial Coin Offerings (ICOs)

Consider yourself a bit of a risk taker? Consider investing in an initial coin offering (ICO). Speculative doesn’t even begin to cover the risks of investing in new cryptocurrencies. True, some lucky souls did make a lot of money by investing in Ethereum’s ICO in 2014, but since then, coins have multiplied so that there are dozens of offers every month. ICOs have become a favorite tool for pump-and-dump scam artists. Exercise extreme caution before committing your funds to any ICO.

What You Can Do Next

The next thing you need to do is choose your broker. You need a broker in order to invest. If you’re just starting out, you may prioritize features like basic educational resources, comprehensive glossaries, easy access to support staff and paper trading before you trade with real money.

Consider what you’ll invest in — you can see all the examples above. Analyze the fees, open an account and start investing or trading!

Ready to get started investing? Sign up on Wealthsimple.

Consider Automated Investing

Is your head already spinning? Think you’d rather do anything other than pick stocks or day trade? If so, you’re a particularly great candidate for automated investing. Most automated investing services, or robo advisors, as they’re sometimes called, do exactly that — automate the process for you.

They can:

  • Accommodate investors with any risk tolerance or investment horizon.

  • Create a diversified investment portfolio that includes different types of investments in a combination that reflects your personal goals.

  • Can help you invest in anything, from higher-risk stocks to more conservative bonds.

The best robo advisors offer high-interest savings accounts if you can’t lose a penny of your investment or growth portfolios that offer higher returns (for longer investment horizons and higher risk tolerance).

Many robo-advisors require no account minimums, have low management fees and provide free unlimited telephone support with investment specialists, all at a fraction of a cost that a financial advisor would charge. They usually offer a wide variety of investment products and investment accounts, including retirement-oriented, tax-advantaged investing accounts such as tax-free savings accounts (TFSAs) or registered retirement savings plans (RRSPs).

Ready and eager to get started? You should feel that way, because your future is bright — invest in it!

Last Updated October 10, 2018

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