Long-term investing is one of the best ways to build wealth over a lifetime. For Canadian investors, long-term investing can mean putting your money into a number of different assets. These include stocks on the Toronto Stock Exchange, mutual funds or ETFs, and even Canadian or international real estate.
The goal for every long-term investor is to outperform the market over an extended period. This extended period is often considered a pro and a con of long-term investing.
On the one hand, investing in these assets gives you a high chance of outperforming the markets. But on the other hand, finding the patience to hold those investments for years can be challenging.
Patience is the single greatest asset you can have when investing with a long-term horizon. There will be market dips and market crashes where it will be tempting to sell your investments. As difficult as it may be, holding and continuing to add to them over time will yield you the best possible long-term returns.
Another factor to consider is the risk vs. return on your investments. Many investors lean towards low-risk, low-reward investments for things like their retirement.
After all, you wouldn’t want to risk your potential retirement income by investing in riskier assets. The allure of potentially higher rewards from higher-risk investments is something long-term investors need to take into account.
In this article, we will review some of the best long-term investment assets in Canada for January 2024.
Table of Contents Show
Best Long-Term Investments in Canada
1.Robo-Advisor Portfolios
Robo-advisor portfolios have grown in popularity in recent years, but they still account for a very small percentage of overall Canadian investments.
These financial services are provided via complex computer algorithms rather than by a fund manager. The thought is that robo-advisors cannot be victims of emotional trading, which has always been a downfall of human investors.
Do robo-advisors work? They consider your financial goals and risk tolerance and allocate your funds accordingly. In general, robo-advisors are only as risky as your instructions.
They can be a low-cost way to invest without worrying about which assets to invest in. Robo-advisors are a perfect long-term investment strategy for beginners who are unsure where to invest their money.
In 2023, most financial institutions are offering some sort of robo-advisor service. Whether it is a bank as large as RBC or discount brokerages like Wealthsimple or Questrade, Canadians have plenty of different options when it comes to robo-advisors.
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2. Long-Term GICs
A long-term GIC or Guaranteed Investment Certificate is a safe way to invest your money for a period of five to ten years. GICs are secure and very low-risk for Canadian investors who are seeking a guaranteed return on their investment.
With a GIC, you lock in your money for a set period. These periods can be as short as one year and as long as ten years. The longer the lockup period, the higher the interest rates are for your returns.
Almost every financial institution will offer GICs as both short-term and long-term investment assets. While the guaranteed return is nice, you do have to think of the opportunity cost of locking up your money for the entire period.
GICs are best for investors looking for a safe, guaranteed return that can be welcome during times of market volatility. Remember that GICs are taxed on the interest earned if it is held in a non-registered account.
3. High-Interest Savings Accounts
High-interest savings accounts are one of the easiest ways to earn a return on your money. Most financial institutions in Canada will offer high-interest savings accounts with interest rates ranging from 1% to 3%.
This investment asset requires the least amount of work. All you need to do is sign up for a high-interest savings account with your financial provider. These accounts work well for investors with large amounts of cash that do not want to lock it up for a set period.
As a long-term investment, a high-interest savings account comes up a little short compared to other assets.
First, the interest rate may not even beat the inflation rate. Second, you will be taxed on your returns at your marginal rate unless it is a high-interest TFSA. Finally, the interest rates are typically lower than on other assets like GICs.
4.Equity ETFs
ETFs or Exchange Traded Funds are baskets of stocks or assets that trade directly on major exchanges. They can be bought or sold like individual stocks but typically hold a diversified portfolio in one convenient fund.
Equity ETFs hold stocks that are typically from a specific sector or index. These funds are an excellent way for Canadian long-term investors to hold many different stocks for less initial capital.
The benefits of ETFs are numerous. ETFs have lower management fees and expense ratios than mutual funds. They can also be held in registered accounts and TFSAs, which can shelter you from paying capital gains taxes.
On the other hand, the trade-off for ETFs is lower potential long-term growth in exchange for less volatility and downside risk. They are a perfect building block for any long-term investor and can be purchased at any Canadian brokerage. For those looking to save on commission fees, brokerages like Questrade offer free ETF trades.
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5.Bond ETFs
As their name suggests, Bond ETFs are funds that trade on major exchanges and hold various types of bonds. These fixed-income assets are considered safer investments due to their guaranteed monthly distributions.
Bond ETFs can also be purchased on any Canadian brokerage and should be considered as a part of any diversified investment portfolio. In general, bonds move inversely to stocks, so they can act as a hedge against stock market volatility.
While Bond ETFs provide a steady flow of income, you will be taxed on these distributions in a non-registered account. Bond ETFs also tend to have higher expense ratios which can cut into your long-term gains.
Finally, Bond ETFs are great in a bear market but will rarely outperform the market when things are bullish.
6.Dividend Stocks
Dividend stocks are one of the greatest compounders of wealth over a long-term period. Investing in dividend stocks is how Warren Buffett grew his fortune over time. When you own a dividend stock, the company will pay you a portion of its profits on a quarterly or even monthly basis.
These stocks are generally of mature, high cash-flow companies. The dividend can be a trade-off for low potential future capital growth from the stock’s price. For new investors, dividend stocks are some of the best long-term investments for beginners.
You can collect dividends in both registered and non-registered accounts. Note that they will be taxed as investment income in Canada if the stocks are held in a non-registered investment account.
Dividend stocks can be bought at any Canadian brokerage. Avoid paying higher trading fees by looking at discount brokerages like Wealthsimple or Questrade!
7. Growth Stocks
If you are young and have a long-term investing horizon, you should consider owning some growth stocks. What is a growth stock? It is the stock of a company that has yet to grow into a mature company.
Some popular growth sectors include information technology and semiconductors, as well as emerging industries like electric vehicles or fintech.
Growth stocks are certainly among the class of long-term investments with high potential returns in Canada. They can provide outsized growth and far outperform the markets. The downside of growth stocks is that in times of high-interest rates or a bear market, they are the first to see their valuations and prices slashed.
You can buy growth stocks at any Canadian brokerage for a wide range of trading fees. Most of them trade on the US Markets, so be prepared to pay some foreign exchange fees.
8. Real Estate
Real Estate is a massive long-term investment market in Canada, especially in hot spots like Vancouver and Toronto. As of 2022, residential assets represented 22% of Canadian wealth.
Owning property in Canada can be a prudent long-term investment strategy. Not only do you use your asset either for living in or renting out to a tenant, but chances are, when it is paid off, it will be worth much more than what you bought it for.
One can argue that owning real estate in Canada does have fairly high barriers to entry. It requires a significant downpayment and approval for a mortgage from a financial institution.
9. Mutual Funds
Mutual funds hold a basket of stocks or other investment assets and are actively managed by fund managers. They are often confused with ETFs, but there are some major differences. Mutual funds do not actively trade on exchanges and are bought directly from the managing institution.
Because they are actively managed, they often have higher expense ratios than ETFs. This can cut into your long-term investment gains.
When you buy mutual funds from a financial institution, you purchase units rather than individual shares. There is usually a minimum initial investment amount and minimum subsequent investment amount as well.
It is a similar system to buying fractional shares, where you can just invest a nominal amount of money rather than buying a whole share of an ETF.
Mutual funds can be purchased from most financial institutions. These can be a good starting investment for beginners, but over the long term, lower-cost ETFs are usually more beneficial to own.
10.Money Market Securities
Money market securities are a group of typically short-term debt investment assets. The lockup periods for these investments are anywhere from one month to one year, with some exceptions.
Some popular choices include treasury bills, commercial papers, and bankers’ acceptance.
While these are guaranteed return investments, they do not fall under the category of long-term investment strategies in Canada. If you are looking for a longer investment horizon, GICs are a better option.
11.Value Stocks
There is a lot of overlap between value stocks and dividend stocks. Most dividend stocks are value stocks, but not all value stocks are dividend stocks.
Value stocks are usually seen as the opposite of growth stocks. These are mature companies with wide industry moats and are financially stable. Some value sectors include consumer discretionary, financial, and utility companies.
You can buy value stocks from any brokerage that offers Canadian or American stocks. While value stocks will frequently pay a dividend and provide stability to your portfolio, long-term growth is minimal compared to high-growth equities.
Some of these value sectors can also be cyclical, so the stock price and valuation will fluctuate over time.
12.Alternative Investments
Alternative investments are any assets that do not fall into the traditional financial categories. These can include anything from gold to Bitcoin to sports cards to antique cars.
Other alternative investments include things like peer-to-peer lending, crowdsourcing, and fractional real estate ownership.
These alternative assets have value according to their specific markets. The popularity of an asset can frequently fluctuate, which can lead to volatile asset values.
Best Investment Accounts for Long-Term Investments
Registered Retirement Savings Plan (RRSP)
The RRSP is probably one of the accounts most commonly associated with Canadian long-term investments.
This account is designed to be tax-friendly as it defers taxable income until you are retired. Any contributions made can be deducted from your income tax each year. Any gains made in RRSP investments are not taxed as long as your funds remain in the plan.
There is a limit to how much you can contribute to your RRSP each year. It is calculated as a certain percentage of your earned income from the previous year plus any unused contributions from previous years.
Tax-Free Savings Account (TFSA)
The TFSA was started in 2009 as a way for Canadians to save or invest completely tax-free. It is similar to the ROTH IRA Account that is popular in the United States.
This account allows annual contributions that are usually around $5,000 to $6,000 per person. These contributions are retroactive, so if you miss a year, you can carry that amount over to the next year.
Any capital gains made in the TFSA are completely tax-free, and you can also transfer money in and out with no penalty.
Registered Education Savings Plan (RESP)
Another registered long-term investment account in Canada is the RESP. The RESP does not have as long-term of a horizon as an RRSP or TFSA.
The purpose of the RESP is to invest in your children’s education costs in the future. The lifetime limit contribution for an RESP is CAD 50,000 per child.
This account is not tax deductible like the RRSP is. The government will match your contributions to a certain amount through grants. If your child does not use the funds for education, then the grants need to be returned to the government.
What are Long-Term Investments
Long-term investments are generally defined as those held for at least one to three years. Realistically, most Canadian investors likely think of long-term investments as investing for retirement when your income is not as high.
While there are plenty of long-term investment assets, long-term investing itself is a mindset. It can require holding your investments through market crashes and bear markets. This is why we say patience is the best asset you can have when you are a long-term investor.
Tips for Long-Term Investing
When you are a long-term investor, the key is to reduce your fees and costs as much as possible. Buy low-cost assets and consider using brokerages that have lower or even no commission fees for trades.
Your risk tolerance is an important factor in what assets you are investing in. If you are starting young, you can take some chances by buying high-growth stocks and holding them for years. If you are starting later in life, you might opt for less risky assets like value stocks and ETFs.
When building your long-term investment portfolio, diversify your money across several different assets. Own stocks and/or ETFs from various sectors while also adding some fixed-income assets like bonds. If you have a higher risk tolerance, you can even consider investing in high-risk, high-reward assets like Bitcoin.
Pros and Cons of Long-Term Investments
Pros
Long-term investments can provide steady growth when you hold them for years or even decades. While you hold these investments, dividends and capital growth can compound, providing you with one of the best ways to generate long-term wealth in Canada.
There are various investment assets and accounts in which you can hold them. Look for low-cost assets that can be held in a tax-friendly account.
Having a long-term horizon and outlook can provide you with retirement wealth for a high quality of life even after you are finished working.
Cons
Long-term investing takes time, and many investors succumb to emotional trading and impatience.
If you amass a large amount of wealth in your retirement, you could end up paying a lot of taxes even when your income is lower. You could also be affected when it comes to federal benefits as a senior citizen.
If you need the money in your RRSP before retirement, you will be taxed heavily for early withdrawals. This is one occasion where holding long-term investments might be a disadvantage.
FAQs
What is the safest investment in Canada?
If you ask a group of Canadian investors for the safest investments, they might all have different answers. Some will swear by real estate, while others will like the guaranteed returns of a GIC. This will ultimately depend on your risk tolerance and investing horizon.
Which investments have the highest return for long-term investing?
For stock investors, high-growth stocks have the potential to well outperform the market and value stocks over the long term. In terms of the highest dollar value return, it will likely be real estate and property sales.
What is the best way to invest $20,000 in Canada?
Again, investing always depends on your investing horizon, risk tolerance, and investing goals. Will you need this money in the next five years? If you don’t want to risk any losses then lock that money up in a GIC. If your risk tolerance is higher, then index funds or dividend-paying stocks can provide a nice income flow with a $20,000 investment.
Related:
- Best Canadian Index Funds
- Top Healthcare Stocks in Canada
- Best Canadian Investments for Beginners
- Best Investment Apps for Students
Editorial Disclaimer: The investing information provided here is for informational purposes only and is not intended as individual investment advice or recommendation to invest in any specific security or investment product. Investors should always conduct their own independent research before making investment decisions or executing investment strategies. Savvy New Canadians does not offer advisory or brokerage services. Note that past investment performance does not guarantee future returns.
Long-term investing is a popular strategy for building wealth over time. It involves holding investments for an extended period, typically one to three years or even longer. Canadian investors have a variety of options when it comes to long-term investments, including stocks on the Toronto Stock Exchange, mutual funds or ETFs, Canadian or international real estate, and more.
One of the key goals of long-term investing is to outperform the market over time. While this strategy offers a high chance of achieving good returns, it requires patience and the ability to withstand market fluctuations. It's important to resist the temptation to sell investments during market dips or crashes and instead continue to hold and add to them over time for the best long-term returns.
When considering long-term investments, it's essential to assess the risk versus return. Many investors prefer low-risk, low-reward investments for their retirement savings to protect their potential income. However, it's important to consider the allure of potentially higher rewards from higher-risk investments.
Now, let's dive into the concepts mentioned in the article and provide more information on each:
1. Robo-Advisor Portfolios
Robo-advisor portfolios have gained popularity in recent years. These services use complex computer algorithms to manage investments, eliminating the emotional trading that can affect human investors. Robo-advisors consider your financial goals and risk tolerance to allocate your funds accordingly. They are a low-cost way to invest, making them suitable for beginners who are unsure where to invest their money [[1]].
2. Long-Term GICs
A Guaranteed Investment Certificate (GIC) is a safe and low-risk investment option for Canadian investors. With a GIC, you lock in your money for a specific period, typically ranging from one to ten years. The longer the lockup period, the higher the interest rates on your returns. GICs are best for investors seeking a safe and guaranteed return, especially during times of market volatility. However, it's important to consider the opportunity cost of locking up your money for the entire period [[2]].
3. High-Interest Savings Accounts
High-interest savings accounts are an easy way to earn a return on your money. Most financial institutions in Canada offer high-interest savings accounts with interest rates ranging from 1% to 3%. These accounts are suitable for investors with large amounts of cash who don't want to lock it up for a set period. However, the interest rates may not beat the inflation rate, and you will be taxed on your returns unless it is a high-interest Tax-Free Savings Account (TFSA) [[3]].
4. Equity ETFs
Exchange Traded Funds (ETFs) are baskets of stocks or assets that trade directly on major exchanges. Equity ETFs hold stocks from specific sectors or indexes, allowing Canadian long-term investors to hold a diversified portfolio with less initial capital. ETFs have lower management fees and expense ratios than mutual funds and can be held in registered accounts and TFSAs to minimize capital gains taxes. Brokerages like Questrade offer free ETF trades, reducing commission fees [[4]].
5. Bond ETFs
Bond ETFs are funds that trade on major exchanges and hold various types of bonds. These fixed-income assets are considered safer investments and can act as a hedge against stock market volatility. While Bond ETFs provide a steady flow of income, they are taxed on distributions in non-registered accounts and tend to have higher expense ratios. They are suitable for diversifying a long-term investment portfolio [[5]].
6. Dividend Stocks
Dividend stocks are stocks of mature, high cash-flow companies that pay a portion of their profits to shareholders on a regular basis. They are considered one of the best long-term investments for beginners. Dividends can be collected in both registered and non-registered accounts, but they are taxed as investment income in Canada if held in a non-registered account. Discount brokerages like Wealthsimple or Questrade offer lower trading fees for dividend stock investments [[6]].
7. Growth Stocks
Growth stocks are stocks of companies that have yet to grow into mature companies. They have high potential returns but can be more volatile. Popular growth sectors include information technology, semiconductors, electric vehicles, and fintech. Growth stocks can be purchased at any Canadian brokerage, but it's important to consider the potential risks and fluctuations in valuations and prices [[7]].
8. Real Estate
Real estate is a significant long-term investment market in Canada, particularly in hot spots like Vancouver and Toronto. Owning property can be a prudent long-term investment strategy as it can appreciate in value over time. However, it requires a significant downpayment and mortgage approval from a financial institution [[8]].
9. Mutual Funds
Mutual funds are actively managed investment funds that hold a basket of stocks or other assets. They are bought directly from the managing institution and have higher expense ratios compared to ETFs. Mutual funds can be a good starting investment for beginners, but over the long term, lower-cost ETFs are usually more beneficial to own [[9]].
10. Money Market Securities
Money market securities are short-term debt investment assets, including treasury bills, commercial papers, and bankers' acceptance. While they offer guaranteed returns, they are not considered long-term investment strategies. GICs are a better option for longer investment horizons [[10]].
11. Value Stocks
Value stocks are mature companies with stable finances and wide industry moats. They are generally seen as the opposite of growth stocks and can provide stability to a portfolio. Value stocks can be purchased from any brokerage that offers Canadian or American stocks, but their long-term growth potential is minimal compared to high-growth equities [[11]].
12. Alternative Investments
Alternative investments include assets that do not fall into traditional financial categories, such as gold, Bitcoin, sports cards, and antique cars. These assets can be volatile and have fluctuating values based on market popularity. Examples of alternative investments also include peer-to-peer lending, crowdsourcing, and fractional real estate ownership [[12]].
13. Registered Retirement Savings Plan (RRSP)
The RRSP is a tax-friendly account associated with Canadian long-term investments. Contributions made to an RRSP can be deducted from income tax, and any gains made in RRSP investments are not taxed as long as the funds remain in the plan. There are annual contribution limits based on a percentage of earned income from the previous year [[13]].
14. Tax-Free Savings Account (TFSA)
The TFSA allows Canadians to save or invest completely tax-free. Contributions are retroactive, and any capital gains made in the TFSA are tax-free. The annual contribution limit is typically around $5,000 to $6,000 per person, and contributions can be transferred in and out with no penalty [[14]].
15. Registered Education Savings Plan (RESP)
The RESP is a registered long-term investment account designed to invest in children's education costs. The government provides grants that match contributions up to a certain amount. If the funds are not used for education, the grants must be returned to the government. The lifetime contribution limit for an RESP is CAD 50,000 per child [[15]].
In summary, long-term investing in Canada offers a range of investment options, including robo-advisor portfolios, GICs, high-interest savings accounts, equity ETFs, bond ETFs, dividend stocks, growth stocks, real estate, mutual funds, money market securities, value stocks, alternative investments, and various registered accounts like RRSPs, TFSAs, and RESPs. Each investment option has its own benefits and considerations, and it's important to align your investment choices with your risk tolerance, investment goals, and time horizon.
