The best long-term investment strategies (2024)

When you’re in your 20s or 30s, long-term investment (20, 30 or 40 years) can be a difficult concept to wrap your head around. Not sure where to invest for the long run? We get it — saving and investing for the benefit of an impossible-to-imagine older version of yourself is a giant mental hurdle. Humans are wired to prioritize immediate wants and needs over those that are decades away, so in some ways, long-term investing goes against instinct.

But logic dictates you need toinvest for the long runif you ever want to retire, plan to pay for your child’s post-secondary education or hope to meet any other far-off financial goal.

To help you stay on track and keep your eye on the prize, we’ve put together this round-up of the best tips and tricks for successful long-term investing.

Create a balanced portfolio

One of the best ways to ensure your investments provide solid returns over time is to have a well-diversified mix of stocks and bonds in your portfolio. By putting your money into a broad array of assets and industry sectors, you can be sure that at least some of your holdings will earn good returns at any given time even if others aren’t performing well.

Think about it this way: if you put all your money into real estate in one neighbourhood and then something unexpected happens that pushes home prices down in that neighbourhood — say, a sharp increase in local crime — you’ll lose your shirt. If you had invested in real estate in a bunch of different places, sure you’d lose some money in the affected area, but you’d likely still have gains in others. The same is true for all kinds of investments, so you want to diversify by region, size, type and sector.

The good news: becoming anonline investoris easy. Most Canadian robo-advisors, such asWealthsimple,will automatically create a diversified, balanced portfolio for you. Plus, they offer lower fees than a bank or brokerage.

Our top pick isWealthsimpleand you can read our fullWealthsimple reviewto find out why we love it.

If you’re comfortable with DIY investing, all you have to do is open an account with anonline brokerage, and then build your own portfolio and make trades on your own. Read our fullQuestrade reviewto find out why we’ve ratedQuestradethe best online brokerage in Canada.

RRSP, TFSA & RESP – Pick the right account

Registered accounts – such as aTax-Free Savings Account(TFSA), Registered Retirement Savings Plan (RRSP), andRegistered Education Savings Plan(RESP) – are all excellent choices for long-term investments because you don’t pay annual income tax on investment earnings, and those earnings compound over time. But you need to choose the right registered account for your situation.

If you plan to use your investment savings before you retire, or if you think your income in retirement will be higher than it is now, a TFSA is your best bet. That’s because TFSA contributions are taxed in the year you earn the money and can be withdrawn any time tax-free and without penalty. If you still can’t decide on an RRSP or TFSA, read our detailed article onTFSA vs. RRSP.

If, however, you won’t be withdrawing your investment funds before you retire, and you expect your total retirement income will be less than what you currently earn, RRSPs are a smart choice. You’ll get the tax savings now, when your income tax rate is high, and pay the taxes later at a lower rate. If you make withdrawals before retirement, however, you’ll pay a significant penalty.

Lastly, RESPs are a good option for long-term investments to fund a child’s education, especially since the government kicks in some matching contributions. However, many cash-strapped Canadian families struggle to save for retirement and their child’s post-secondary education. If you’re debating which to choose, read our head-to-head comparison ofRESP vs. RRSP.

It’s worth noting that for shorter-term savings—say, funds foremergenciesor that you hope to use for adown payment on a home purchasein the next year or two—a registered savings account could be a better choice. After all, if the markets are down when you are ready to cash out your investments, you’d have to sell at a loss. You can take out as much as you want from a TFSA account at any time, tax-free; and up to $35,000 tax-free from an RRSP account for the purposes of buying your first home under theHome Buyers Plan.

Minimize fees

Fees in Canada are usually “baked-in” to investments, meaning a percentage comes off the top of your earnings to pay the financial institution, fund manager and/or the advisor handling your accounts. Reduce the amount you pay in fees, and you effectively increase your returns.

So how do you lower fees? Choose the right kind of funds. Index funds and exchange-traded funds (ETFs) have much lower fees than traditional mutual funds because they don’t require a manager to actively pick assets for the fund. Instead, index funds and ETFs hold all the stocks or bonds in a particular market index and match the performance of the market as a whole.

Since index funds and ETFs aren’t actively managed, investing in them is often referred to as a passive or “couch potato” approach. While passive investing requires minimal effort, it still delivers better returns than most actively managed funds — illustrating just how difficult it is to beat the market.

Anyone can purchase index funds or ETFs on their own (the latter requires a brokerage account), but if you’re looking for no-brainer ease and convenience, an online brokerage ora robo-advisorcan create and maintain a portfolio of these low-cost funds for you.

Start early

If you aren’t already investing for the long term, you should start ASAP. Why make this a priority when all the costs of adulting — housing, food, student loan repayments, etc. — may already be stretching you thin? Because of math.

The magic of compounding means that a single investment of $1,000 today could be worth more than $4,100 by 2055 (assuming a modest annual rate of return of 4%). But if you wait 10 years to invest that $1,000 with the same rate of return, you’d have less than $2,775 by 2055. If you wait 15 years, your total drops to $2,275.

In other words, if you start investing immediately, you’ll have nearly 50% more money by 2055 in our example than if you waited 10 years, and a whopping 80% more than if you waited 15 years.

Put simply, there is no investment guru or strategy that can beat the gains achieved by compounding earnings over time. Still not convinced? See for yourself using thiscompound interest calculator.

Automate your contributions

Waiting until you have “extra” money to invest could leave you waiting a lifetime. A better approach is to commit to an amount you can afford and set up monthly transfers to your investment accounts.

Automating your contributions will not only keep you from “accidentally” spending the money you meant to invest, it will also remove the temptation to micro-manage the timing of your investment purchases based on market conditions, which is a losing strategy. (More on this later.)

And be sure to increase your contributions accordingly when your income goes up. Even the smartest long-term investment decisions can only go so far if you aren’t socking away enough of your income.

Keep calm investing for the long run

Buy low and sell high is the first rule of investing, but it’s one that many long-term investors seem to forget during periods of market volatility. When the market plummets, panicked investors start selling off holdings when they’re low in value, not high, which locks in their losses.

Remember, when you’re investing for the long run, short-term fluctuations are no big deal. See market dips for what they are: a sale on investments and a perfect buying opportunity.

By the way, the couch potato approach builds in the buy low/sell high rule through periodic rebalancing of your portfolio. Say your portfolio has an asset allocation of 60% stocks and 40% bonds, based on your risk tolerance. If the stock market dips, the value of your stock and bond holdings might wind up being 50%-50%. To rebalance and achieve your preferred 60/40 split, you’ll have to buy some stocks (which are now priced lower) and/or sell some bonds (which are now priced higher). Neat, right?

Most robo-advisors will automatically re-balance your portfolio once a year or at other predetermined intervals, ensuring your emotions stay out of your long-run investment decisions.

That’s my plan and I’m sticking to it

Once you’ve decided on a diversified investment portfolio that works for you, stay the course. Tune out any buzz about a hot stock tip. Ignore your neighbour who recommends his or her “money guy” with promises of outrageous returns. If you shoot for unrealistic performance by trying to outperform or “time” the market, chances are you’ll end up with a below-average rate of return.

The only reason to alter your plan is if your life situation changes — affecting your risk tolerance or investment period. So, for example, as a student approaches university age, the time available to stay invested in an RESP or other education fund is almost up. By that point, parents should transition to a more conservative portfolio of fixed income assets, such as short-term bonds, to minimize risk. Otherwise, they could end up losing a big chunk of their money if the market dips right before they need to sell those investments to pay for their child’s tuition and other education expenses. The same goes for workers as they approach retirement age.

Choose a robo-advisor

While you can’t control the market, you can control your behaviour and the fees you pay. By choosing a robo-advisor, you’re more likely to automate your investment contributions and create a balanced portfolio, since that’s what robo-advisors are set up to do. That automation also takes the emotion out of the process, improving the chances you’ll stick to your plan regardless of whether markets are up or down. Finally, since robo-advisors use passive investment strategies, they offer lower fees which maximize returns.

For robo-advisors, our top choice isWealthsimple, as their fees are highly competitive and customer service is amazing. Plus, we can’t help but love their attractive, user-friendly online platform that’s easy to use.

But if you’re curious to do a head-to-head comparison, check out ourGuide to Robo-Advisors in Canada.

The bottom line

Long-term investment decisions may seem daunting at first. But if you follow these easy and simple long-term investment strategies, it’ll be a cinch. Starting early, contributing regularly, using a robo-advisor to minimize fees, and staying the course during tumultuous times are all fundamental long-term investment strategies to help build your nest egg. Before you know it, you’ll have an impressive portfolio to support your golden years.