One of the most effective strategies to increase your wealth is through long-term investing. Long-term investment, as the name suggests, is the practice of purchasing an asset with the intention of holding it for a long period of time. Years or even decades may pass in this time frame.
Due to the wonders of compound interest, long-term investing has the potential to provide excellent returns over time.
While not everyone will find this method appealing, especially those with a high-risk tolerance, it has historically been shown to be a successful way to accumulate wealth over the long term, weather market volatility, and reduce fees and other expenses.
Learn more about long-term investing in this article, including how to pick the correct assets and which long-term investments are the best for Canadians in 2023.
LONG-TERM INVESTING = THE BEST INVESTMENT FOR THE FUTURE
Any asset that a buyer intends to keep for more than a year is considered a long-term investment. I prefer to think of a 5+ year window as a long-term investment.
Stocks, bonds, real estate, and other assets are just a few examples of what these assets can be. Each choice will be examined in more detail, and we’ll help you decide which one would be the most suitable for you. Purchasing and holding assets is undoubtedly the best course of action if you want to gain money in the long run. From visualcapitalist.com, historical returns by asset class in the United States.
Mathematically speaking, most people should avoid attempting to time markets or enter and exit positions. We usually advise employing a well-balanced dividend stock portfolio to maximize gains over the long term, as MDJ readers are well aware. In order to do this, we employ a subscription service called Dividend Stocks Rock (DSR), which facilitates stock research and helps investors choose the best investments.
Compared to short-term investments, long-term investment plans are much more closely related to specific aims. The typical objective of a day trader, the pinnacle of a short-term investor, is to profit as much as possible from market volatility and short-term gains in a single day. Additionally, there are short-term investing methods that make use of instruments like GICs, bonds, and high-interest savings accounts.
Though you’ll plan to stick with it through thick and thin, market gains and losses, knowing that it will all pay off in the end, long-term investing is like being married to your investment.
In Canada, long-term investing strategies are employed to assist investors in achieving particular financial objectives, such as saving for a child’s college education, making the most of tax-free savings, and planning for retirement. Let’s look at how long-term investments can eventually assist you in achieving all of those deserving financial objectives.
WHAT TO LOOK FOR IN A GOOD LONG-TERM INVESTING OPPORTUNITY
There are a few key factors to consider when looking for a good long-term investment, including, but not limited to:
- Know how much money you can commit to long-term investments (and give up daily access to). Make sure you can survive without the money for at least a year because your long-term strategy won’t work until you let it sit and grow for a while.
- Establish a goal for yourself. Your aim will have a significant impact on your strategy and, consequently, plan. If you are looking to save money for your child’s college education, you should seek tax-advantaged investments. These investments may be a little riskier, but you have 18 years to ride out any lows and potentially earn bigger returns.
- In order to diversify your portfolio, look for possibilities. Diversification is essential for any successful investment portfolio, as many of our readers are aware. For example, if you’re building a stock portfolio, this means you’ll search for a variety of small-, mid-, and large-cap companies. In order to provide you with some safety during tumultuous times, it also entails attempting to distribute your investments over several geographic regions.
- minimize spending. You will lose out on gains you achieve over time if you do not use a low-cost brokerage. To help you get the most out of your money, pay close attention to the expense ratios.
- Establish your risk tolerance clearly. Some of your long-term investments will have a higher risk-reward ratio, which occasionally causes them to look like a bust, as might happen, for instance, if you buy in stocks and the market falls. When this occurs, some investors panic and sell their holdings, leaving money on the table for the (probably inevitable) market recovery. Take the time to ascertain your risk preference in order to prevent these possible losses.
Taking the time to consider these factors will help you earn the highest return on your long-term investments.
TOP 9 LONG-TERM INVESTMENT IDEAS FOR CANADIANS
Although the fundamentals of creating a long-term investing strategy have already been covered, we haven’t yet covered the exact strategies for achieving each of your potential goals. We’ll break down some of the precise approaches you might want to employ in this section for each of your long-term investment objectives.
Tax-Advantaged Accounts In Canada: TFSA, RRSP, RESP
One advantage of several long-term investment alternatives accessible in Canada is that they are also especially advantageous from a tax perspective. When making any investment, it’s critical to take taxes and fees into account because, after such costs are paid, the real ROI may suffer significantly.
In the long run, tax-advantaged accounts like the TFSA and RRSP will both help you save more money. Canadians may contribute up to $6,000 annually to a TFSA, and because you will already have paid income tax on those contributions, any withdrawals you make in the future will not be subject to tax.
The RRSP, on the other hand, does not tax your wages while the money is in your account and you can contribute up to 18% of your total income (up to a maximum of $27,230 annually), but you will be taxed when you withdraw money from your account.
We also advise reading this article on safe withdrawal rates in Canada and this one on taking withdrawals from your RRSP or TFSA for retirement if you want to learn more.
The RESP is a fantastic option for parents who are investing in their child’s future to maximize their tax savings since payments are not taxed, and the Canadian government will match 20% of your contributions! Although the money is technically subject to tax at the time of withdrawal, students typically earn so little money that they never have to worry about paying taxes on these withdrawals.
These are the investment tools to employ if your main objective is to reduce your tax liability. Check out our TFSA vs. RRSP article for additional information on Canada’s tax-advantaged accounts.
Canadian Equities For Long-Term Investment
Equities are a fantastic way to accumulate wealth over the long term and can be purchased as part of the tax advantaged accounts discussed above. Fortunately, investing in the stock market has grown much simpler for those like us..
ETFs
Exchange Traded Funds, or ETFs as they are more generally known, are a fantastic method to hold a variety of high-performing stock holdings. In essence, the way ETFs operate is that each fund will have 100 or even 1,000 different equities, allowing you to buy a share of one ETF and possess 100 or even 1,000 different stocks at once.
They have grown to be extremely popular for the do-it-yourself trader because of their low cost and high degree of diversity. They are a wonderful long-term investment because an ETF often holds the best-performing equities in a particular area. The Canadian counterpart of VOO, TSX: VFV, a US ETF that tracks the S&P 500, is one of the best ETFs for long-term investing in Canada.
The S&P 500 has returned 10.67% annually on average since 1957. A $1,000 initial investment would grow to $2,892.97 after 10 years thanks to compound interest. As a result, you will have made close to $2,000 only for investing your time and patience.
ETFs are fantastic if you have a modest level of risk tolerance because they only hold the best-performing companies in each category, so you won’t be as hurt if even a few of them start to perform poorly.
In Canada, there are many ETFs that are ideal for achieving your long-term investing objectives. For additional information, see our complete articles on the 45 Best ETFs in Canada and the Best All-in-One ETFs in Canada.
ETF purchasing and selling are complimentary at Qtrade, the broker we most highly suggest. To learn more, check out our review of Qtrade, or click the button to go to their website and take advantage of our special offer.
Growth Stocks
You may want to think about including high-growth stocks in your portfolio to aid with the diversification of your long-term investment strategy. Stocks that are predicted to rise faster than the market average are referred to as growth stocks.
Instead of paying dividends to investors because they are focused on growth, they reinvest the money back into the business to support quicker growth. Growth stocks include Shopify, Facebook/Meta, Netflix, and Amazon, as examples.
If you were fortunate enough to buy $1,000 in Shopify when it initially went public in 2015, you would currently own stock in the company valued at around $54,500. That return is really impressive.
You must be careful when selecting a solid firm to invest in and be prepared to withstand volatility because this is a riskier option.
Mutual Funds
Because they are professionally managed, mutual funds are frequently actively managed investments. Approximately 100 different securities, including a variety of stocks, bonds, and other assets, are often held by mutual funds. When you make an investment in a mutual fund, you become a part of a group of investors who equally split the fund’s gains and losses.
They frequently have higher costs because, in essence, you are paying someone to manage your portfolio when they are actively managed. The top long-term mutual funds in Canada include Mawer International Equity Series O, TD Canadian Bond Fund-O, and Ninepoint Energies Series F.
Due to the hefty charges associated with mutual funds, we at Million Dollar Journey are not great supporters.If you want to keep your money working for you, avoid investing in mutual funds in Canada because they have some of the highest fees in the world. For more information, see our mutual funds guide.
Bonds
Bonds may provide a secure long-term investment plan. A bondholder will profit from their investment in bonds since bonds are effectively loans given to corporations and governments that are repaid with interest.
They may not always provide you with the returns that stocks provide, but they can offer you some inflation protection. Bonds come in a variety of sizes and forms. To mention a few, there are short-term bonds, long-term bonds, and even bond ETFs.
Because they mature in one to three years and are therefore by definition a long-term investment, short-term bonds are nonetheless a solid option for long-term investing. Bonds in Canada normally earn roughly 2% interest per year, which may not sound like much but will build up over time. It exceeds what you would receive from the majority of high-interest savings accounts.
Long-term bonds, as their name suggests, mature between 10 and 30 years from the time they are issued, which is a longer timeframe than that of short-term bonds. Your money may grow more as a result of the longer time frame. As an illustration, government bonds typically generated an annual rate of return of 5-6%.
Long-term bond ETFs are the ones with the greatest potential to provide the greatest returns. Bond ETFs, like the ETFs we’ve just talked about, are basically a basket of many bonds, each with its own strategy.
We can see that the cumulative total return for the Vanguard Long-Term Bond ETF at Market Price since its launch in 2007 is 173.10%. Although bonds aren’t generally thought of as the most exciting long-term investment, that rate of return is outstanding, and the facts speak for themselves.
Bonds have not generally performed well in the market over the past couple of years, but if you look at historical data, you can see that over time, it is likely to get better, providing you with respectable returns.
Bonds nevertheless carry a certain amount of risk even though they are generally thought of as a safer investment than other types. The good news is that bonds add excellent diversification to any portfolio and come in kind to suit every level of risk tolerance.
Robo-Advisors
Robo-advisors offer a low-cost way to accumulate money over the long run. Consider them to be the online equivalent of your dependable financial advisor. Robo-advisors make it simple to rebalance your portfolio and automate trades.
The top three Canadian robo-advisory firms are Questwealth, CI Direct Investing, and Wealthsimple. Your robo-advisor service, like any good financial advisor, will take the time to evaluate your present financial goals, your short- and long-term goals, your risk tolerance, and whether you have any specific preferences, such as investing in commodities, renewable energy, or technology.
Your robo-advisor will give advice and assist you in beginning your investment journey after assessing your data. A further advantage is that your robo-advisor will assist you in rebalancing your portfolio as necessary to ensure that you have optimal asset class weightings, which means that you don’t hold too much or too little of a particular asset type, protecting you in the event that one of them takes a dive.
Robo-advisors are ideal for first-time investors who want to invest but don’t want to make a lot of decisions or who are uncomfortable with the entire rebalancing act, which should occur at least once a year to maintain the health of your portfolio. Right now, Wealthsimple is our #1 pick. You may visit their website by clicking the icon below or reading the review linked above.
GICs
Guaranteed Investment Contracts (GICs) would not have even made this list of the top long-term investments for Canadians a few years ago. GIC rates, however, have significantly increased in the present economic environment, making them a fantastic long-term investment.
GICs are comparable to Certificates of Deposit (CD) in the US. In essence, you’re making a deposit for a predetermined period of time in exchange for a higher interest rate than you’d get if it were parked in a savings account.
The good news is that GICs are regarded as safe investments, and right now EQ Bank is offering a tempting 5.25% interest on a 1-year GIC. Check out our list of the finest GICs in Canada for all the facts on how GICs with longer terms can still earn you a yield of more than 5%.
High-Interest Savings Accounts
Similar to GICs, a high-interest savings account (HISA) is now a realistic choice for long-term investment due to rising interest rates.
Savings accounts with high-interest rates operate similarly to standard savings accounts. These savings accounts earn interest on the money each month. A GIC and HISA differ in that a GIC typically offers higher interest yields, whilst a HISA allows you to access your funds whenever you need them and typically without incurring any fees.
The current interest rate for EQ Bank’s Bank Savings Plus Account is 2.50%. Visit our list of the top high-interest savings accounts in Canada for a comparison of all the possibilities.
While GICs and a HISA might both be wise investments at the moment, interest rates could change at any moment. As a result, it’s critical to consider this and determine whether investing your money in another area would ultimately yield a higher return. According to our editorial team, alternative investments can help you generate longer-term gains.
REAL ESTATE FOR LONG-TERM INVESTMENT IN CANADA
One of those assets that some promote as the one to own and won’t even consider other forms of investing is real estate. Although it should by no means be the only asset in your portfolio, we think it is unquestionably a great addition.
Real estate is a fantastic long-term investment because it typically increases in value. For instance, the average price of a single-detached home in Toronto climbed by 14.6% over the previous year, with townhomes following closely at 10.6%.
These returns can be increased because it is extremely simple to apply investing leverage when dealing with real estate; however, this leverage can also dramatically increase risk, so be sure you know what you’re getting into before investing!
In addition to the likelihood that a home would appreciate in value, there are several ways to earn from real estate ownership, including renting, flipping, and just purchasing a house to live in for a while before selling it for a profit.
Of course, making a larger down payment for this kind of long-term investment will cost more money upfront, but the potential long-term benefits will make it worthwhile. Real estate investing can provide you with a terrific road to long-term riches if done correctly. Read our tutorial on the Smith Manoeuvre or our analysis of buying commercial versus residential real estate for a deeper dig.
REITs
You can invest in Real Estate Investment Trusts (REITs) if owning physical property is not for you owing to locational considerations, a lack of funds for a down payment, or simply because you don’t want the responsibility of being a landlord.
A REIT allows you to own shares of a trust that holds real estate assets so you may profit from the assets’ appreciation without having to deal with any of the problems that might come with owning real estate. A REIT can be acquired through your brokerage account just like any other equity and allows you to own shares of a trust that holds real estate assets.
Since many REITs also pay dividends, you will gain financially from receiving dividend payments when the value of your REIT investment increases. You may read all about the numerous well-known REITs in Canada in our article Investing in Canadian REITs.
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Real Estate Crowdfunding
Real estate crowdfunding is another choice for people who just do not wish to buy real estate. Due to its accessibility and respectable yields, this relatively new long-term investment approach has become more well-known.
By contributing to a real estate crowdfunding project, which you may do in Canada through websites like NexusCrowd, addy Invest, and RealStarter, you will help real estate investors and developers finish large projects, and as payment for your contribution, you will acquire shares in the company.
This is a fantastic alternative for people looking for a low-cost way to invest in lucrative real estate projects and who are willing to take on a lot more risk in the event that the project doesn’t work out and you lose your money. You may get started with $1 with Addy Invest, and some real estate crowdfunding initiatives are very successful, with claimed annual returns ranging from 2-20%.
PROS AND CONS OF LONG-TERM INVESTING
It’s always wise to look at the pros and cons of any investment strategy before choosing what is right for you.
PROS OF LONG-TERM INVESTING
- Compound interest has the potential to boost returns, particularly when dividends are reinvested.
- Lower fees from fewer transactions can save you hundreds or more over time.
- You’ll have a varied portfolio, which is something you should always strive for when it comes to investing.
- You have time to withstand market turbulence.
- You will save money by avoiding paying as much tax on long-term capital gains in many countries.
CONS OF LONG-TERM INVESTING
- Due to the unpredictability and volatility of the market, there is a risk of capital loss.
- losing out on other possible investment opportunities as a result of your capital being restricted.
- If the market underperforms, you can receive a lower return on your long-term investment than anticipated.
While there are undoubtedly some drawbacks, historically speaking, long-term investments have overwhelmingly outperformed short-term investments.
LONG-TERM INVESTING IN CANADA FAQ
Are there any cheap long-term investments?
Yes, there are some low-cost long-term investments available. You can start investing with as little as $1 through crowdsourcing, low-cost ETFs, bonds, REITs, or even real estate.
What are the best long-term index funds in Canada?
There are too many to list here, but in summary, any ETF that you intend to buy and hold is a smart long-term investment choice. Check out our full article for our recommendations for the 45 Best ETFs in Canada for 2022.
What Are the Best Long-Term Investments in Canada?
If we knew ahead of time what the finest long-term investments in Canada would be, we’d probably be charging a bit more for readers to read that post. Let’s put it this way: For the MDJ team, the majority of our investments tend to focus on Canadian dividend equities and fundamental index ETFs.
What is the best way to invest 10k in Canada?
The best method to invest $10,000 in Canada in 2023 is to put the maximum amount possible in tax-advantaged accounts like your TFSA and RRSP in an investment like an ETF, which will give you inexpensive access to a broad market.
FINAL THOUGHTS
Your risk tolerance and your ability to stick to an investment strategy through challenging market conditions should be taken into account when determining whether or not a long-term investment strategy is suitable for you.
In actuality, even short-term investments made by so-called financial gurus tend to underperform long-term ones.
Long-term investing makes perfect sense for people intending to use their investments for later retirement. Long-term investments have a great chance of giving you a steady income stream that will keep you solvent for many years.
In addition, compared to short-term investing, it will save you money on fees and taxes and make it simpler for you to weather unpredictable market circumstances.
Long-term investing may not be for you, though, if you find it difficult to hold onto investments when the market is down or if you would rather have greater liquidity to take advantage of potential chances.
Visit the Best ETFs in Canada to learn more about these fantastic long-term investing alternatives. Check out the Best Real Estate Stocks in Canada if the thought of owning real estate appeals to you more.
