You want to protect your money’s future purchasing power, and the best way to do this is to invest. The whole point of investing your money is to earn a rate of return equal to or greater than inflation. But where should you put your hard-earned cash?

To find the best investments in Canada, it’s helpful to break down your financial aspirations into short- and long-term goals. To achieve short-term goals (1 to 5 years), your best bet is to stick with less risky investments, such as a high-interest savings account or GICs. For achieving long-term goals (5 years or more) like retirement, you can afford to take on more risk by investing in stocks and bonds. To get you started, here are the best investments in Canada.

Which investments have the best returns?

Investing is about the trade-off between risk and return. Simply put, low-risk investments come with lower expected returns. Higher-risk investments come with higher expected returns – over the long term.

You’re not as likely to lose money with most low-risk investments. Just don’t expect to get rich investing in a high-interest savings account or Guaranteed Investment Certificate (GIC). On the other hand, stocks can deliver fantastic returns over the long term, but as a riskier investment, stocks are much more volatile and can even lose money in the short term. See the below chart for an outline of various investment options and the risks typically associated with each.

Risk-free investments (risk-free money)

  • A promotional interest rate on a high-interest savings account
  • Switching to a no-fee chequing account
  • Cash back credit card rewards
  • A welcome bonus for signing up for a rewards credit card

Low-risk investments (secure deposits with limited downside)

  • Guaranteed Investment Certificates (GICs)
  • Money Market Funds
  • Annuities

Medium-risk investments (might lose money in the short term)

  • Index mutual funds
  • Exchange-traded funds (ETFs)
  • Actively-managed mutual funds
  • Corporate Bonds
  • Preferred Shares

High-risk investments (chance your investment can go to zero)

  • Individual stocks
  • Penny stocks
  • Cryptocurrency
  • Peer-to-peer lending

Best low-risk investments with high returns

When it comes to investing, many people search for that one magic investment solution. In reality, there are many investment products and strategies to choose from, depending on your age, stage of life, investing time horizon, and risk tolerance. The shorter the time frame, the more prudent and selective you need to be with your investments.

Best short-term investment options

Here are my top short-term investment options in Canada.

Chequing account

Most people don’t consider a chequing account as an investment, but many Canadians still pay monthly banking fees without blinking an eye. Why not reduce or eliminate that cost? Remember the old adage that a penny saved is a penny earned.

Sure, you’re not going to earn much interest (if any) on your chequing account balance, but some banks will waive the monthly fee for chequing accounts if you maintain a certain balance. For instance, the Scotiabank Preferred Package Account has a $16.95 monthly fee, but that fee is waived if you regularly maintain a minimum of $4,000 in your account for the entire month. That’s $203.40 saved for the year! Plus, it’s one of the rare chequing accounts that give you rewards. Just by using the debit card attached to your account for purchases, you can get Scene+™ points to use towards travel, merchandise, tickets, a statement credit, and more. You’re actually earning money by using this chequing account.

For an in-depth comparison, check out the best chequing accounts in Canada.

™ Trademark of Scene IP LP.

®Registered trademarks of The Bank of Nova Scotia

Savings account

A plain old savings account pays higher interest than your chequing account and also acts as a useful place to squirrel away funds for short-term goals (i.e., summer vacation, Christmas gifts, etc.). Again, steer clear of the big five banks and open a savings account at a no-fee or online bank.

High-interest savings account

Consider this a savings account on steroids. With a high-interest savings account like a Tangerine Savings Account, you can earn inflation-beating interest rates from many different financial institutions (usually, online banks and credit unions pay the highest rates). Our top high-interest savings account options include:

  • Wealthsimple Save: New on the scene, Wealthsimple Save is another chequing/savings account hybrid that pays 0.5% interest and charges no monthly account fees. More exciting are some “coming soon” features, including a Tungsten metal debit card, no foreign transaction fees, and ATM fee reimbursements.
  • Savings Plus Account: Savers looking for an outstanding everyday interest rate will love EQ Bank’s Savings Plus Account, which pays an everyday interest rate of 2.50%. Even though it’s a savings account, it also offers some chequing account functionality, such as free bill payments, free Interac e-Transfers®, and cheap international money transfers. There’s no minimum account balance and zero everyday banking fees.

Interest is calculated daily on the total closing balance and paid monthly. Rates are per annum and subject to change without notice.

Guaranteed Investment Certificates (GICs)

GICs are a great way to lock in a guaranteed return over a pre-determined period (typically 1-5 years). This type of short-term investment is ideal for young people setting aside a lump sum of money to buy a home, go back to school, or buy a new car. GICs are also appealing to retirees or soon-to-be retirees who don’t want to risk exposing a portion of their savings to the stock market. A GIC is one of the safest investments you can make, and it can be held in both non-registered and registered (TFSA, RRSP, RESP, RRIF) accounts.

Because your money is tied up for 1 to 5 years, GICs tend to pay higher interest rates than savings accounts (which you can access at any time). Some of the best we’ve found are from EQ Bank, but you can also compare the best GIC rates in Canada here.

Tax-Free Savings Account (TFSA)

There’s a lot of confusion about the Tax-Free Savings Account (TFSA), and it’s easy to see why. The name “savings” has made it seem like TFSAs are just a place for Canadians to park their cash, like a regular savings account. Not so!

You can hold cash or GICs inside your TFSA – and it’s a good idea if you have room and don’t want to pay tax on the interest earned from your short-term investments. But you can also use your TFSA to invest in mutual funds, ETFs, stocks, and bonds. That makes the TFSA highly flexible and well-suited for short and long-term investments.

What I like to do is use a portion of my TFSA (say 20%) for short-term savings goals and use the rest for long-term retirement savings. For the short-term cash, I’d look for a TFSA Savings Account with a great interest rate, such as the one offered by EQ Bank that pays 3.00% interest. For my long-term TFSA investments, I prefer passive investing through index funds or ETFs, which will be discussed later.

Interest is calculated daily on the total closing balance and paid monthly. Rates are per annum and subject to change without notice.

High-interest savings account vs. GIC

It’s worth mentioning that the gap between the best high-interest savings account rates and the best GIC rates is quite narrow – meaning you’re not getting much of a premium for locking up your money for a while.

For that reason, I’d recommend using a high-interest savings account over a GIC. For the same or a slightly lower interest rate, you’ll get the flexibility to access your money whenever you need it. Alternatively, if you really want to lock your money away and “protect it” from yourself, then a GIC may be the right choice for you.

What are the best investments in Canada long-term?

There’s no doubt that the stock market has provided the best long-term investment returns in history. Since 1934, U.S. stocks have returned 11.4% per year, while Canadian and International stocks have annually returned 9.6% and 8.2%, respectively.

Indeed, the best investments in Canada are in stocks – not real estate, which has basically kept pace with inflation over the very long term. Here are three questions to ask once you’ve decided to invest in the long term.

Passive or active investment strategy?

Experts have long debated whether passive or active investing leads to the best outcomes. Passive investing advocates say it’s best to buy the entire stock market (using index funds or ETFs) at a low cost and accept whatever returns the market provides. Academic and empirical research backs up these claims.

Meanwhile, active investors believe that a skilled manager can pick the best stocks, avoid the worst stocks, and navigate their way in and out of the market to protect their investments from losing money in a downturn. Unfortunately, most active managers cannot do this with any consistency over the long term, and 90-95% fail to beat their benchmark index.

A hybrid approach called “core-and-explore” can help investors scratch their stock-picking itch while keeping most of their money invested prudently in index funds or ETFs. With this approach, investors may invest 80%-90% of their money passively and then use the remaining funds to ‘explore’ other assets such as individual stocks, gold, cryptocurrency, or specific sector ETFs like technology or cannabis.

Are you choosing the right type of investment management?

What type of investor are you? Are you comfortable opening up an account with a discount brokerage and buying your own ETFs? Or would you rather take a hands-off approach and use a robo-advisor to manage and monitor your investments?

More and more investors are going the “DIY route” thanks to low-cost pioneer online brokerages like Questrade.

Another option is Wealthsimple Trade — the only discount brokerage in Canada to offer zero-commission trading. Clients can open an RRSP, TFSA, or non-registered account to buy and sell stocks and ETFs without paying a dime in fees.

The best ETFs in Canada include asset allocation ETFs such as Vanguard’s VBAL or VGRO. These all-in-one balanced ETFs are all a DIY investor needs to build and manage their own diversified portfolio on the cheap. Costing just 0.25% MER, VBAL represents the classic 60-40 balanced portfolio, while VGRO tilts to a more aggressive 80-20 allocation between stocks and bonds. Both invest in thousands of stocks and bonds worldwide – as diversified as it gets.

Still, some investors get nervous about managing their own portfolios. That’s where a robo-advisor can be your BFF. With a robo-advisor, investors pay a low management fee (anywhere between 0.20% to 0.50%), plus the cost of the ETFs in their portfolio (typically 0.15% to 0.20%). So, for a total cost of up to 0.70%, investors can get a diversified portfolio of ETFs that are automatically monitored and rebalanced.

You can compare the best robo-advisors in Canada, but our top choice is Wealthsimple because of its competitive fees, VIP benefits, and easy-to-use platform.

How to pick the best investment account?

Which account is best for your investments – an RRSP, TFSA, or non-registered account? If you’re debating TFSA vs. RRSP, here’s the gist of it. High-income earners (e.g., over $50,000 annually) should first fund their RRSP to take advantage of the tax deduction. Lower earners (under $50,000 annually) should focus on TFSA contributions first. Then, investors should wait until their RRSP and TFSA are fully maxed out before contributing to a non-registered investment portfolio.

The bottom line

Finding the best investments in Canada starts with looking at your goals and financial circumstances. As we look at short-and-long-term investments, we must always consider the relationship between risk and return.

Low-risk, guaranteed investments are best for short-term goals – when you absolutely cannot afford to lose any money. In this case, a high-interest savings account or GIC does the trick.

High-risk investments are better suited for a longer time frame when you can afford to lose money in the short term for the chance to earn greater returns in the future. Passive investing using ETFs gives investors the best chance to earn the highest returns over the very long term, especially if you use a robo-advisor like Wealthsimple or an online brokerage like Wealthsimple Trade or Questrade.

Robb Engen is a leading expert in the personal finance realm of Canada and is also the co-founder of Boomer & Echo, an award-winning personal finance blog.


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