Best Investments in Canada 2022: 7 Options

If you’re looking for the best investment opportunities in Canada, you might be overwhelmed by all the different options. 

I must confess that the term “best investment in Canada” is a bit misleading. Instead, you need to find what are the best investments for you.

At the end of 2021, Canadians held over $2.427 trillion in mutual fund and ETF assets. But that doesn’t mean you should invest in only mutual funds and ETFs. 

After working in Canadian finance roles for over 11 years and experimenting with different investing methods, I’ve come up with my own strategies for what are the best investments for myself.

You can learn about all the different options for investing in Canada in the following article.

57% of Canadians own a TFSA, Canada’s most popular investment account.

Before You Start Investing

Before we can answer the question of how to invest money in Canada, there are a few things you should figure out. Let’s go over them:

1) Risk Tolerance

Knowing your risk tolerance is key to knowing which investments are “best” for you. For example, someone with no risk tolerance at all, who would not be able to stand any losses in their portfolio at any time would have to be 100% invested in cash equivalents.

On the other hand, someone with a very high-risk tolerance would be able to invest 100% in stocks. 

I want to hammer home the point that your risk tolerance is just one piece of the puzzle for determining your best investments. Just because your risk level can tolerate being invested 100% in equities, doesn’t mean you should be.

There are a few ways to figure out your risk tolerance, such as consulting with a finance professional or you can self-assess by taking an online risk survey. Vanguard has a free investor questionnaire you can take here.

2) Time Horizon

The longer your time horizon to invest is, the more risk you can take on. If you are approaching retirement in a few years and will need money from your investments right away, you will be able to take much less risk than someone in their 20s or 30s who won’t need the money for several decades. 

3) Short-term cash needs

If you have large upcoming purchases to make in the next few years such as a house or paying for a child’s university education, you will be able to take on much less risk since you will be needing the money in the short term. 

If you need cash to make upcoming purchases, you will need more liquid investments.

4) How much time do you want to spend investing

Certain investments will take up more time than others. Time is money, so learn to balance how much time you’re spending on investing. For example, investing in physical real estate will eat up a lot more of your time than if you were to invest in a stock.

Best Investments in Canada

Here’s a list of seven of the top investment choices you can find in Canada:

1. Exchange-Traded Funds (ETF)

Exchange-Traded Funds

Risk-tolerance: Low – high
Time commitment: Low
Liquidity: High
Time Horizon: Medium to high
Fees: Low

ETF investments in Canada has grown by more than eight-fold from 2011 – 2022, adding a staggering $304 billion in assets. Let’s take a deep dive into why they are so popular. 

An exchange-traded fund (ETF) is a collection of stocks or other securities that are designed to track a certain underlying index. For example, you can buy a Canadian S&P/TSX index fund that will track 60 large companies in Canada. 

Tracking major indices such as those is the most common use of ETFs for investors, but you can also invest in a variety of different industries and markets.

The biggest appeal to me for ETFs is the very low fees, ease of use, and diversification you can get with one single product.

These days, there is an ETF for almost anything, from categories as diverse as dividend ETFs to cryptocurrency ETFs. Be sure to check the risk rating for each ETF in the fund facts, as they can range from low to high. ETFs are usually better suited for more medium to long-term investing.

There are two main ways to invest in ETFs:

Buy All-in-one ETFs

You can purchase an ETF for a low fee that doesn’t need to be rebalanced, such as the Vanguard or iShares All-In-One Portfolio series. These ETFs have been growing in popularity, and are great for both beginner and experienced investors.

Build Your Own ETF Portfolios

You can purchase a combination of bond and equity ETFs to meet your desired risk tolerance. There will be more investment knowledge needed here, and you’ll have to rebalance your portfolio at regular intervals.

For a more in-depth guide on how to set this up, check out how to invest in ETFs in Canada. Also, check out the best ETFs in Canada here.

2. Stocks

Stocks

Risk-tolerance: High
Time commitment: Medium – High
Liquidity: High
Time Horizon: Medium – High
Fees: No management fees

Buying individual stocks usually involve a higher risk than buying funds because your money invested will be more concentrated. Your investments can be volatile, with potential large swings in prices.

You’ll generally spend more time analyzing and researching stocks before you purchase them as compared to an ETF. If you’re doing it properly, you’ll be researching each individual company carefully before buying or selling its stock. 

As a Canadian, I think it’s wise to invest in some stocks outside of the country, to avoid what’s called a home bias. But you should be aware of the extra fees that come with buying individual U.S or other international stocks. You will usually be charged a foreign exchange fee to convert your money into the other currency.

A great thing about stocks is that it has no management fees. Your stock risk will also be dependent on how many stocks are in your portfolio. If you are more diversified (i.e. more stocks in different sectors) will generally lower the amount of risk.

Over the years, I’ve personally shifted more of my investments away from stocks and more into ETFs. Even though I love analyzing and buying stocks, I found it was taking up too much of my time, but that is just my personal preference.

To learn more, check out this in-depth guide on how to buy stocks in Canada.

3. Bonds

Bonds

Risk-tolerance: Low – medium
Time commitment: Low
Liquidity: Low-high
Time Horizon: Medium – High
Fees: Low

Bonds, commonly known as fixed-income, are an investment you can purchase that will generate interest, regardless of how the market is performing. They are lower risk and less volatile than stocks, and are used to balance out your asset allocation between equities and fixed income.

Example: Brenda is a 30-year old sales manager. She filled out a risk-tolerance questionnaire and determined she has a low-risk tolerance. Her recommended asset allocation is 60% fixed income and 40% equities, and she decided to achieve this by purchasing a bond ETF and an equity ETF.

There are many different ways you can buy bonds, such as:

  • Bond ETF – Liquid and can sell on an exchange.
  • Bond mutual fund – Liquid and can sell at any time also.
  • Buying an individual bond – constricts you the most and the least liquid as they usually have a locked-in time of investment.

My preferred method of purchasing bonds is using a bond ETF, as they don’t lock up your money and have low fees. Bond ETFs are traded on an exchange so you can buy or sell them on the market.

Read my picks for the best bond ETFs in Canada here.

4. Cash equivalents | GIC | High-Interest Savings Account

Cash equivalents

Risk-tolerance: Low
Time commitment: Low
Liquidity: High
Time Horizon: Short – Medium
Fees: Usually none

For emergency funds and short-term purchasing needs, you can’t go wrong with investing in cash equivalents. If you know you need to make a purchase within a year or two, putting your money in a high-interest savings account (HISA) or GIC is a no-risk way of earning some money while you wait to make the purchase. 

High-interest savings accounts have seen higher rates due to the increase in online banks in Canada, which offer much higher rates than traditional banks (often over 100 times more). 

GICs lock up your money for a certain amount of time but will offer slightly higher rates than savings accounts. 

Make sure your money is covered by CDIC insurance (for up to $100,000 per account), so even if the bank goes belly up, you’ll still be ok.

I don’t bother with GICs personally, as I like to keep my cash available, but it’s a good option for many people.

For my emergency fund and short-term purchases, I use Neo Money, which has a savings rate of 2.25%. It’s a good way to try to keep pace with inflation and provides maximum flexibility for your cash.

5. Real Estate 

Real Estate 

Risk-tolerance: High
Time commitment: High
Liquidity: Low
Time Horizon: Medium – Long
Fees: Very High

Real estate as an investment is risky, because you are concentrating your investments on one asset, and it’s usually with borrowed money. Although the Canadian real estate market has seen staggering growth in the years following 2008, there is no guarantee it will last in the future. 

Liquidity for real estate is low, meaning it would be hard to do a quick sale to get the money you needed. During an economic downturn, rents will decrease and it might be harder to find tenants for your real estate. 

The housing market is seeing a slowdown and decrease in recent years, due to government efforts to control an overheated market, combined with the recent market dip.

You can also look beyond Canadian real estate investing, to international markets like in the U.S or even abroad in Europe or Asia, but that will require an even higher time commitment and risk tolerance. 

Many people have gotten wealthy from real estate investing, but know that it can take a high time commitment and a high-risk tolerance to do so. An alternative to real estate is buying a REIT stock or ETF which is more liquid and requires less time commitment.

Read my post on the best real estate investment options in Canada.

6. Robo-Advisor 

Robo-Advisor

Risk tolerance: Low – high
Time commitment: Low
Liquidity: High
Time Horizon: Medium – Long
Fees: Low – Medium

Robo-advisors is a fancy term for an investment company that will buy and balance a basket of ETFs for you based on your risk tolerance and investment goals. You’ll do a risk survey that will place you in a managed ETF portfolio. 

Because robo-advisors operate entirely online and have low overhead and purchase low-fee ETFs, they can offer their services for a relatively low fee.

These companies usually offer advisors you can reach by phone or chat, and will automatically rebalance your portfolio so you’re not straying from your investment goals. There will usually be additional features like tax-loss harvesting during tax season also. 

If you are new to investing and want to spend next to no time managing your investments for a low fee, robo-advisors are a great option. 

Questwealth has the lowest fees for a robo-advisor in Canada, plus it’s an actively managed portfolio. Open an account with Questwealth here

7. Alternative Investments

Alternative Investments

Risk tolerance: Very high
Time commitment: High
Liquidity: Low-medium

Alternative investments in Canada are not publicly traded and include things like private equity, hedge funds, private debt funds, and peer-to-peer lending. 

The liquidity is sometimes quite low, with many of these investments requiring locked-in periods where you won’t be able to withdraw your money. 

Investors choose alternative investments because they believe they can give them higher returns. However, certain alternative investments such as hedge funds that can have massive fees, are not proven to outperform the stock market. 

Warren Buffett famously won a $1 million bet against a hedge fund manager that a simple ETF would outperform his chosen hedge funds over a ten-year period. 

If you’re considering alternative investments, do your research carefully and see if the potential larger returns are actually worth the higher risk, larger entry minimums, and bigger time commitment.

A Special Note About Mutual Funds

Mutual Fund Advantages

Risk-tolerance: Low – high
Time commitment: Low
Liquidity: Medium
Time Horizon: Medium to high
Fees: High

A mutual fund hires portfolio managers who will actively buy and sell stocks in an attempt to beat a benchmark index. The fund company then charges a high fee, often in excess of 2% to its investors per year

I used to work for one of the largest mutual fund companies in Canada. I do not invest in mutual funds anymore, for the simple reason that they are not proven to outperform the market after the extremely high fees are taken into account. 

There are countless studies and evidence that show that the highly marketed “active management” that mutual fund portfolio managers boast of does not outperform the market on average.

This study highlights how in 2021, 67% of Canadian equity fund managers underperformed vs the S&P/TSX benchmark index after fees were taken into account. The same study also showed that nine in ten funds underperformed their benchmark over a 10-year period.

However, if you are still considering choosing a mutual fund over an ETF, I made a list of some funds with lower fees here.

I also made a Youtube video about all the reasons why I don’t like mutual funds in Canada here:

What I Invest In

Here are my investing principles that work for me:

  1. I don’t want to spend too much time investing.
  2. Diversification is crucial, and also to diversify outside of Canada.
  3. Maintain a long-term, rational approach
  4. Low transaction costs and fees

I currently have an investment property that I Airbnb to tenants (currently it’s being rented out long-term now due to COVID) and invest in mostly ETFs and a little bit in individual stocks. These investments give me access to international companies.

I have a manager for my investment property, so I don’t spend much time on it. 

I don’t invest in any bonds, because I have a very high-risk tolerance and a long time horizon where I don’t need to touch my money for several decades.  I do not recommend this for 95% of investors though, as the risk is quite high that I can lose a large amount in any given year.

I think most investors should have some fixed income in their investment portfolios. I will likely shift some money out of equities and into fixed income as I get older.

I wanted to tell you my personal investment strategy so it can inspire you to come up with your own. What I do will likely be very different than what is best for you. It’s up to you to figure out what are the best investments in Canada for yourself. 

Conclusion

Best Investments In Canada Infographics

Learning where to invest money in Canada doesn’t have to be overwhelming. Get educated about investments and figure out what the best investments in Canada are for you.

That valuable knowledge can lead to a lifetime of being better with your finances. 

If you want to invest in Canada but aren’t sure where or how to get started, read the guide on how to start investing in Canada.

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Author Bio - Christopher Liew is a CFA Charterholder with 11 years of finance experience and the creator of Wealthawesome.com. Read about how he quit his 6-figure salary career to travel the world here.

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7 thoughts on “Best Investments in Canada 2022: 7 Options”

  1. Great article! I currently only have a market-oriented investment portfolio, but in time I’d like to get into Airbnb as well as you mentioned in your conclusion. That is the dream!

    Reply
  2. This was a very clear and straightforward read, thanks for putting it together! My only objection would be that savings accounts are hardly considered an investment. Even with a high-yield on you’re barely going to outpace inflation. Other than that though I liked it and also appreciate you putting in your own commentary on your personal investments. I’ll be sure to follow along for more updates!

    Reply
    • Thanks Arthur, yeah I agree that high-yield savings accounts aren’t exactly investments. I mainly wanted to highlight that many investors aren’t aware they exist at all, plus how I use it to supplement my investment strategy.

      Reply
  3. Hey Christopher,

    I recently (6 months ago) moved most of my investments from fully managed MF’s to TD ETF’s including TD CDN Agg Bond Index ETF. My TD INTL Equity Index, CDN Equity Index and US Equity Index ETF’s are doing well but the CDN AGG Bond Index has consistently lost money. Should I move to something else?

    Reply
    • Hi Christa, I would hold tight on it for now, a lot of bond funds have lost money this year it’s been a challenging environment for many of them. It depends on your risk tolerance and asset mix though so you should figure that out exactly first

      Reply
  4. Hi,
    I have a “Restricted Life Income Plan – BNS” and I would like to take out the money and invest it in anything, on my own.
    Can you help me do this?

    George

    Reply

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