If you have a long-term investment time horizon and savings set aside, you may be wondering what type of assets to consider investing in.
Investing over a long period of time can allow you to focus on riskier assets that may have a higher historical rate of return.
The average Canadian’s investment portfolio has roughly 46% of assets invested in either equities or equity funds, which are one of the best long-term asset classes that you can consider.
Keep in mind that a long investment time horizon may not be enough on its own to allow you to invest in very risky assets.
I’ll cover the best long-term investments in Canada below and review each asset class’s specifics.
Investing for the Long Term
Long-term investing refers to putting your money to work, usually over a period of at least several years. It is a good approach to take for goals that are far into the future, such as retirement or major purchases down the road.
The key benefit of investing for the long term is taking advantage of the power of compounding. Compounding allows you to grow not only your initial investment over a long period of time but also the growth that you have generated along the way.
Compounded growth over long periods of time can lead to exponential growth in your investment accounts.
Investing for the long term also allows you to better approach short-term volatility. If you are able to detach from your emotions during short-term market fluctuations and stick to long-term goals, you will likely see superior investment returns. It helps to have a long-term investment plan in place.
Diversification is also important over long periods of time. Some asset classes can outperform others over extended timeframes – it’s important to make sure that your investments are spread out to have the best chance of capturing growth and reducing downside risk.
Best Long-Term Investments in Canada
1. Stocks
- Risk: medium – high
- Fees: none – low
- Liquidity: medium – high
Stocks are one of the most popular long-term investments in Canada and one of the first assets that come to mind when thinking about growing your money over the long term.
Buying or investing in stocks makes you a tiny part owner in the publicly traded company, allowing you to benefit from how the underlying business performs. If the business reports great results over time, the value of your shares is likely to grow (and vice versa).
Stocks typically come with at least medium risk and are generally unsuitable for short investment time horizons. Relative to most asset classes, stocks are very liquid because they are typically bought and sold on a stock exchange.
When it comes to fees, stocks do not charge investors fees. You may have to pay trading commissions when buying and selling stocks, although these can also be avoided by using a commission-free discount broker like Wealthsimple Trade.
Stocks can be very different across geographies and sectors, so make sure that you do a lot of research into building a well-diversified stock portfolio if this is going to be an approach that you will be taking.
Check out my article on the best long-term stocks in Canada.
2. Robo-Advisor
- Risk: low – high
- Fees: low
- Liquidity: high
If you’ve considered working with a human investment advisor, you may have learned that they charge fairly high advisory fees for their services. Robo-advisors are platforms that use algorithms to assemble portfolios for clients at a fraction of the cost of a human advisor.
Robo-advisors typically build a portfolio of ETFs for clients in a well-diversified manner. These underlying ETFs usually come with low management expense ratios and cover various sectors and geographies.
When signing up to use a robo-advisor, you must complete one or more questionnaires that will determine your investor profile and help the program build a portfolio that matches your goals.
In terms of risk, robo-advisors can create portfolios that are low risk as well as portfolios that are high risk. This will be determined by your answers to the robo-advisor’s initial questionnaire.
The portfolios that are built by robo-advisors are usually very liquid and can be sold off in an emergency fairly fast. Robo-advisors are also able to help with financial planning in most situations.
Two of the top robo-advisory choices in Canada are Wealthsimple Invest and Questwealth. If you want to explore additional options, take a look at my guide on the best robo-advisors in Canada.
3. Exchange-Traded Funds (ETFs)
- Risk: low – high
- Fees: low – medium
- Liquidity: medium – high
Exchange-traded funds or ETFs are another way to put your money to work over the long term, especially if your investor profile allows for riskier ETF picks.
ETFs allow investors to pool their money and access a large basket of investments that they would not usually be able to invest in individually. It is an excellent way to access diversification, especially if you want to invest smaller amounts of money.
Exchange-traded funds can invest in almost any type of underlying asset, including:
- Real estate
- Bonds
- Stocks
- Hedge fund strategies
This means that ETFs can come in a wide range of risk ratings.
You will usually want to have more than one ETF in your portfolio to make sure that you are well-diversified over the long term.
When compared to mutual funds, another type of pooled investment, ETFs are usually offered at a fraction of the costs. This is especially true if you compare an actively-managed mutual fund with a passively-managed ETF.
With that said, actively-managed ETFs do exist and can be many times more expensive than passive index ETFs.
Exchange-traded funds are also fairly liquid, especially if you are considering purchasing some of the very massive funds that exist.
For specific ETF ideas, make sure to read my guide on the best ETFs in Canada.
4. REITs
- Risk: medium
- Fees: medium
- Liquidity: medium
Real Estate Investment Trusts, or REITs, are a more specific type of ETF that invests specifically into a portfolio of one or more properties. If you previously thought that you actually had to purchase a property to invest money in real estate physically, REITs may be a welcome wake-up call.
The pooled investment nature of a REIT allows investors to access expensive properties that they would likely not be able to invest in on their own. The REIT structure also helps to provide some level of diversification within real estate.
Real Estate Investment Trusts can focus on specific sectors or types of properties. Make sure to do a lot of research on the risks and rewards of each REIT type before investing. Some REITs may be riskier than others.
REITs usually come with at least a medium risk rating and also charge investors an average level of fees. One of the main advantages of investing in real estate through REITs is the much greater liquidity. A REIT can be bought or sold like an ETF while a physical property can take weeks, months, or years to sell.
If you are looking for REITs to consider investing in, be sure to read my guide on the best REIT ETFs in Canada.
5. Principal-Protected Notes (PPNs) or Market-Linked GICs (MLGICs)
- Risk: low – medium
- Fees: low
- Liquidity: low – medium
If you want to invest for growth but are also looking to protect your investment on the downside, principal-protected notes (PPNs) or market-linked GICs (MLGICs) are two great options to consider. Both assets invest your money for a set period of time and guarantee 100% of your principal at maturity.
In almost all cases, both PPNs and MLGICs offer investors a return that is linked to an underlying basket of securities. These products use complex derivative strategies to replicate the performance of the underlying basket.
Since they do not directly own the underlying investments, you will not be receiving dividends from any underlying stocks. A PPN or MLGIC may be structured to offer investors income on a regular basis – they are highly customizable.
For these investment products, your principal is only 100% guaranteed if you hold them until their outlined maturity. Selling these products before maturity may cause you to lose money.
When it comes to fees, PPNs and MLGICs usually come with a low level of fees. In some cases, you are able to sell the products early, giving them decent liquidity.
6. Physical Real Estate
- Risk: medium
- Fees: high
- Liquidity: low
If you prefer owning real estate physically, buying one or more investment properties can also be a good way to grow your money over the long term.
Your investment returns from owning a property will come from rental income as well as any profits that you may have from selling your properties down the road (if they increase in value).
An investment property does not necessarily have to be a house or a condo – you can also invest in other types of real estate such as retail (strip malls), warehouses, and even land.
Keep in mind that an investment in physical real estate can be very time-consuming, from buying to maintaining to eventually selling.
Real estate is typically thought to have a risk profile that falls between stocks and bonds (likely medium risk).
You may end up paying a significant amount in fees when buying and selling properties, as well as throughout the life of a property (in terms of maintenance and improvements).
In terms of liquidity, physical real estate is extremely illiquid. It can take a long time and substantial effort to buy and sell properties since almost no two properties are the same.
To learn more about real estate, check out my guide on real estate investing in Canada.
7. Liquid Alternatives
- Risk: low – high
- Fees: high
- Liquidity: medium – high
Liquid alternatives are a fairly newer asset class in Canada, becoming available to most regular Canadian investors several years ago.
Traditional hedge fund strategies were previously only available to sophisticated investors with very large portfolios. Hedge funds also usually come with very high fees and lock-ups which help to prevent investor withdrawals.
Liquid alternatives are hedge fund strategies that are typically packaged as an ETF or as a mutual fund.
This improves their liquidity, makes these strategies accessible to virtually anyone, and may also result in lower fees. ETF liquid alternatives are generally less expensive than their mutual fund counterparts.
Liquid alternative (and therefore hedge fund) strategies can be extremely different and sophisticated. Investment approaches can range from being low-risk to using extreme investment leverage (high or very high risk).
It is extremely important to research liquid alternatives very thoroughly before investing in them.
When choosing a liquid alternative, make sure to check what the fund’s total fees are. Hedge funds are notorious for charging performance fees which can quickly eat into investment returns.
You will also want to choose a well-established liquid alternative with a high level of assets under management.
If you want to have a more in-depth analysis of the liquid alternative space and some potential fund recommendations, check out my article on the best liquid alternative funds in Canada.
Conclusion
If you are looking to build your wealth over several years or decades, the good news is that many options are available to you. Shorter investment time horizons tend to really restrict assets that can be considered within a portfolio.
A long-term investment time horizon is well-aligned with higher-risk investments. Before deciding to invest in risky assets, make sure that your investor profile matches that of a high-risk investment.
Different long-term asset classes each have pros and cons – there is no one solution for everyone.
If you are a newer investor that is just starting to build a long-term investment portfolio, be sure to read my guide on how to start investing in Canada to avoid many unnecessary mistakes.
