6 Safe Investments With High Returns In Canada (2024)

If you are looking for safe investments with high returns in Canada or anywhere else, you are in for a rude awakening.

Safety and investment returns are inversely related – an investment either offers a low and safe return or a potentially higher and more risky return.

Stocks (US stocks in particular) are frequently quoted as offering excellent long-term returns. In exchange for these high potential returns, Goldman Sachs reveals that 2022 was the sixth-most volatile year since the Great Depression, meaning that it is quite risky and not very safe.

Although safe investments with high returns do not exist, I will cover six safe investments in Canada below.

Taking on More Risk for Higher Returns

Although I will cover safe investments further below, I will also briefly outline some asset classes in this section that offer higher returns (if you are willing to take on the additional risk).

Investments that tend to offer higher returns (over the long term) include:

  • Stocks
  • Private Equity
  • Alternatives (more aggressive strategies such as some hedge funds)
  • Leveraged investments
  • Starting a private business
  • Private loans or debt

If you are looking for higher rates of return, you will simply have to take on more risk, or price volatility, in the underlying investment.

If someone is offering risk-free high returns, it’s an extremely big red flag for me.

An excellent recent example of this relationship has been the implosion of several cryptocurrencies, some of which advertised “risk-free” returns above 15% per year. Many investors lost all of their money when the coin eventually failed.

Keep in mind that investing in assets with high returns and high risks typically requires certain specifics, including:

  • A long investment time horizon
  • A high-risk tolerance
  • A limited income potential

Safe Investments in Canada

Below are some of my top picks when it comes to safe investments in Canada (typically considered low-risk). Note that these won’t necessarily have high returns, as safety and returns are inversely related.

1. Guaranteed Investment Certificates (GICs)

  • Risk: low
  • Minimum investment amount: low
  • Fees: none
  • Liquidity: low – medium

Guaranteed investment certificates (GICs) are term deposits at a financial institution in Canada. You deposit your money, and the institution pays you a fixed rate of return over a specific term. Unless you purchased a redeemable GIC, your money will be locked up for the term of the GIC.

Interest rates have been pretty decent, for example EQ Bank has a 1-year GIC rate of 5.35% right now.

Redeemable GICs tend to offer a slightly lower rate of return for this additional flexibility. If you are looking for the highest possible return through GICs, you will have to match the term of a non-redeemable GIC with your investment time horizon.

GICs are considered safe investments because they are guaranteed by the issuing financial institution (unless the company experiences bankruptcy).

On top of this, the Canada Deposit Insurance Corporation, or CDIC, typically steps in to guarantee GIC deposits of up to $100,000 for member financial institutions.

GICs do not have an underlying market value, so you will not see any fluctuations in your investment. Your returns will be in the form of interest income. GICs do not charge investors any fees and usually have low minimum investment amounts.

The future direction of interest rates in Canada should impact your decision-making when investing in GICs. GIC rates adjust based on the current level of interest rates.

If you feel that interest rates will increase in the future, you will want to either hold off on buying a GIC until you can lock in a higher rate or buy a very short-term GIC until rates rise.

If you believe that interest rates will decrease in the future, you will want to take advantage of the high current interest rate by potentially buying a long-term GIC (to lock in a currently high-interest rate for longer).

Be sure to read my article on whether GICs are worth it in Canada.

2. Principal Protected Notes (PPNs)

Principal Protected Notes
  • Risk: low
  • Minimum investment amount: low
  • Fees: low – medium
  • Liquidity: medium

Principal protected notes, or PPNs, are very similar in structure to a GIC, with a few key differences. You can think of a principal protected note as a GIC with a variable return, which is typically tied to a basket of underlying stocks (or other investments).

PPNs typically advertise a return that falls within a range, with the minimum return always being zero. In the case of a zero return, your principal is returned to you, meaning that your initial investment is protected.

The upper end of the return range (it is usually capped to a maximum) is usually much higher than what regular GICs offer.

PPNs are usually offered across various terms to maturity, although there are usually fewer maturity choices than when looking at regular GICs. Providers of PPNs are also much more limited in Canada, as they are much more difficult to structure and offer to clients than a regular GIC (which is just a deposit).

PPNs are not guaranteed by the CDIC, unlike most regular GICs. The riskiness of a PPN is directly tied to the creditworthiness of the financial institution that is issuing it.

Selling a PPN Early

One of the key benefits of a PPN is that it can be sold before maturity (usually back to the issuing financial institution). While this is great if you are experiencing an emergency and need additional liquidity, it is usually not a good idea.

The principal guarantee of a PPN applies only at maturity. If you are thinking of purchasing a five-year principal-protected note, the value of your note over time will likely be outlined on the website of the financial institution.

Until the PPN reaches its maturity (in this case, after five years), the value of your PPN may be lower than your initial principal.

If the underlying basket of investments is performing well, your PPN may be selling at a profit before maturity. In this case, it may make sense to sell early.

PPNs are generally considered low risk since your principal is guaranteed at maturity. They usually require a low minimum investment amount and typically charge low fees (the fee-based series of the PPNs).

PPNs are considered alternative investments – be sure to read my guide on the best alternative investments in Canada for more ideas.

3. High-Interest Savings Accounts (HISAs)

High-Interest Savings Accounts
  • Risk: low
  • Minimum investment amount: low
  • Fees: none
  • Liquidity: high

High-interest savings accounts, or HISAs, are savings accounts at major financial institutions in Canada that are designed to pay you a high-interest rate on your deposits. HISAs are typically much less flexible than a chequing account – make sure that bills and frequent transactions go through your chequing account.

HISA accounts are usually covered by CDIC, similar to GICs. Again, this coverage is typically up to $100,000 and covers you in the event that your financial institution goes bankrupt and can’t afford to cover its deposits.

Different financial institutions offer various rates depending on their brand and current client base. A reputable financial institution like a major Canadian bank will likely offer a slightly lower rate of return on their HISAs than a smaller Canadian company.

Smaller financial institutions typically have to work extra hard to attract new clients – they do so by offering marginally higher HISA rates of return. Large financial institutions are constantly having HISAs referred to clients through various avenues. They can afford to offer a lower rate of return.

Since a HISA is a deposit that pays interest, the value of your money will not fluctuate over time. These accounts typically come without fees and require small investment minimums in order to get started.

If you need an investment with very high liquidity (that is also extremely safe), putting your money to work through a HISA is one of the best ways to invest. HISA accounts can be liquidated fairly quickly and do not have a maturity date like GICs.

An alternative way to grow your money is through a HISA ETF, which can be traded in a regular investment account. Check out my guide on the best high-interest savings account ETFs in Canada for more information.

4. Quality Bond ETFs

Quality Bond ETFs
  • Risk: low
  • Minimum investment amount: low
  • Fees: low
  • Liquidity: high

Bond ETFs make it much easier to not only invest in bonds but also to achieve a good level of diversification in a simple manner.

When it comes to investing in bond ETFs, the risk rating of each ETF depends on the quality of the bonds that it holds. The same is true for the type of return or yield that you can expect to get from the ETF.

If you are looking for a safe bond ETF, you will want to invest in one that is high quality. High quality here refers to the creditworthiness of the underlying bond issuers that make up the ETF. The highest quality of bonds is typically issued by governments – either Canadian or American.

One of the major risks of investing in bonds is interest rate risk. Bond prices tend to fall when interest rates go up, and bond prices rise when interest rates fall.

Bonds that have longer maturities will typically be much more sensitive to this effect. This relationship also applies to most bond ETFs (which are simply a basket of underlying bonds).

The safest type of bond ETF will contain government bonds that have short maturities. This eliminates both default risk as well as interest rate risk. Keep in mind that investing in foreign government bonds (like the US) may come with currency risk if the ETF uses an unhedged strategy.

Bond ETFs are usually very accessible and typically require a minimum investment of one unit.

Relative to most ETFs and mutual funds, passive government bond ETFs are usually offered at very low management expense ratios. Keep in mind that you may also be responsible for paying trading commissions.

If you want to avoid paying trading commissions when buying and selling bond ETFs, consider using Wealthsimple Trade, a discount brokerage that offers commission-free trading here in Canada.

5. Individual Bonds

What Happens to Bonds as Rates Rise?
  • Risk: low – medium
  • Minimum investment amount: high
  • Fees: medium
  • Liquidity: low

If you want to avoid the management fees of bond ETFs, although I don’t believe that it is worth doing, you can also buy individual bonds directly.

Individual bonds are much more difficult to trade than stocks or ETFs. They are not listed on an exchange and must be bought or sold over the counter. This not only greatly reduces the liquidity of individual bonds but also typically results in high trading costs in the form of bid-ask spreads.

The minimum purchase of bonds also typically requires at least several thousand of dollars, making it much higher than other options on my list. This minimum applies to buying individual bonds through a brokerage.

If you are looking to buy individual bonds directly at a government of Canada bond auction, you will be required to invest a minimum of $1,000,000.

For these reasons, it is typically a better idea to purchase bonds through an ETF that bundles multiple bonds at a much more accessible minimum. If you are looking to diversify across multiple bonds, you will have to invest a large amount of money in order to create a solid bond portfolio.

Keep in mind that the same guidelines apply to individual bonds as to bond ETFs if you are looking for a safe investment. Make sure to consider individual bonds that have a high-quality issuer (like a government) and that has a short term to maturity (to avoid interest rate risk).

6. Low-Risk Liquid Alternatives

Low-Risk Liquid Alternatives
  • Risk: low
  • Minimum investment amount: low
  • Fees: medium – high
  • Liquidity: medium

Liquid alternatives are hedge fund strategies that have been packaged in a mutual fund or ETF wrapper and made available to the general investing public. Traditional hedge funds are typically inaccessible to most investors since they have strict investing requirements.

Liquid alternatives can have many different underlying strategies, including:

  • Merger arbitrage
  • Market-neutral
  • Dedicated short bias
  • Long-short
  • Global macro

The strategy from above that typically comes with the lowest level of risk is the market-neutral strategy.

Market-neutral strategies use a portfolio manager’s skill to buy and short-sell stocks in the same sectors in order to eliminate market exposure. These strategies will offer investors decent returns if the manager is skillful.

Since liquid alternatives are very different from each other, it is extremely important to research them yourself thoroughly. You can use supporting fund documentation to help assess a liquid alternative’s risk rating.

Liquid alternatives come with low investment minimums (since they are packaged as either mutual funds or ETFs). Regardless if they are offered as a mutual fund or ETF, they are typically offered at high management expense ratios due to the complexity of the underlying strategy.

Unless a liquid alternative fund is new and has few assets under management, liquid alternative strategies will be fairly liquid, allowing you to trade them without large price impacts.

To learn more about these complex strategies, make sure to read my guide on the best liquid alternative funds in Canada.

Frequently Asked Questions

How to Invest $500,000 in Canada

Investing $500,000 in Canada will depend entirely on your personal situation and goals. With $500,000 to invest, you will meet the investment minimum of most asset classes and can even get involved in sizable real estate deals (potentially multi-family properties).

It is important to determine your risk tolerance, what your investment goals are, how long you will be investing for, and more.

Make sure to read my guide on how to start investing in Canada.

Best Way to Invest $1,000 in Canada

Relative to investing $500,000, $1,000 is a much smaller amount to get started with. Portfolios of this size are much more limited in terms of what asset classes they can include.

In order to have a well-diversified portfolio with such a small investment, it is essential to consider investing through pooled investments such as ETFs or mutual funds.

When considering that mutual funds have substantially higher fees than most passive ETFs, broad-market ETFs will likely be a good option to consider. Be sure to also think about things such as your personal financial circumstances, goals, risk tolerance, and investment time horizon.

What is a Good Investment in Canada?

A good investment in Canada is one that matches your risk tolerance and investment objectives. If you have several options to choose from that are a good match for you, you can start looking at several differentiating factors to help you make your decision. These include:

  • Historical returns
  • Management expense ratio (MER)
  • Liquidity
  • Income
  • Time involvement required

Aside from publicly-traded investments, you can also consider other alternatives. These can include:

  1. Opening a business
  2. Private lending
  3. Real estate
  4. Art and collectibles

Best Investments for Young Adults in Canada?

Young adults that are looking to invest have specific advantages over older investors. Young adults typically rely less on their investments for income (since they are working) and have a longer investment time horizon (generally meaning that they can invest in riskier assets).

Again, young adults may also have specific goals and constraints that can limit their investment choices. A good example is responsible investing – ESG investing seems to currently have a much higher demand among younger investors relative to older investors.


Safe Investments With High Returns In Canada No Such Thing

Investments that offer both high returns and come with low risk simply don’t exist in Canada (or anywhere else in the world). If you are looking for high returns, you will have to take on additional risk.

If you are looking for safety, you will likely give up high returns (and likely earn something close to the current level of interest rates).

The good news is that Canada’s investment landscape is extremely diverse, offering investors a wide range of asset classes to choose from that best fit their needs and objectives.

If you are looking for more details and investment ideas, be sure to check out my thorough outline of the best investments 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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