What’s the best investment to add to your portfolio today?

There’s long been a myth circulating about investing: that it’s only something the wealthy have the means to take advantage of. In 2022 and beyond, let’s consider that myth busted. Investing is a forward-thinking strategy for your financial plan and something most people can take advantage of. Whether you’re putting money in a high interest savings account, GIC, stocks, or NFTs you’re doing it for future you. (And if it’s NFTs, c’mon, you’re doing it to sound cool … at least a little bit, right?)

Bottom line, it doesn’t matter if you’re a risk-taker or a play-it-safer, there’s room for you at the investing table.

So, what is the best investment for you?

When we talk about the best investment, it’s important to note that “best” means best for you, not what is best for James in Marketing. You don’t know James’ financial situation any more than you know what he had for dinner last night. Avoid trying to keep up with the proverbial Joneses (or James’?). Instead, do what works for your individual portfolio. And maybe think about the wave of superiority you’ll feel when James starts eating microwave ramen every day because he lost his retirement savings to a digital image of what was promised to be “the next Nyan Cat” while yours is somewhere a bit less trendy and a lot more secure.

Before you dive in, it’s important to know what you want to accomplish by investing. The plans for your funds will absolutely inform the type of investment you go for, judging by your risk appetite vs your return. Low risk often means low return, while higher risk investments may give you a higher return over time, while also having the potential of a loss over the short term. If this is starting to sound like an interminable maze of options, stay with us. Multiple options in this case means there is absolutely something out there for you to invest in that makes sense for your financial situation. We’ve listed some of the usual suspects below for discussion.

Low risk investments

High interest savings account: Most people wouldn’t consider a savings account as an investment, per se, but if you want to dip your toe into the investing pool, it’s a great entry point. The days of savings accounts with microscopic interest rates as the only savings option are behind us. With the emergence of digital banking and less reliance on branches for day-to-day transactions, interest rates can be higher, and fees are either lower, or nonexistent. While rates on your high interest savings accounts can fluctuate over the time your funds are in the account, it’s far and away a better option than letting your money settle in a chequing account with a 0% return.

TFSA: If you’re looking to take your savings game to the next level, a Tax-Free Savings Account (TFSA) could be a great choice for you. A TFSA is a registered investment or savings account that allows for tax-free gains, and tax-free withdrawals – the best of both worlds! Rates on TFSAs are typically higher than your classic savings account, and anyone in Canada who has reached age of majority in their province, and has a valid SIN can open one, making it an accessible investment option. Contributions to your TFSA are limited, however you have access to any unused contribution room accessible to you from the year TFSAs were introduced (2009). As of 2022, for example, the TFSA cumulative limit (if you've never contributed, and assuming you were age of majority in 2009) is $81,500. This number grows every year, subject to the annual TFSA contribution limit set by the federal government.

GIC: Guaranteed Investment Certificates (GICs) are like the high interest savings account’s cousin who maybe went to an Ivy League school. The rates and terms are locked in, and your deposits are secure. GICs are best used for short (ish) term goals. If you want to take GICs even further, you can set up your own GIC ladder. It’s a smart and easy way to take advantage of the locked-in rates while having access to your funds before re-investing, should you need them.

Medium risk investments

Mutual funds: A mutual fund is a type of financial vehicle made up of a pool of money collected from multiple investors used in order to invest in stocks, bonds, and other assets. It should be noted that each mutual fund comes with its own Management Expense Ratio (MER), which is essentially a measure of how expensive the fund would be for you to invest in. (Keep in mind that this is entirely different than the fee you’ll pay to purchase a mutual fund.) Mutual funds can be a great way to invest in the stock market without taking on the risk of the specific stock you’re investing in.

ETFs: An Exchange Traded Fund (ETF) is a collection of securities. An ETF can contain all kinds of investments; stocks, bonds or commodities. Essentially, with an ETF, you’re purchasing a combo instead of ordering a la carte, if you will. A big difference between ETFs and mutual funds is how they are managed. While mutual funds are typically managed by people, ETFs are managed using an algorithm that analyzes and predicts trends.

Bonds: Think of a bond as if you are lending money to a corporation. You’ll be entitled to interest on the loan and the guarantee of receiving your capital back when the term ends. Sounds pretty great, right? So why do bonds qualify as a medium risk investment? Bonds are widely considered a safer investment than stocks, however there is a risk that the company who issues the bond may be unable to pay it back. This is rare; however the risk is not zero, earning bonds a spot in the good old middle ground. In addition, the value of bonds are subject to fluctuation. If interest rates go up, bond values go down, which is one of the many reasons we’re advised to diversify, diversify, diversify.

High risk investments

Individual stocks: When many think of investing, stocks are likely one of the first methods that come to mind. Buying a stock essentially means you are purchasing a small part of a large company. As the company grows in value, so does your stock, and vice versa. Now don’t be fooled, just because stocks are sitting in the high-risk category, that doesn’t mean you need loads of money to dabble. Investing used to be ultra expensive and time-consuming. These days, you can start trading with an online brokerage with as little as $100. Are you going to get rich by investing $100? Probably not, but it’s clear that investing is accessible for a wide variety of income levels, not just the super rich. Before diving into the stock market, or any investment for that matter, be sure you’re giving some thought to the intended use for your gains. That will determine just how adventurous you can really get.

Penny stocks: Penny stocks likely sound tempting, as the name suggests an accessible entry point. While it’s true that some penny stocks have yielded incredible results – Amazon was once a penny stock company – most aren’t likely to achieve that level of lightning-in-a-bottle success. Penny stock companies are typically small, new, and haven’t yet exhibited proof of future growth. While you can make money on penny stocks, the likelihood of you finding the next Amazon is small, which is what lands these popular ventures on the high-risk list. If you’re going to invest in penny stocks, you’d be best suited to use them as a part of a more robust investment strategy.

Cryptocurrency: Should you be investing in cryptocurrency? The answer is … maybe. There’s no doubt cryptocurrency is having a moment (Especially NFTs). But trendy doesn’t necessarily mean successful. Cryptocurrency, as investments go, is still fairly new, having only been around since the mid aughts. The digital currency runs on blockchain, an incredibly secure technology. But does a secure technology mean a secure investment? Again – maybe? People have become billionaires by investing in cryptocurrency, but these instances are not the rule. They are the anecdotal instances that make headlines and make us want to jump on the crypto train. So, is cryptocurrency for you? Potentially - as part of a diverse investment portfolio and after doing your research.

Personal lending: When Shakespeare wrote “neither a borrower nor a lender be”, he was almost assuredly speaking to the potential pitfalls of lending money to your friends or family. (Obviously we’re not talking about spotting a friend for lunch here.) Of course, there are situations in which lending money makes sense, but there are several factors involved that can determine if it’s a good or bad investment. Let’s not ignore in this situation that money can be inherently emotional, which can come into play when you’re deciding on interest rates and repayment terms. Whatever you ultimately decide, it is likely a good idea to draw up some sort of written agreement before proceeding.

 Not bored yet? Great! There are more (yes, even more) options for you. You can talk to a financial advisor who can give you tailored advice, or hand the whole thing over to a financial planner. You can go digital with a robo-advisor. Whatever route you choose on your wealth quest, just leave James in Marketing out of the conversation.

 Any information provided in this article is for information purposes only and is not intended to constitute financial advice. You should seek the advice of a qualified professional or undertake your own research before making financial decisions.