The Best Long-Term Investment Strategies

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Before making any long-run investment decisions, consider these best long-term investment strategies.

Long Term investment strategies

When you’re in your 20s or 30s, long term investment (20, 30 or 40 years) can be a difficult concept to wrap your head around. Not sure where to invest for the long run? We get it — saving and investing for the benefit of an impossible-to-imagine older version of yourself is a giant mental hurdle. Humans are wired to prioritize immediate wants and needs over those that are decades away, so in some ways, long-term investing goes against instinct.

But logic dictates you need to invest for the long run if you ever want to retire, plan to pay for your child’s post-secondary education or hope to meet any other far-off financial goal.

To help you stay on track and keep your eye on the prize, we’ve put together this round up of the best tips and tricks for successful long-term investing.

Create a Balanced Portfolio

One of the best ways to ensure your investments provide solid returns over time is to have a well-diversified mix of stocks and bonds in your portfolio. By putting your money into a broad array of assets and industry sectors, you can be sure that at least some of your holdings will earn good returns at any given time even if others aren’t performing well.

Think about it this way: if you put all your money into real estate in one neighbourhood and then something unexpected happens that pushes home prices down in that neighbourhood — say, a sharp increase in local crime — you’ll lose your shirt. If you had invested in real estate in a bunch of different places, sure you’d lose some money in the affected area, but you’d likely still have gains in others. The same is true for all kinds of investments, so you want to diversify by region, size, type and sector.

The good news is, becoming an online investor is easy. Most Canadian robo advisors, such as Wealthsimple, BMO Smartfolio, and Questwealth Portfolios, will automatically create a diversified, balanced portfolio for you. Plus, they offer lower fees than a bank or brokerage. Our top pick is Wealthsimple and you can read our full Wealthsimple review to find out why we love it.

If you're comfortable with DIY investing, all you have to do is open an account with an online brokerage, and then build your own portfolio and make trades on your own. Read our full Questrade review to find out why we’ve rated Questrade the best online brokerage in Canada. Check out our handy chart below for a list of the best robo advisors and online brokerages in Canada.

ONLINE BROKERAGES & ROBO ADVISORS COMPARISON CHART
Online Investing PlatformService typeBest ForYoung and Thrifty Readers PromoMore Info
Wealthsimple ReviewRobo advisorBest Overall Robo Advisor in CanadaGet your first $10,000 managed for free for a yearLearn More
Questrade ReviewOnline brokerageBest Overall Online Brokerage in CanadaGet $50 in free tradesLearn More
BMO SmartFolio ReviewRobo advisorHuman TouchGet your first $15,000 managed for freeLearn More
Questwealth PortfoliosRobo advisorCompetitive FeesNoneLearn More
Modern Advisor ReviewRobo advisorExpert-Assembled PortfolioReceive $50,000 managed for free for one yearLearn More
Nest Wealth ReviewRobo advisorMature InvestorsTry Nest Wealth free for the first 3 monthsLearn More
Just Wealth ReviewRobo advisorInvestment VarietyReceive a cash bonus of up to $500 when you open a new Justwealth accountLearn More

RRSP, TFSA & RESP – Pick the Right Account

Registered accounts – such as a Tax-Free Savings Account (TFSA), Registered Retirement Savings Plan (RRSP), and Registered Education Savings Plan (RESP) – are all excellent choices for long-term investments because you don’t pay annual income tax on investment earnings, and those earnings compound over time. But you need to choose the right registered account for your situation. Read our articles on TFSA vs. RRSP and RESP vs RRSP to help you decide.

If you plan to use your investment savings before you retire, or if you think your income in retirement will be higher than it is now, a TFSA is your best bet. That’s because TFSA contributions are taxed in the year you earn the money and can be withdrawn any time tax-free and without penalty.

Tangerine, one of the best banks in Canada, offers an excellent product called a Tax-Free Investment Fund. These are essentially a portfolio of index funds that sit within a TFSA account. You don’t pay any tax on your investment returns, and you won’t pay any tax if you withdraw from it. Tangerine has five portfolios to choose from, ranging from balanced income to equity growth.

If, however, you won’t be withdrawing your investment funds before you retire, and you expect your total retirement income will be less than what you currently earn, RRSPs are a smart choice. You’ll get the tax savings now, when your income tax rate is high, and pay the taxes later at a lower rate. If you make withdrawals before retirement, however, you’ll pay a significant penalty.

(For a more in-depth debate, check out Young and Thrifty’s Head to Head Comparison of RRSPs vs TFSAs.)

RESPs are a good option for long-term investments to fund a child’s education, especially since the government kicks in some matching contributions. If you're debating whether to contribute to an RESP or RRSP, read our head to head comparison of RESP vs. RRSP.

Minimize Fees

Fees in Canada are usually “baked-in” to investments, meaning a percentage comes off the top of your earnings to pay the financial institution, fund manager and/or the advisor handling your accounts. Reduce the amount you pay in fees, and you effectively increase your returns.

So how do you lower fees? Choose the right kind of funds. Index funds and exchange-traded funds (ETFs) have much lower fees than traditional mutual funds because they don’t require a manager to actively pick assets for the fund. Instead, index funds and ETFs hold all the stocks or bonds in a particular market index and match the performance of the market as a whole.

Since index funds and ETFs aren’t actively managed, investing in them is often referred to as a passive or “couch potato” approach. While passive investing requires minimal effort, it still delivers better returns than most actively managed funds — illustrating just how difficult it is to beat the market.

Anyone can purchase index funds or ETFs on their own (the latter requires a brokerage account), but if you’re looking for no-brainer ease and convenience, an online brokerage or a robo advisor can create and maintain a portfolio of these low-cost funds for you.

Start Early

If you aren’t already investing for the long term, you should start ASAP. Why make this a priority when all the costs of adulting — housing, food, student loan repayments, etc. — may already be stretching you thin? Because math.

The magic of compounding means that a single investment of $1,000 today could be worth more than $4,100 by 2055 (assuming a modest annual rate of return of 4%). But if you wait 10 years to invest that $1,000 with the same rate of return, you’d have less than $2,775 by 2055. If you wait 15 years, your total drops to $2,275.

In other words, if you start investing immediately, you’ll have nearly 50% more money by 2055 in our example than if you waited 10 years, and a whopping 80% more than if you waited 15 years.

Put simply, there is no investment guru or strategy that can beat the gains achieved by compounding earnings over time. Still not convinced? See for yourself using this compound interest calculator.

Automate Your Contributions

Waiting until you have “extra” money to invest could leave you waiting a lifetime. A better approach is to commit to an amount you can afford and set up monthly transfers to your investment accounts.

Automating your contributions will not only keep you from “accidentally” spending the money you meant to invest, it will also remove the temptation to micro-manage the timing of your investment purchases based on market conditions, which is a losing strategy. (More on this later.)

And be sure to increase your contributions accordingly when your income goes up. Even the smartest long-term investment decisions can only go so far if you aren’t socking away enough of your income.

Keep Calm Investing for the Long Run

Buy low and sell high is the first rule of investing, but it’s one that many long-term investors seem to forget during periods of market volatility. When the market plummets, panicked investors start selling off holdings when they’re low in value, not high, which locks in their losses.

Remember, when you’re investing for the long run, short-term fluctuations are no big deal. See market dips for what they are: a sale on investments and a perfect buying opportunity.

By the way, the couch potato approach builds-in the buy low/sell high rule through periodic rebalancing of your portfolio. Say your portfolio has an asset allocation of 60% stocks and 40% bonds, based on your risk tolerance. If the stock market dips, the value of your stock and bond holdings might wind up being 50%-50%. To rebalance and achieve your preferred 60/40 split, you’ll have to buy some stocks (which are now priced lower) and/or sell some bonds (which are now priced higher). Neat, right?

Most robo advisors will automatically re-balance your portfolio once a year or at other predetermined intervals, ensuring your emotions stay out of your long-run investment decisions.

That’s My Plan and I’m Sticking to It

Once you’ve decided on a diversified investment portfolio that works for you, stay the course. Tune out any buzz about a hot stock tip. Ignore your neighbour who recommends his or her “money guy” with promises of outrageous returns. If you shoot for unrealistic performance by trying to outperform or “time” the market, chances are you’ll end up with a below average rate of return.

The only reason to alter your plan is if your life situation changes — affecting your risk tolerance or investment period. So, for example, as a student approaches university age, the time available to stay invested in an RESP or other education fund is almost up. By that point, parents should transition to a more conservative portfolio of fixed income assets, such as short-term bonds, to minimize risk. Otherwise, they could end up losing a big chunk of their money if the market dips right before they need to sell those investments to pay for their child’s tuition and other education expenses. The same goes for workers as they approach retirement age.

Choose a Robo Advisor

While you can’t control the market, you can control your behaviour and the fees you pay. By choosing a robo advisor, you’re more likely to automate your investment contributions and create a balanced portfolio, since that’s what robo advisors are set up to do. That automation also takes emotion out of the process, improving the chances you’ll stick to your plan regardless of whether markets are up or down. Finally, since robo advisors use passive investment strategies, they offer lower fees which maximize returns.

For robo advisors, our top choice is Wealthsimple, as their fees are highly competitive and customer service is amazing. Plus, we can't help but love their attractive, user-friendly online platform that's easy to use. But if you're curious to do a head-to-head comparison, check out our Guide to Robo Advisors in Canada.

Get your first $10,000 managed for free for a year when you start investing with Wealthsimple.

The Bottom Line

Best long term investment strategies

Long-term investment decisions may seem daunting at first. But if you follow these easy and simple long-term investment strategies, it’ll be a cinch. Starting early, contributing regularly, using a robo advisor to minimize fees, and staying the course during tumultuous times are all fundamental long-term investment strategies to help build your nest egg. Before you know it, you’ll have an impressive portfolio to support your golden years.

Disclaimer: Young & Thrifty has entered into a referral and advertising arrangement with Wealthsimple US, LTD and receives compensation when you open an account or for certain qualifying activity which may include clicking links. You will not be charged a fee for this referral and Wealthsimple and Young and Thrifty are not related entities. It is a requirement to disclose that we earn these fees and also provide you with the latest Wealthsimple ADV brochure so you can learn more about them before opening an account.

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Tamar Satov

Tamar Satov

Tamar Satov is an award-winning journalist specializing in the areas of personal finance and parenting. Her work has appeared in Canadian Living, The Globe and Mail, Today’s Parent, Parents Canada, Walmart Live Better and many other consumer magazines and websites. She is the former Managing Editor of CPA Magazine, for Canada’s Chartered Professional Accountants, and contributes to other publications for finance professionals including FORUM, for Canada’s financial advisors.

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