How to Invest 100k in Canada? The Ultimate 2022 Guide

You’ve finally reached your goal – you have $100k in savings! And now, you’re looking for the best way to manage that amount and possibly increase it.

However, before making a final decision on how to invest 100k in Canada, you should consider some elements that can affect your future investment strategies, among other things.

Let’s check them out!

How to Invest $100k in Canada?

The trade-off between risk and return is an important aspect of investing. In fact, smaller predicted returns are associated with low-risk investments, while investments with greater risk have higher predicted returns.

So, what should you do before you invest $100k? Before investing in the stock market or elsewhere, you should look into some factors. Begin with paying off high-interest debt(s), like credit cards, or establish an emergency fund. Though, you shouldn’t forget to prioritize your future goals too.

For that matter, we’ll explain the best ways you can build a $100k investment portfolio:

Invest in High-Quality Stocks

Stocks help diversify your investment portfolio and give you the chance to invest in different industries globally.

That said, you can invest a part of your $100k in high-quality stocks from dependable companies with greater profit margins. Compared to other assets, they have the greatest possible return and can be quickly converted to cash.

Furthermore, high-quality stocks don’t encounter the same price oscillations as others, i.e., they grant you stability. However, stocks can be pretty high, so be careful not to end up paying thousands of dollars.

Invest in Mutual Funds or Exchange-Traded Funds

ETFs and mutual funds consist of stocks, bonds, and other assets, and they’re excellent if you need some variety in your portfolio.

ETFs are passive, whereas (most) mutual funds are actively managed, which results in higher costs. By using ETFs and mutual funds, you can invest in particular industries and concepts, like sustainability. And since these are liquid investments, both can be converted easily to cash when necessary.

The best thing is that you won’t be affected if one security performs poorly — because these investment types are composed of hundreds of securities.

Invest in Bonds

Bond prices typically fluctuate less than stock prices, making them a good choice for short-term investing. However, bonds are also riskier than stocks, and they produce lower long-term returns.

The bond’s face value, or the par value, is paid to bondholders in one lump sum after its duration. Having said that, bonds are eligible for interest payments during that time. Therefore, if you use a taxable brokerage account, bond interest payment may be subject to income tax.

Invest in Real Estate

Some investors claim that real estate is the best idea when investing $100k – because it allows you to invest in actual property. Besides providing you with a sizable and reliable  income stream, they also serve as a tangible asset that you and upcoming generations can utilize for personal purposes.

Accordingly, no matter your real estate investment choice, it will undoubtedly bring you monthly or quarterly payments.

Invest in Real Estate Investment Trusts (REITs)

REITs are a good option if you wish to invest in real estate without dealing with the difficulties of doing so directly. At the same time, it’s also a straightforward investment with a small amount of money needed.

These portfolios of properties are professionally managed and structured around a particular type of real estate, like shopping malls, healthcare facilities, etc. Consequently, you can purchase REIT shares directly via a company or through a broker.

Note: The dividends that REITs pay their shareholders are taxed as ordinary income.

Invest in Peer-to-Peer (P2P) Lending

Investing in P2P is, in fact, giving money through platforms that connect lenders and borrowers. This is actually an attractive strategy for investing with a small investment window.

But, with P2P, there’s the possibility of seizing ownership of the subject property (if something goes wrong), so the risk is justified. That said, there’s also a risk that the borrower won’t return the loan — it’s a risk you can minimize by investing in multiple loans.

Note: Run a thorough check on potential borrowers because they can affect your investment too.

Have a Financial Advisor Manage Your Portfolio

Hiring a financial advisor to assist you in investing $100k in Canada is a great idea. Working with experienced financial advisors helps avoid mistakes that can cost you your time and investments. These professionals will manage difficult tax and investment circumstances and handle significant quantities of money. Make sure to run as many interviews as possible to find the right one.

Or, you can try a Robo advisor, too, especially if passive portofolio management is what you’re looking for.

Top 3 Tips For Investing $100k

Before you decide where to invest $100k in Canada, keep in mind the following:

Keep Fees Low

Ensure you’re paying as little in taxes and fees as possible. This is important since every dollar deducted from your portfolio is a dollar that doesn’t collect any compound interest.

For example, Canada is known to have the highest average management expense ratio (MER) at 2.14 percent, among all developed markets. It seems like a fair fee, but you’ll realize you’ve spent hundreds, even thousands, of dollars over the years.

Note: Look for an automated investment service that offers the lowest fees so as not to splurge your savings.

Invest in a Passive Portfolio

Passive investing is an excellent investment option. This is primarily due to lower costs, easy diversification, and minimal risk of outperforming the whole portfolio because of one investment. Consequently, the transparency is increased too, and passive funds gain higher returns when investing for the long term. And you’ll find that ETFs are among the most famous passive investments.

Search for Investments with Lower Risks

Look for low-risk investments so as to be on the safe side of the entire investment process. Though, in exchange for higher return rates from products that offer tremendous liquidity, you should be prepared to accept a little more risk.

However, the investments that can help you boost your returns faster are corporate bonds, money market mutual funds, preferred stocks, index funds, and other options.

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What Factors To Consider When Investing $100k?

Keeping a lot of money in cash savings isn’t the best idea nowadays. Mostly because inflation can devalue it, and the interest rates might be low. So, before taking further steps, it’s time to identify your financial goals first.

Here are five factors to consider when searching for the best way to invest $100k in Canada.

Set Up Goals

For starters, figure out what to do with $100k that you have in your bank account – set your goals. Clear your mind and think business-like.

For instance, think about what you’re investing the money in and settle your investment targets. Are you growth-oriented or investing to generate income?

If you are investing in order to grow, put simply, you are investing now with the goal of reaping greater benefits later. On the other hand, investing to generate income means investing in a sizable quantity and periodically taking money out of the profits made.

Set a Time Frame

Next, set a time frame for a particular investment to start developing — is your goal short-term or long-term?

If you decide on a short-term goal, you’ll be better off adopting a less risky investment approach. For this reason, the money shouldn’t be invested in the stock market if you need it available in the next couple of weeks or months.

But, if you’re planning a long-term investment, you’ll find mutual funds and stocks more appropriate.

Ultimately, the time frame is dictated by the length or your goals and your investment approach.

The Circumstances

Your present situation consists of various life segments, from your age, marital status, and overall health, to your monthly earnings. It also refers to how much money you have now and what your future financial expectations are.

So, you may feel more at ease knowing there’s a safety net to fall back on if your assets experience a slight decline.

Risk Capacity

Every investment comes with a certain dose of risk.

To determine your risk capacity or tolerance, you need to be honest about what you want and when you want to achieve it. Along the way, you can use help from a financial adviser too. After that, building your portfolio and determining the ratio of high risk vs low risk assets will be effortless.

Consequently, you must be careful when taking risks — ensure your risks match your risk tolerance.

The Ability to Control Your Emotions

Emotions play a huge role when it comes to investment decisions. The fundamental reason why so many people buy at market tops and sell at market bottoms is investing driven by emotion.

The investor’s mentality can, in fact, overcome login when under stress, whether that stress comes from euphoria or panic.

For example, there are some things which help investors oversell when in panic. Consequently, making logical selections is based mainly on your knowledge of your personal risk tolerance and the dangers associated with your assets. In addition to this, having an active knowledge of the market and the factors that underlie both bullish and bearish trends represent a crucial factor.

Therefore, look upon the investment market as a place where investors need to manage their behaviour when it comes to emotional selling/ buying.

Which Accounts Are The Best for Investing $100k?

You’ll need an appropriate investment account to store your $100k.

Hence, check out the following accounts and see if you find them fit for your future investment:

RRSP (Registered Retirement Savings Plan)

RRSPs are ideal for people that earn more presently than they expect to earn in retirement. The reason for this, it’s because they’d be taxed at a lower rate then, instead of now.

Moreover, RRSPs are known as hard-to-access accounts prior to retirement without incurring significant tax penalties. Though, that’s not entirely true since there are methods to pull out money from your RRSP and still not worry about the CRA.

For example, you can borrow money interest-free from your RRSP to pay for a down payment on a home or business space.

TFSA (Tax-Free Savings Account)

If you don’t mind paying tax on the interest from your short-term investments, a TFSA (or multiple TFSA accounts) is an excellent idea.

This type of account works great for those looking for long-term investments — TFSAs are highly flexible, and you can use them for investing in ETFs and mutual bonds.

As a matter of fact, TFSAs are a government product of encouragement for residents to begin saving for retirement and other major life expenditures. This means that you can put money aside into accounts referred to as “tax-advantaged” or accounts that are free of taxes. By practicing this, people can save an enormous amount of money.

Having mentioned the above, TFSA is most suitable for investors who earn below $50.000 annually. And also for those who want to invest before retirement since there are no tax penalties.

RESP (Registered Education Savings Plan)

There are a few reasons to choose an RESP account:

  • They aren’t regarded as taxable income. In other words, you can withdraw a particular sum and use it for educational purposes.
  • The money in it grows tax-free.
  • The government also contributes 20 percent of your donations through a CESG (Canadian Education Savings Grant) program per child, amounting to a maximum of $7.200 per child.

Get more info on RESP – how it works, withdrawals, and more, in this guide.

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Conclusion

With $100k in your bank, you certainly have many options to invest in. But, foremost, you have to figure out how to invest $100k in Canada.

For that matter, we enlisted the most important factors to help you determine your financial goals, time frame and measure your risk comfort level. After all, even more rewarding than the money invested can be the search for the ideal investment.

We hope this guide serves you right in your search on how to invest money in Canada – no matter the amount.

FAQ

What is the best way to invest $100k cash?

To increase your $100k, you need to put your money in the right place. So, there are several ways to invest your money in Canada, such as

  • real estate, properties, ETFs,
  • IRA, individual stocks,
  • peer-to-peer lending, etc.

And, if you’re looking for short-term investments, you can invest in cash management accounts, money market accounts, money market mutual funds, etc. REITs are also popular for real estate investments without making a personal property purchase.

How much interest does $100000 earn in a year?

The answer will vary depending on the bank and specific account type. We looked into some numbers and found that investing $100k in a savings account with a 2%-2.50% interest rate can return $2.000 – $2.500. In contrast, bond investments can yield between 2% and 4% with a maximum return of $4.000.

Ultimately, with stock investments which boast an annual return of as much as 8%, you would earn $8.000 in interest.

How to invest 100k in Canada to make $1 million?

You can invest $100k and make $1 million by investing in one of the following:

  • in real estate – it has the potential for large returns;
  • dividend stocks,
  • retirement accounts,
  • rental properties – earn periodically, quarterly, etc;
  • Cryptocurrency,
  • High-yield savings accounts – are a feasible choice for risk-averse people,
  • growth stocks, and other options.

Altogether, one thing is sure when trying to make a million – it requires smart, long-term investing and 100% dedication. Whichever option you choose, it’s important to do some research beforehand to ensure that the investment is wise.

ABOUT AUTHOR

Despite her formal background in linguistics, Maja has always been fascinated by the world of finance. She has spent years and years analyzing the market, including trades, investments, pitfalls to avoid as well as the stock exchange. As of recent, she has been studying some non-mainstream stocks in Canada. When I’m not immersed in numbers, I like to spend time with my dog and plan my next trip.

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