man tablet

How to Invest 100k CAD in Canada

Wondering where to invest $100k safely to make the most out of your money? Here are 5 investment strategies to make your savings grow.

Before you invest $100k

Since $100,000 is a large investment, you can use multiple strategies below in order to diversify for your portfolio. Therefore you need to take a step back to weigh your options carefully.

But, just before you start investing, there are certain things that you need to put in place.

  • Pay off high-interest debt. Otherwise, your debts will always grow faster than your investment returns.
  • Stock your emergency fund. Make sure you have a fully-stocked emergency fund with 3-6 months’ worth of expenses. Keep it in a high-yield savings account where you can tap into it when needed.
  • Maxing out retirement contributions. The yearly contribution room for your RRSP is stated on tax Form T1028. Any deposits you make beyond this are not tax deductible.

How to build a $100k investment portfolio

It’s important to spread your investments to various areas for good diversification. If you choose to allocate to one type of investment, you may increase your portfolio’s risk.

For instance, if you only invest in stocks, you’ll lower your diversification and increase your stock portfolio’s risk.

The investment types you choose should depend on your financial goals and timeline. If you’re an older investor nearing retirement, you may not want to choose a riskier, more volatile investment.

Likewise, if you need the money in a few years, you may want to play it safe with an investment type that has low risk, but low returns.

Whatever, the case, here are some popular investment options. It is very important that you consult a financial advisor before making any investment decisions. You could lose all your money.

1. Invest in high-quality stocks

Take a portion of your $100k investment and purchase high-quality stocks from stable companies with higher profit margins and lower debt.

Pros

  • High returns. Historically, stocks have the highest potential return compared to other assets.
  • Liquidity. People trade stocks daily, so you can easily convert to cash when you need it.
  • Stability. High-quality stocks don’t usually experience the same dips and swings in price as other stocks do.
  • Passive income. Many companies pay quarterly dividends to shareholders.

Cons

  • Slower growth. Contrary to startups and mid-sized businesses, these stable companies aren’t likely to experience rapid growth in the future.
  • Requires expertise. Choosing the right stocks can be difficult, so you’ll need to know how to read a stock chart and analyze its performance.
  • Higher stock prices. You could pay hundreds or thousands of dollars for one share of high-quality stock.

2. Invest in mutual funds or exchange-traded funds (ETFs)

If you’re looking to diversify your portfolio (which you should be!), mutual funds and ETFs may be the way to go. Both are made up of baskets of securities, such as stocks, bonds and other commodities. But mutual funds are actively managed, while ETFs are passive.

Pros

  • Low costs. Many brokers offer commission-free ETFs and low-fee mutual funds.
  • Values-based investing. ETFs and mutual funds allow you to invest in specific sectors like technology and in certain ideas, such as sustainability.
  • Diversification. These investment types are made up of hundreds of securities, so you won’t feel a sting if one security tanks.
  • Liquid investments. You can readily convert both mutual funds and ETFs to cash when you need to.

Cons

  • Varying levels of control. An investment manager controls mutual funds, but you can trade them daily. You manage your own ETFs, but you can’t trade them daily.
  • Tax implications. ETFs are more tax efficient than mutual funds, but you’ll pay capital gains taxes on both when you realize profits, just like stocks (unless you hold them in a registered account, like a TFSA or an RRSP).
  • Can have pricey fees. Although there are several low-cost options out there, beware brokers with hefty trading and management fees, especially with mutual funds.

3. Use a financial advisor to manage your portfolio

If you’re looking for personalized advice on how to invest $100k, it may be time to hire a financial advisor. Alternatively, you could use a robo advisor to passively manage your portfolio – this will save you hefty management fees, but is less personalized and customizable. (You can read more on human vs. robot portfolio managers here).

Pros

  • Working with an unbiased professional. Money can be an emotional topic, so a financial advisor can keep you from making costly mistakes with your investments.
  • Industry expert. Financial advisors typically have years of experience managing large sums of money and dealing with complicated investment and tax situations.

Cons

  • Hefty fees. You’ll typically pay a set percentage based on the total value of the assets under management. So, if you have $100,000 in assets and your advisor charges 2%, you’ll pay a $2,000 fee.
  • Requires thorough vetting. You’ll want to research and interview several financial advisors before you hire someone.

4. Invest in real estate

There are several ways to invest in real estate and $100k is enough to fund any method.

Pros

  • Multiple ways to invest. With $100k, you can invest through a real estate investment trust (REIT), crowdfunding platforms or through investment property.
  • REITs are safer. REITs are made up of several different properties and are more diversified and less risky than traditional real estate investments.
  • Passive income. Regardless of which real estate investment you choose, many offer monthly or quarterly payments.

Cons

  • Accreditation is sometimes (but not always) required. You may need to be accredited to invest with certain crowdfunding platforms, even if you can pay the minimum investment.
  • Direct investments carry risk. You put all your eggs in one basket with direct investments.
  • Big time commitment. If you purchase a property, you’ll have landlord responsibilities unless you outsource it to someone else.

5. Invest in peer-to-peer lending

Lend your money to other individuals in need through peer-to-peer (P2P) lending.

Pros

  • Lucrative returns. The average investor earns between 5% and 9% interest with P2P lending.
  • Steady cash flow. You’ll receive steady monthly income as the borrower repays their loan.
  • You’re helping someone in need. Most P2P investors enjoy lending money to help someone who needs it more than they do.

Cons

  • Risk of default. There’s a chance you could lose your money if someone defaults on their loan.
  • P2P lending is new. This industry has only been around since the Great Recession, so it’s hard to tell how it will do during the next economic downturn.
  • Unsecured loans. Often, borrowers don’t put up collateral for the loans, so there’s a slim chance you’ll get your money back if something happens.

Conclusion

To determine how to invest $100k, you’ll want to take a look at your goals, timeline, current needs, and level of comfort with trading and risk.

You may choose to build your own portfolio using stocks, mutual funds and ETFs; have someone (or a robo advisor) manage your portfolio for you, get into real estate investing, or try peer-to-peer lending.

Whichever strategies you choose, explore top investment accounts until you find the right institutions for you.

Leave a Reply

Your email address will not be published. Required fields are marked *