When David thinks about risk, it takes him back to his days working as a geologist. Every morning, he’d head underground into the mines, where risks like rock falls, seismic events, and poisonous gases were part of his daily reality. It was an environment where danger was unavoidable, but the reward was a paycheque. Risk was something he accepted because it was part of his job.
But when it comes to investing, he’s far more skeptical about accepting unnecessary risks. After making his fair share of mistakes, particularly with speculative mining stocks, he learned a valuable lesson: chasing high returns by taking on high risk isn’t a recipe for success. Instead, he’s discovered that aiming for average returns with minimal fees is a much safer and more effective long-term strategy. In this post, we’ll walk you through how to apply this low-risk, high-return approach to your own investments.
Understanding Risk: A Natural Part of Life
We all accept risk every day. Getting out of bed, crossing the street, or going to work carries some level of uncertainty. But when it comes to investing, many people confuse calculated risk with reckless risk. In David’s career, taking calculated risks was necessary. However, when it came to his money, he realized that avoiding unnecessary risk was key to achieving long-term financial freedom.
Investing in the stock market often brings up the idea of risk vs. reward. The golden rule of investing goes something like this: the higher the risk, the higher the potential reward. It’s true that investing in a high-risk penny stock might yield a big payout — but more often than not, it leads to losses. On the flip side, playing it too safe with investments like Guaranteed Investment Certificates (GICs), bonds, or high-fee mutual funds might keep your money intact but barely keep up with inflation. So, how do you strike the right balance?
The answer lies in finding safe investments with reasonable returns, especially if you’re a beginner. We’ll guide you through a range of options that are available to Canadians and explain how you can build a low-risk, high-return portfolio.
What Are Safe Investments?
Safe investments are those that have a lower chance of losing value over time. They tend to be less volatile than stocks but still offer steady, reliable returns. While they won’t make you rich overnight, they provide stability, which is essential when you’re planning for the long haul.
Here are some of the best safe investments available in Canada:
- 1. Exchange-Traded Funds (ETFs)
ETFs have become a go-to choice for Canadian investors looking for safe and steady growth. These funds are designed to track a specific market index, like the S&P/TSX Composite Index, which represents the performance of Canada’s largest companies. By investing in an ETF, you’re essentially buying a small piece of many companies all at once.
The benefit here is diversification. Instead of putting all your money into one or two stocks, you’re spreading the risk across a wide range of companies. This reduces the likelihood of significant losses, as poor performance from one company can be balanced out by gains from others.
The key to making ETFs work as a low-risk, high-return investment is to focus on low-fee ETFs. Fees can eat away at your returns over time, so choosing an ETF with low management fees (often referred to as MERs, or management expense ratios) is critical. The great news for Canadian investors is that there are many high-quality, low-fee ETFs available.
Why ETFs Are Safe for Beginners
- They provide instant diversification.
- They’re managed passively, which means fewer fees.
- Historically, they deliver average market returns, which, over the long term, lead to growth.
These are David’s preferred investment vehicles.
- 2. Guaranteed Investment Certificates (GICs)
A GIC is one of the safest investments available in Canada. When you buy a GIC, you’re essentially lending your money to a bank for a set period. In return, the bank guarantees that you’ll get your money back, plus a bit of interest.
The appeal of GICs is the security they offer. Your principal investment is protected, and you’re guaranteed a return. While the returns on GICs are modest compared to stocks or ETFs, they’re perfect for people who want absolutely no risk. This makes them ideal for short-term savings or when you need a safe place to park your money.
Why GICs Are Safe for Beginners
- They’re backed by financial institutions and insured by the Canada Deposit Insurance Corporation (CDIC) for up to $100,000.
- You know exactly how much you’ll earn.
- There’s zero risk of losing your principal.
Since I am well past retirement age, and have little time left to recover from any long-term drop in the market, these are my preferred investments. – Jim
- 3. Bonds
Bonds are loans that you give to the government or a corporation. In return, you get paid interest for a set period, and at the end of the bond’s term, your initial investment is returned. Government bonds, such as Canada Savings Bonds, are considered extremely safe because they’re backed by the government.
Corporate bonds carry slightly more risk, but they also offer higher returns compared to government bonds. The key is to invest in high-quality, investment-grade bonds, which are issued by companies with strong financials.
Why Bonds Are Safe for Beginners
- Government bonds are virtually risk-free.
- Bonds provide regular interest payments.
- They’re less volatile than stocks, offering more stability.
For the stability they offer, they are great for old guys like me. – Jim
- 4. Dividend-Paying Stocks
While individual stocks are generally considered riskier, dividend-paying stocks can be a good option for those seeking both income and growth. Dividends are regular payments made by a company to its shareholders. They provide a steady income stream, which can be especially attractive for retirees or those looking to supplement their earnings.
The safest dividend stocks are typically from well-established companies with a long history of profitability. These companies are less likely to experience wild swings in value, making them a safer bet compared to growth stocks.
Why Dividend Stocks Are Safe for Beginners
- They offer both income and capital appreciation.
- Dividends provide a cushion during market downturns.
- Many dividend-paying companies are well-established, making them more stable.
- 5. Robo-Advisors
Robo-advisors have become an increasingly popular option in Canada for beginner investors. These are automated platforms that build and manage your investment portfolio based on your financial goals and risk tolerance. Robo-advisors typically invest in ETFs, which means you’ll benefit from diversification and lower fees.
The advantage of using a robo-advisor is that they take the guesswork out of investing. You don’t need to know much about the stock market to get started, and they automatically rebalance your portfolio to keep it aligned with your goals.
Why Robo-Advisors Are Safe for Beginners
- They provide professional portfolio management with minimal fees.
- They diversify your investments across a range of asset classes.
- Robo-Advisors automatically adjust your portfolio based on your risk tolerance.
See also David’s article on What Does a Margin of Safety Mean for My Investments?.
The Concept of Risk vs. Reward
In the world of investing, risk and reward are always connected. Higher risk typically means a chance for higher rewards, but it also increases the possibility of losing money. This is why speculative investments, like penny stocks or certain cryptocurrencies, are so tempting but dangerous. They may offer the dream of quick riches, but the reality is that most people lose more than they gain.
On the other hand, safe investments, like the ones listed above, focus on steady, reliable returns. While the rewards may not be as thrilling, they offer peace of mind and long-term growth. And when it comes to securing a comfortable retirement or growing your wealth over time, that stability is priceless.
The Real Golden Rule of Investing
The most important lesson David’s learned from both his career and his investing journey is this: aim for average market returns at the lowest possible cost. This might not sound exciting, but it’s the safest and most effective way to build wealth over time. With low-fee ETFs and diversified portfolios, you’re setting yourself up for long-term success with minimal risk. And in the world of investing, slow and steady wins the race.
Focus on the Long Term
Investing doesn’t have to be risky, even if you’re just starting out. The key is to find safe investments that offer reliable returns while keeping costs low. Whether you choose ETFs, GICs, bonds, or dividend-paying stocks, the goal is to focus on steady growth over time. And remember, the most important factor in successful investing isn’t finding the highest returns — it’s avoiding unnecessary risks and sticking to a strategy that works for you.
By accepting that earning average returns is the safest path to financial freedom, you’ll be well on your way to a comfortable future. So take a deep breath, start slow, and let time do the heavy lifting. With the right approach, even beginners can achieve safe and significant growth.
In my E-books (“Water Barrel” and “The Balance”) I discuss simple methods to live sensibly for today, take charge of your financial affairs, and invest safely for the long term. For more information please visit David Penna Amazon.
Disclaimer for ManageYourMoney.ca
The information provided on ManageYourMoney.ca is intended for educational and informational purposes only. It should not be taken as financial advice. The opinions shared are those of the authors and are meant to encourage sensible financial habits and decision-making. We recommend that you do your own research or consult a certified financial advisor before making any financial or investment decisions. All investments come with risks, and there is no guarantee of success. Past performance is not a reliable indicator of future results. Always consider your personal financial situation and risk tolerance before pursuing any investment opportunities.
As always, we are not a qualified financial advisors. We just relate financial management to our own experience which may not resemble yours at all. Advice is frequently worth exactly what you paid for it. Most of ours came from expensive experiences.
