Guaranteed investments like GICs and savings bonds are great for short-term investment goals, but to reach longer term goals you need better rates of return. Guaranteed investments usually give you returns of about 2% to 5% at best. But if you’ve got some time before you need to cash in your investments, the best place to put your money is in the markets.
When investing in the markets, remember to think long-term. Sure, the DOW or the TSX may have recently had a bad year or two, but if you average out their returns over the last 25 years or so, they’ve been about 9% to 10%. Returns like that will have your investments growing much faster than those guaranteed investments.
When shopping for an investment, always ask to see the historical returns, since the fund or index was started and for the last five and ten years. While historical returns can’t guarantee future results, they are a pretty good indicator of what to expect. At the very least, the investment you are selecting should have matched or outperformed the DOW or TSX stock indexes.
To illustrate the difference that better returns can make over time, consider the following example:
A one-time $10,000 investment at a 3% rate of return vs. a 9% rate of return. After 25 years: With a 3% return you would have about $26,000. With a 9% return, you would have about $86,000.
