Long-Term Investing

Return on Safe Investments

Highlights from this article:

The study calculated that if a person in the top tax bracket had invested in one-year GICs from 1974 to 2003, he or she would have reaped an average annual return of negative 1.3%. In other words, after almost 30 years of investing, an investor would have lost more than a third of his or her purchasing power. If you were in a lower tax bracket, invested inside your RRSP or invested in longer term GICs, you would have done better, but not by much.

This further re-inforces my interest in investing. Now that I know the dangers of not doing it, I have no choice, do I?

So what is the safest place to invest? Here’s the surprising answer: everywhere [emphasis mine]. In other words, the safest place to put your money isn’t in any single place, but in the broadest, most diversified portfolio you can construct.

Diversifying your investments works because no one type of investment – even gold – is completely safe. But one investment’s weakness is another’s strength. For instance, GICs protect your principal, but don’t keep up with inflation. Stocks, on the other hand, don’t protect your principal if the stock market crashes, but they do tend to rise with inflation if the economy’s booming.