Let's say you have $10,000 to invest over the next 10 years. You consider three options:
- A money market fund
- A Guaranteed Investment Certificate (GIC)
- A Canadian stock
Compare the return and see which choice feels right to you to balance safety and growth.
- A money market fund that earns 3% a year grows to $13,439 after 10 years.
- A five-year GIC at 4.5%, renewed at the same interest rate for an additional five years, grows to $15,455.
- An average Canadian stock (based on S&P/TSX Composite Index average return of 10.7% per year) grows to $27,611.
When you assess these investments for safety and growth, you can start to see the trade-offs clearly.
1. The money market fund:
- Offers safety for a lower return. You don?t have to worry about losing money.
- What you make depends on what happens to interest rates.
- If rates stay low, you will get a lower return.
2. The GIC:
- Also offers safety. Your return is guaranteed.
- You will likely make more than with a money market fund because you're committing your money for a number of years.
3. The stock:
- Delivers a higher return on average, but no guarantee.
- The price of some stocks goes up and down a lot. You could even lose money if you have to sell when the market is down.
Remember: There are always tradeoffs when you invest
No investment provides high returns with low risk. When you guarantee what you'll make, or limit your losses, you give up some return for that safety. The challenge is to balance safety and growth in a way that's right for you.
Content in this section is provided in partnership with the Investor Education Fund, a non-profit organization promoting financial literacy to Canadians. To find out more go to GetSmarterAboutMoney.ca.