3 Conservative Canadian Investments

Canadians are turning to conservative options as investors lose confidence in the stock market

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Jul 17, 2019
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Millennials are turning to conservative investment options, which is being seen in conjunction with an increase of registered retirement savings plans in Canada. A recent study shows that since 2016, the average RRSP has grown by 87% for millennials, up to $28,281.

Younger investors are more conservative in their investments than older generations. Diversification is falling among this age bracket, which has lost confidence in their ability to invest.

As a result, conservative investment opportunities for Canadian investors are:

1. Guaranteed investment certificates

Younger generations are keeping more cash to offer more liquidity when purchasing a home and to cover expenses. Guaranteed investment certificates are booming due to their low risks, with many being covered by Canada Deposit Insurance Corp.

There are short-term and long-term options, which can be as long as five years.

Rates can vary between 2.3% and 3% depending on the plan.

2. Vanguard Conservative ETF

Vanguard’s Conservative Portfolio (VCNS) exchange-traded fund offers lower-risk investments. The portfolio has a five-year growth of 5%, with the stock up nearly 8% year to date. The conservative portfolio is comprised of low-risk investments that are diversified to help pad against potential losses.

Strategic asset allocation is being used, with approximately 40% of the portfolio comprised of equity and 60% securities. The portfolio is rebalanced to better help with asset allocation.

The allocation based on the May 31 report is:

  • 35.8% in the Canadian Aggregate Bond Index.
  • 15.5% in the U.S. Total Market Index.
  • 13.9% in the Global ex-U.S. Aggregate Bond Index ETF.
  • 11.8% in FTSE Canada All Cap Index.
  • 11.0% in the US Aggregate Bond Index ETF.
  • 9.1% in the FTSE Develop All Cap ex-North America Index.
  • 2.9% in the FTSE Emerging Markets All Cap Index.

Since the ETF's inception, investors have benefited from a return of 3.33% with a one-year return of 4.48%.

3. Canadian bonds

The Canadian bond market is one of the most secure investments for investors. Terms can be one to 30 years, and these investments have almost no risk if they’re held to the date of maturity.

Non-resident investors poured $14.78 billion into the Canadian bond market in May.

The 10-year bond has a 1.61% return compared to a -0.26% return in Germany. In a market with sub-zero interest rates, Canada’s bonds offer one of the most attractive investment options with little to no risk due to the government backing the bonds.

Globally, the bond market has over $13 trillion in negative real yields, so Canada’s 1.61% returns are an impressive option for worldwide investors.

Disclosure: The author has no stake in the listed equities.

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