From high-interest savings accounts to GICs and money market funds, discover how to protect and grow your money with low-risk investments tailored for Canadian investors.
Investing is all about growing your wealth, but if the mere thought of a market downturn causes you to panic sell, it could completely undermine that goal.
For many, particularly if you’re nearing retirement or simply prone to anxiety about financial losses, the wisest approach might be to put some of your portfolio into lower-risk investments.
There’s absolutely nothing wrong with prioritizing stability; sure, you might sacrifice some potential growth, but the peace of mind might just help you sleep better at night.
But what exactly qualifies an investment as “low risk” or “safe”? In this guide, we’ll unpack what makes certain investments safer and introduce you to the top three low-risk investments available to Canadians today.
What Is A Safe Investment?
Generally speaking, safety in investing hinges on two crucial factors: minimizing volatility and avoiding permanent loss of principal.
Volatility
Volatility refers to the frequent ups and downs in the price of an investment. Consider a stock like Apple; at the start of the year, it traded at around $184 per share, but by August 24, it reached $227. However, in between these points, it dipped as low as $165.
That’s volatility—it’s almost inevitable in any investment that offers growth potential like stocks. Reducing volatility usually means you might see lower returns, but that’s a trade-off many find worthwhile if it helps them remain invested over the long term.
Permanent Loss
Permanent loss of principal is the scenario you dread most—it means your investment value drops to zero. Take, for example, Bed Bath & Beyond, which went bankrupt last year and was delisted on September 29, 2023.
If you owned shares, your investment would’ve completely disappeared, with no chance of recovery. This is the ultimate risk that you should always try to avoid.
Thus, a safe—or at least, low-risk—investment is one that both dampens volatility and reduces the likelihood of your investment vanishing entirely.
Best Low-Risk Ways to Invest in 2025
If you’re looking for a safe way to invest in Canada, consider the following:
Safe Investment #1: Guaranteed Investment Certificates (GICs)
GICs operate like a contract between you and the financial institution—be it a bank or a credit union—that offers it.
When you purchase a GIC, you agree to lock up your money for a specified term. In return, the GIC guarantees to pay you a fixed amount of interest and to return your initial investment once it reaches maturity.
For example, consider a 1-year GIC that offers a 4.5% interest rate. If you invest $10,000, at the end of the year when the GIC matures, you will receive your $10,000 back plus $450 in interest.
Why Are Gics Considered Safe?
It’s right in the name: “guaranteed.” You are guaranteed to get your principal back at the end of the term.
Additionally, GICs are insured by the Canada Deposit Insurance Corporation (CDIC), which protects eligible deposits up to $100,000 per depositor in each insured category at each member institution in case of a bank failure.
GIC Drawbacks To Consider
While GICs are a safe investment option, there are some downsides to consider.
- The biggest one is the lock-up period. If you commit to a GIC, you generally cannot withdraw your money before it matures without facing penalties. These might include a loss of interest or even a fee. Some GICs offer more flexibility and can be cashed in early, but the terms vary widely.
- Secondly, the interest rates on GICs are not always competitive. They often depend on the Bank of Canada’s policy interest rate. When interest rates rise, GICs can become more attractive because they offer higher returns. Conversely, when rates fall, the returns on GICs become less appealing.
Shopping around can help you find the best rates, but it’s important to weigh the pros and cons of locking your money into a GIC.
Safe Investment #2: Money Market Funds
If you’re looking to keep your funds secure in an investment account—whether it’s registered or non-registered—while still earning some returns, money market funds could be just what you need.
These special mutual funds are crafted with stability in mind. Unlike most mutual funds where the net asset value (NAV) per share can fluctuate with market conditions, the NAV of a money market fund is typically fixed. This means that even if the broader market experiences ups and downs, the value of money market funds should remain stable.
Additionally, these funds typically pay interest, often on a monthly basis, providing a steady, albeit modest, income stream. Another significant advantage is their liquidity; unlike a GIC, you can buy and sell shares in money market funds at any time without a lock-up period.
Drawbacks To Consider Before Investing In Market Money Funds
It’s important to be aware of some drawbacks.
- While they are considered low-risk, money market funds aren’t as safe as GICs because they are not insured. In the event of a severe economic crisis, there’s a small but real risk of loss.
- Unlike GICs, where you can lock in a yield, the yield on money market funds can change. For instance, if you buy a GIC with a 5% rate maturing in a year and interest rates fall six months later, your GIC will still pay you the agreed 5% until maturity. Conversely, the yield on a money market fund would likely decrease almost immediately following a drop in interest rates.
Safe Investment #3: High Interest Savings Account (HISA)
High Interest Savings Accounts (HISAs) aren’t your typical savings accounts. As the name suggests, they are designed to offer higher interest income, making them an appealing option for those looking to earn more from their banked cash.
Why consider a HISA? Well, if you’re keeping cash in the bank for a rainy day, it makes sense to have that money work for you rather than sitting idle.
HISAs offer several advantages over other safe investment options like GICs and money market funds.
- Unlike GICs, HISAs are flexible; you can easily withdraw and deposit funds without any lockup periods.
- And unlike money market funds, HISAs are insured by the Canada Deposit Insurance Corporation (CDIC), adding an extra layer of security to your savings.
Drawbacks To Consider Before Investing In A HISA
There are some drawbacks to consider, and these often depend on the bank with which you open your HISA.
- Some banks charge monthly service fees or require you to maintain a minimum balance to avoid additional charges.
- Finally, the interest rates on HISAs can also vary significantly between banks and may fluctuate based on changes in the market or the bank’s own policies.
These fees and variability mean it’s crucial to shop around and read the fine print before committing to a HISA.
Safe Investments Still Have A Hidden Risk
Despite their safety, even the most risk-averse investors should think twice before going all-in on GICs, HISAs, or money market funds.
The hidden risk associated with these types of safe investments is inflation.
Over time, the “real returns”—that is, the interest you earn adjusted for the effects of inflation—of these safe investments are typically very low.
The risk here is that while your money may not fluctuate downwards or disappear, it will gradually lose purchasing power. In other words, even though the numerical value of your savings remains stable, the amount of goods and services you can buy with that money decreases, effectively making you poorer over time.
Why does this happen? It’s because risk is an inherent part of achieving investment growth. Over the long term, taking on a reasonable amount of risk is rewarded with above-average returns.
Should You Invest In A Low-Risk Investment Option?
While it’s prudent to seek safety, balancing this with investments that offer higher growth potential is wise. A smart approach is to use these safe investments as components of a well-diversified portfolio tailored to your risk tolerance.
For example, you might consider keeping 70% of your assets in stocks for growth, while allocating 10% to a money market fund, 10% to a HISA, and 10% to a GIC.
This strategy allows you to benefit from the growth potential of equities while maintaining a solid foundation of safer assets that can provide liquidity and stability.
Consider also ‘bucketing’ your investments mentally. For instance, keep your stock portfolio designed to compound out of sight and mind, allowing it to grow undisturbed, while you manage the safe investments like GICs, HISAs, and money market funds more hands-on.
This can provide reassurance and help you stay committed to your long-term investment strategy without reacting to short-term market fluctuations.
