Invest

2025-04-1113 minutes

tldr;

Finally, the heart of the matter.

An investor's portfolio is generally composed of high-risk and low-risk investments. For example, 80% high-risk and 20% low-risk. The goal is to find your risk profile to know what to buy, and then automate your investments. Fortunately, in 2025, there are several all-in-one ETFs that are designed to be the only element of a portfolio. You just need to choose the one that matches your risk profile and buy that ETF periodically.

What to buy?

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In this section, several important investment concepts are explained. Some more complicated than others, but don't worry; all these concepts are automatically managed by all-in-one ETFs. You won't have to apply them. You will simply be better informed.

Why invest?

Because money loses its value over time. In the last ~100 years, the average annual inflation in Canada has been 3.14%¹. Imagine an item at $100 today. In 1 year, that same item will cost $103.14. In 15 years? $159.

For your savings not to lose their value over time, the return on your portfolio must, at a minimum, beat inflation.

Exchange Traded Funds (ETFs)

An ETF is an investment fund whose shares are traded like stocks on the stock exchange². Without ETFs, you would have to choose which companies to invest in. For example, 5% Apple, 3% Google, 2% Toyota, etc. This is far too cumbersome and complicated to manage.

So, instead of buying these individual stocks, we buy an ETF that holds shares of several companies. ETFs greatly simplify a stock portfolio since they are automatically diversified and rebalanced, so there's nothing to do.

Over the last 100 years, data shows that an ETF that allocates 50% of the fund to Canadian stocks and 50% to US stocks would have an average annual return of 8.2%³, taking inflation into account.

Warning

Although the average annual return is 8.2%, it is important to understand that the market return is very rarely around the average. The reality is that the market is very volatile, and returns are often spectacular, in both good and bad ways. Some years will be +30%, others -25%. Over the long term, the average is +8.2%.

Bonds

The general idea is to lend your money to the government or a company at a certain interest rate. For example, the government issues treasury bills that guarantee a certain return. These are low-risk investments, since the only way to lose your money would be if the government does not pay what it owes.

Generally, the return revolves around the Bank of Canada's key interest rate. Over the last 100 years, data shows that Canadian bonds have had an average annual return of 2.3%³, taking inflation into account.

Self-directed investing

It's really simple. For the short term, we aim for a (virtually) risk-free bond ETF. For the long term, there are all-in-one ETFs designed to be the only element of a portfolio. There is no need to follow the news, to be informed of political events, etc. The strategy is simple: buy your ETF periodically and automatically, and we'll see each other in 30 years.

The cost of advisors

Often, advisors will sell actively managed funds. These funds aim to beat the market and have management fees of around 2.3% per year⁴. The management fees for all-in-one ETFs are around 0.25%. This may seem like a small difference, but over the long term, it is absolutely gigantic. Here is an example based on this online calculator:

	All-in-one ETF	Actively managed fund
Monthly contribution	$500	$500
Annual return	7%	8%
Management fees	0.2%	2%
Investment period	25 years	25 years
Fees incurred	$12,500	$129,000
Value in 25 years	$392,500	$346,500

In this example, I deliberately made the actively managed fund beat the return of the index ETF that tracks the market. In practice, over 25 years, this never happens⁵. In short, the difference is colossal, $116,500 less in management fees, but especially $46,000 more in your pocket.

Compound returns

We often hear about the magic of compound interest or returns. The concept is quite simple: investments generate interest; this interest is automatically reinvested. Then, the reinvested interest will also generate interest, which will also be automatically reinvested. In short, your money generates money that generates money that generates money that...

An example, let's say you invest $10,000. Let's see the evolution over 25 years at an 8% return.

Year	Balance at the beginning of the year	Interest	Balance at the end of the year
1	10,000	800	10,800
2	10,800	864	11,664
3	11,664	933	12,597
4	12,597	1,008	13,605
5	13,605	1,088	18,509
10	19,990	1,599	21,589
15	29,372	2,350	31,722
20	43,157	3,452	46,609
25	63,412	5,073	68,485

We can clearly see the power of compound interest at work. In the first year, our $10,000 generated $800 in interest. Without doing anything, 25 years later, our money generates more than $5,000 in interest, and our balance has almost multiplied by 7.

The math

Compound returns are simply the application of an exponential function. The formula is simple: FV = PV * (1+r)^t. FV represents the future value, PV the present value, r the return, and t the investment period. The return r must be over a period t.

Risk

The definition⁷:

Risk is a measure of how much an investment’s actual return differs from what the investment is expected to return.

Riskier investments come with the potential to earn higher returns, while less risky investments generally have lower returns.

Although the market returns, on average, 8.2% per year, the reality is rarely close to this figure. Let's take the Canadian market as an example, symbol VCN. From 2015 to 2019⁶, VCN had the following annual returns: -8.73%, +21.45%, +8.45%, -9.11%, and +22.09%. The average annualized return for these 5 years is 5.93%. In other words, the performance of VCN over these 5 years is identical to a fund that would have returned 5.93% per year. For example, for $10,000 invested in VCN in January 2015:

As we can see in the graph, the difference between our expectations and reality is large. The riskier an investment, the more volatile it will be; the greater the price variations will be.

Let's repeat the exercise with a low-risk investment. Let's take a Canadian bond ETF as an example, symbol VAB. From 2012 to 2016⁸, VAB had the following annual returns: +3.62%, -1.86%, +8.68%, +3.61%, +1.17%. The average annualized return for these 5 years is 2.99%. For example, for $10,000 invested in VAB in January 2012:

As expected, the difference between our expectations and reality is small. The investment is less risky, so it is less volatile; the price variations will be small.

Risk over time

It is generally said that risk decreases over time. So, the longer your money is invested, the lower the risk. The reason is quite simple. Historically, the market has positive average returns. Investing over a long period of time "erases" short-term variations and allows you to better benefit from the long-term trend:

We can therefore conclude that high-risk investments are preferred for the long term. While low-risk investments are generally for the short term.

Warning

Although investing in the long term reduces risk, zero risk does not exist. Accepting high risk implies accepting the risk of having to withdraw less money or having to delay retirement by a few years.

Important

Unfortunately, the older we get, the less time we have. Learn about withdrawal strategies to avoid running out of money in your old age.

High-risk investments

Company stocks are among the high-risk investments. The reason is simple. A company can go bankrupt, in which case the value of the stock drops to $0, and all shareholders lose their investments.

Generally, when we talk about high-risk investments, we are talking about company stocks or stock ETFs. There are other types, such as crypto assets or foreign exchange.

Low-risk investments

The low-risk investment category includes, among other things, bonds, guaranteed investment certificates, and high-interest savings accounts.

Risk compensation

Not all risks are equal. Some risks are compensated, others are uncompensated. Compensated risks are risks that investors systematically accept to increase their returns. On the other hand, uncompensated risks are specific risks that can be diversified if an investor does not want to accept them⁹. Here are the classic uncompensated risks:

Uncompensated risk	Example
Individual stocks	Only buying shares of a few companies
Sector-specific	Only buying shares of financial companies
Regional	Only buying Canadian shares

The simple solution to all these risks - - all-in-one ETFs.

The risk of not assuming enough risk

There is another type of risk, that of not wanting to assume enough risk. As written above, if your investments do not beat inflation, you lose future purchasing power. It is therefore important to understand risk and assume as much as you can.

Risk profile

A long-term investment portfolio generally has 2 components:

1. High-risk investments - company stocks
2. Low-risk investments - bonds

The percentage of company stocks in a portfolio defines the investor's risk profile:

Risk	risk/10	% stocks	% bonds
High	10/10	100%	0%
Medium	8/10	80%	20%
Low	6/10	60%	40%
Conservative	4/10	40%	60%

As it happens, there is a very popular family of all-in-one ETFs that exactly matches each of these risk categories.

Portfolio rebalancing

Portfolio rebalancing involves modifying the composition of an investment portfolio that has deviated from the initially desired composition¹⁰. For example, an investor with a 5/10 risk profile will have a portfolio composed of 50% stocks and 50% bonds. Rebalancing allows this strategy to be maintained over time. Let's say this person invests $10,000. $5,000 will go into stocks and $5,000 into bonds. 3 years later, their stock investments have had impressive returns:

Time	$ stocks	$ bonds	% stocks / % bonds
Start of year 1	5,000	5,000	50 / 50
3 years later	7,000	5,500	56 / 44

Although the returns have been positive, the portfolio no longer respects the initial strategy. Indeed, we have gone from a 50/50 risk to a 56/44 risk. In this case, the portfolio must be rebalanced to return to the initial 50/50. The rebalancing strategy could be to invest more in bonds to return to 50/50. Another way to rebalance would be to sell some stocks to reinvest the gains in bonds.

Fortunately for us, passive investors, all-in-one ETFs manage this for us.

What to buy?

Finally, something concrete! For the long term, I will suggest 4 completely diversified all-in-one ETFs. For the short term, we will look at 3 low-risk ETFs. Ultimately, your goal is to select 1 ETF for the long term and 1 ETF for the short term.

Long term (VEQT, VGRO, VBAL, VCNS)

Choose the ETF that matches the level of risk you want to take. As you know, more risk implies a higher potential return.

Risk	Symbol	% stocks / % bonds
High	VEQT	100 / 0
Medium	VGRO	80 / 20
Low	VBAL	60 / 40
Conservative	VCNS	40 / 60

Why this family of ETFs in particular?

• The stock component has an optimal compensated risk; the stocks are diversified by number, sector, and region.
• The bond component is also diversified.
• The 4 ETFs are composed of the same stocks and the same bonds, only in different proportions.
• They are all regularly rebalanced to preserve their investment strategy.
• They all have a low management fee of 0.24%.
• They are made for passive management: buy the same thing periodically without thinking.

Here's a visual comparison of VEQT (high risk) and VBAL (low risk).

Now, choose one from the 4. There are no bad options, only different levels of risk.

Note

These ETFs are offered by several companies. I use Vanguard as an example, but they are also available from BlackRock: XEQT, XGRO, XBAL, XCNS. Or from BMO: ZEQT, ZGRO, ZBAL, ZCON. The long-term difference is minimal.

Short term (ZST, CBIL, CASH)

For the short term or simply (virtually) risk-free returns, I suggest 3 ETFs that will have similar returns. Here, the risk is extremely low; we can almost say it's a guaranteed return. The value of these ETFs does not vary over time. Rather, these ETFs will pay interest each month, and the annual return on these payments is highly dependent on the Bank of Canada's key interest rate. In 2025, the annual return is around 3%.

• ZST: 0-3 month Treasury bills
• CBIL: 0-3 month Treasury bills
• CASH: an ETF that takes advantage of the best high-interest savings accounts

What to invest in and in which account?

FHSA

I advocate being more cautious in a FHSA than for long-term investments. The reason is simple: losing 40% of your investments 3 months before buying your property is too risky, at least for me. For this reason, one of the 3 short-term ETFs is ideal.

If you want to take a little risk, feel free. You can be creative: 80% ZST and 20% VEQT.

RRSP

RRSP investments are generally for the long term. Therefore, your choice among VEQT, VGRO, VBAL, or VCNS will certainly be the only investment in your account.

TFSA

It depends on the duration of your investment. I repeat:

• Long term: your choice among VEQT, VGRO, VBAL, or VCNS
• Short term: your choice among ZST, CBIL, or CASH
• For money you want to stay available: your choice among ZST, CBIL, or CASH

Rules to follow

You now have almost all the necessary tools to start investing. Here are some super important rules to follow.

Stay invested

Because high-risk investments are volatile, it is essential to stay invested, always. You should not sell when markets are down. The classic mistake is to sell out of panic when markets fall and buy out of confidence when they rise. Here, we don't overthink it; we buy periodically to take advantage of the long-term trend, in good times and bad.

To fully understand the importance of staying invested, data shows that over the last 30 years, a person who missed the 10 best days of the (American) market saw their return reduced by 50% compared to someone who remained invested throughout the entire period¹¹.

Understanding market fluctuations

Investing in the market is a high-risk investment. Let's take the S&P 500 as an example, the 500 largest American companies. Since 1980, the average frequency of drops¹² are:

• A drop of 5% or more, 4.6 times per year
• A drop of 10% or more, once every 1.2 years
• A drop of more than 25%, once every 5.5 years

The average duration of drops of more than 25% is 292 days. You have been warned. Despite all these negative fluctuations, staying invested over time is a profitable strategy. Let's look at the data¹³ between 1927 and 2023:

Investment Period	% Positive Periods	% Negative Periods
1 year	73%	27%
3 years	84%	16%
5 years	88%	12%
10 years	94%	6%

We notice that the longer we are invested, the higher the probability of positive returns. Between 1927 and 2023, there were 87 10-year periods: 1927 to 1937, 1928 to 1938, 1929 to 1939, 1930 to 1940, etc. Among these 87 periods, 94% of them had a positive return.

Buy periodically

Buy with each paycheck or each month. Preferably automatically. This technique is called dollar-cost averaging and has several advantages¹⁴:

• Reduces the impact of market volatility
• Reinforces the habit of investing in the market
• Completely ignores market movements
• Prevents trying to time the market
• Removes emotion from decisions

Avoid gurus

If the most brilliant active investors on the planet are unable to beat the market, it's hard to believe that Jeremy on TikTok has the key to success. Remember, it's easy to show impressive gains when the market is making impressive gains. For example, I saw a young person congratulating themselves on their 20% return strategy. Yes, that's very good, but VEQT had a 24% return in the same year.

Which platform to choose?

Some important factors for choosing your platform:

• The platform is free
• Transactions are free
• The possibility of automating your purchases
• The possibility of buying fractional shares (0.5 shares)

Wealthsimple, Questrade, Disnat, or InvestorLine are all valid options. Personally, I avoid traditional banks because they have deliberately slowed down the democratization of personal finance for their own gains. Their platforms are only just starting to be free. We can thank online banks for that!

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1. Average inflation: Trading Economics ↩

2. ETFs: AMF ↩

3. Average ETF and bond return: CIBC ↩↩

4. Mutual fund management fees: Bristol ↩

5. Actively managed funds vs. the market: CFA institute ↩

6. VCN Returns: Yahoo Finance ↩

7. Definition of risk: Financial and Consumer Services Commission of New Brunswick ↩

8. VAB Returns: Yahoo Finance ↩

9. Compensated risk: Northern Trust ↩

10. Definition of portfolio rebalancing: Wikipedia ↩

11. Return lost by staying invested: Hartfort funds ↩

12. Temporary declines: CWA ↩

13. Stay invested: Capital Group ↩

14. Dollar-cost averaging: Investopedia ↩