How to Invest $200k in Canada [2024]

Summary: This guide will explore three strategies for investing $200k CAD in Canada, the pros and cons of those methods, what to consider before you start investing, as well as our recommendation for a reliable broker in Canada: Interactive Brokers.

Best Platform for Worldwide Stock Trading & Investing

Highly trusted multi-asset broker with clients in over 200 countries
Trade on 150 markets globally from a single platform (stocks, ETFs, futures, currencies, crypto & more)
Low commissions starting at $0 with no platform fees or account minimums
Easily fund your account and trade assets in 26 currencies
IBKR pays up to 4.58% interest on cash balances of $10k or more

Up to 4.58% interest on balance*

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Factors to consider before investing

Laying a robust financial groundwork is essential before you start investing. To do so, make sure the following conditions are met:

Establish clear financial goals: Having clear goals will help you determine the investments that can help you reach your goals, be it saving for retirement, a down payment on a house, your child’s education, or starting a business;
Build an emergency fund: This can act as a financial safety net for unforeseen expenses, be it a sudden medical emergency, unexpected car repair costs, or sudden job loss. A general rule of thumb is to build an emergency fund that can cover around three to six months of living expenses;
Take care of high-interest debt: High-interest debt (e.g., debt from credit cards or payday loans) can rapidly eat into your savings due to compounding interest. Before allocating your money towards investments, aim to clear these high-interest obligations. Low-interest debts such as mortgages or auto loans, on the other hand, do not need to be repaid before you start investing;
Understand your risk tolerance: Your risk tolerance will determine the type of investment you are comfortable with and can be influenced by factors such as your age, financial situation, and long-term financial goals;
Diversify: It’s generally a good idea to spread your investments across various assets and asset classes to reduce your overall risk;
Know the costs: It’s essential to understand the costs associated with investing, such as commission fees or other transaction costs, as they can significantly impact your returns;
Understand the investment: Don’t invest in or trade financial instruments that you do not understand;
Do your research: Research the company you’re investing in, its industry, as well as the broader economic context;
Beware of scams: Be skeptical of investment products that promise high returns with little to no risk;
Regularly review your portfolio: Regularly review and adjust your portfolio to ensure it’s still aligned with your financial goals and risk tolerance;
Consider getting professional advice: If you’re new to investing, it can be beneficial to get professional advice (particularly if you are dealing with a large sum of money). A financial advisor can provide personalized guidance based on your financial situation and goals;
Be patient: Investing is generally a long-term endeavor. It’s essential to be patient and not make rash decisions based on short-term market fluctuations or hype.

Once these bases are covered, you are in a more secure position to explore investment opportunities.

Remember

All investments come with risk, and past performance does not guarantee future returns. Additionally, ensure that any information you use to make investment decisions is accurate and up-to-date.

Where to invest $200k in Canada

Maybe through a sudden windfall, or perhaps you’ve been penny-pinching for decades. Either way, you have $200k burning a hole in your pocket, and you’re itching to do something with it.

Before proceeding, confirm that this money is truly extra. This is mad money, the cherry on top of your financial sundae. It’s the cash you’ve got left after you’ve paid your dues, squared off your debts, and ticked all the boxes on the checklist we ran through earlier. Now let’s see what you can do with it.

Below you will find our pick for the three best ways to invest $200k:

1. Stocks

Investment type: Long-term growth

Risk Level: Varies

Broker to consider: Interactive Brokers

Best Platform for Worldwide Stock Trading & Investing

Highly trusted multi-asset broker with clients in over 200 countries
Trade on 150 markets globally from a single platform (stocks, ETFs, futures, currencies, crypto & more)
Low commissions starting at $0 with no platform fees or account minimums
Easily fund your account and trade assets in 26 currencies
IBKR pays up to 4.58% interest on cash balances of $10k or more

Up to 4.58% interest on balance*

Get Started

Consistent and disciplined investing in the stock market has historically yielded the best returns compared to other financial assets, including bonds, real estate, precious metals like gold, silver, and platinum, and commodities like oil or collectibles like wine. And while profits can fluctuate heavily from year to year, the stock market, in general, has experienced an upward trend over the past century. Plus, if investors reinvest their earnings, they may even see compounding gains, which only grow juicier as time passes.

Adopting a buy-and-hold strategy is typically the easiest way of navigating the stock market’s inherent volatility for most investors. That said, it’s crucial to remember that your investment choices should be in sync with your financial needs and risk tolerance. If you anticipate needing your invested funds at a specific time or are uncomfortable with the unpredictable nature of investing, adjust your investment decisions accordingly.

Look into dividend stocks

Allocating a part of the $200k to dividend stocks could be an effective method for creating passive income. That said, don’t be seduced by high dividend yields alone. In fact, a substantially above-average yield could signal problems within the company. That’s why investigating the company’s fundamentals (like free cash flow and past dividend payout ratios) as well as various technical indicators is so important, and will help identify top-tier dividend-yielding companies.

Pros and cons of investing in stocks in Canada

Pros

Potential for high returns: Stocks have historically generated better returns than more conservative asset classes like bonds;
Liquidity: Stocks are highly liquid assets, meaning you can easily buy and sell them at any time;
For all budgets: Most retail brokers offer commission-free trading and no account minimums, so you can start investing with as little as 10 dollars;
Build long-term wealth: Generally, stocks yield a generous annualized return over the long term, so at the minimum, you’ll be able to stay ahead of inflation.

Cons

Returns are not guaranteed: While stocks can outperform many financial assets over long periods, they may not do well over your chosen investing period;
No short-term gains: Generating profits through stocks generally takes decades, not weeks or months;
Volatility: Share prices rise and fall minute to minute, taking the investor on an emotional rollercoaster;
Labor-intensive: When buying individual stocks, you must manage your portfolio yourself. That means regularly following various company health indicators as well as overall market conditions and adapting the asset allocation in your portfolio as necessary. Unfortunately, doing all of that can take a lot of work.

2. Index funds

Investment type: Long-term growth and diversification

Risk Level: Low (varies between funds)

Broker to consider: Interactive Brokers

Best Platform for Worldwide Stock Trading & Investing

Highly trusted multi-asset broker with clients in over 200 countries
Trade on 150 markets globally from a single platform (stocks, ETFs, futures, currencies, crypto & more)
Low commissions starting at $0 with no platform fees or account minimums
Easily fund your account and trade assets in 26 currencies
IBKR pays up to 4.58% interest on cash balances of $10k or more

Up to 4.58% interest on balance*

Get Started

Index funds are a type of mutual fund or exchange-traded fund (ETF) designed to emulate the performance of a market index, like the S&P 500. In short, instead of attempting to beat the index, these funds aim to closely mirror its performance.

In fact, the most successful investor of the 20th century, Warren Buffett, has often said that most investors, both retail and professional, would be better off with indexing; in one of his famous investing quotes, he stated:

“A low-cost index fund is the most sensible equity investment for the great majority of investors. By periodically investing in an index fund, the know-nothing investor can actually outperform most investment professionals.”

Pros and cons of investing in index funds in Canada

Pros

Diversification: Reduce risk by spreading your money across many companies, industries, and sectors;
Cheap: Compared to actively managed mutual funds, index funds typically have lower costs;
Easy access: Online brokers make access to the stock market easy and inexpensive;
Liquidity: ETFs and mutual funds can be bought and sold easily, allowing you to access your money quickly if needed;
Transparency: Investors know exactly where their money is allocated as index funds are required to disclose their holdings regularly;
Comfort: Little management compared to a portfolio of individual stocks that demand constant research, keeping up with news updates, and adjustment;
Simplicity: Taking a hands-off investment approach can eliminate many of the biases and uncertainties that can arise when you pick stocks individually.

Cons

Limited control: ETFs are designed to track an index or sector, which means that investors have limited control over which specific companies or assets are included in the fund;
Volatility: Index funds follow their benchmark index regardless of the state of the markets, meaning if the market conditions are poor, the index funds will also follow the indexes downward. In this case, a good active manager may be able to limit the downside by hedging the portfolio or moving positions to cash;
Slow gains: Buying and holding can be a winning tactic in the long haul, but evening out the risks also flatten out the rewards.

Note

Note: It’s worth noting that while it’s extremely unlikely for an index fund investor to experience a total loss (as that would require every company in the index to go bankrupt), losses in the short term or during periods of market downturns are possible.

3. REITs

Investment type: Long-term growth and passive income

Risk Level: Medium

Broker to consider Interactive Brokers

Best Platform for Worldwide Stock Trading & Investing

Highly trusted multi-asset broker with clients in over 200 countries
Trade on 150 markets globally from a single platform (stocks, ETFs, futures, currencies, crypto & more)
Low commissions starting at $0 with no platform fees or account minimums
Easily fund your account and trade assets in 26 currencies
IBKR pays up to 4.58% interest on cash balances of $10k or more

Up to 4.58% interest on balance*

Get Started

Real estate investment trusts (REITs) provide a way to invest in real estate without the associated labor associated with owning properties. These trusts, traded like equities on stock exchanges, are companies that own, finance, or manage income-producing real estate across various property sectors.

Note

While REITs are open to everyone, $200k is enough to put towards buying physical real estate. Note that owning real estate, whether as a residential home or rental property, comes with the added burden of property management, maintenance costs, property taxes, and insurance costs.

The pros and cons of investing in REITs in Canada

Pros

Liquidity: REITs are traded like stocks, making them the most liquid real estate investments;
Diversification: REITs can provide portfolio diversification because they represent a different asset class than stocks or bonds. Furthermore, within REITs, there is a range of property types (residential, commercial, industrial, etc.), adding another layer of diversification;
Access to high-value properties: REITs give investors of all budgets access to high-value real estate assets that they might not have been able to afford otherwise;
Income-generating: By law, REITs are required to distribute at least 100% of their taxable income to shareholders as dividends in Canada, which can provide a steady income stream.

Cons

Interest rate sensitivity: REITs can be highly sensitive to fluctuations in interest rates. When interest rates rise, the cost of borrowing increases for REITs, which can decrease their profitability and reduce dividend payments;
Market volatility: Similar to stocks, the price of REITs can fluctuate based on market conditions, potentially leading to losses;
Limited capital appreciation: While REITs often provide solid dividend yields, they generally offer little potential for capital appreciation compared to other types of equity investments;
Tax considerations: Unlike qualified dividends from most stocks, the distributions from REITs usually comprise a blend of capital gains, capital return, and other income types, all of which undergo different tax treatment.

Conclusion

As you contemplate where to invest your $200k, your primary focus should be building wealth for the long term. Fortunately, with such a significant amount of capital at your disposal, a plethora of opportunities, from the stock market to real estate, are within reach.

Before you start spending, however, address the basics! Settle any outstanding debts, ensure your retirement fund is adequately funded, and that you have a solid financial buffer in the form of an emergency fund.

Finally, carefully assess your risk tolerance and goals, and develop a robust financial plan that accommodates these parameters. Who knows, if you play your cards right, you might find yourself in the future seeking advice on how to invest $1 million.

Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.

FAQs about how to invest $200k in Canada