Let’s go through the options available for us to invest 10,000 CAD. Because we said “to invest,” that means we are going to buy an equity for a long period of time, which is at least ten years. Investing for a shorter period of time would be called speculation instead. So where should a person invest a hard-earned 10,000 CAD?
Real Estate
This amount is too little to be invested in real estate. It is possible that you can find a mortgage broker who will be able to arrange a mortgage with this small down payment, but most likely it will not be enough for a real estate transaction, at least here in the Vancouver area. Therefore, let’s skip this option.
Private Mortgage
Like transactions in real estate, 10,000 CAD is not enough to invest in private mortgages. There are private mortgage funds available that probably will allow for investing this amount of money, but they act mostly like funds and not like a private mortgage.
Saving Account
Really? This will not be saving. It is a waste of money to put these funds in a savings account when inflation is higher than the interest paid on savings accounts.
Bonds
This option should be considered as less risky among other investment options; therefore, any investment you choose should return more over time. The average yield from Government of Canada Marketable Bonds over ten years is about 2.30%. It is a constant percent and therefore not attractive. Putting 10,000 CAD in government bonds for 2.30% will earn for us 2,300 CAD after ten years.
GICs
A guaranteed investment certificate (GIC) is a financial tool that lets Canadians invest their money and earn some guaranteed interest in the process. The best rate for GICs I found is 2.42%, not compound interest. Like bonds, this does not sound attractive. If you choose this option, you will get 2,420 CAD interest after ten years. That is a bit more than bonds but still very low.
Preferred Shares
This option will pay more than fixed income like bonds and GICs, up to around 5%. Because it is almost fixed income and does not increase with time, it is a less appealing option than dividend-paying stocks that earn compound interest.
Mutual Funds
Although they might provide some level of diversification, I am not a fan of investing in mutual funds. Most of them perform worse than their benchmark, and in addition, you pay a management fee regardless of the fund’s performance.
ETFs
These are the same as mutual funds, but with much lower management fees.
Lending Loop
My average return on the lending loop is above 10% annually, and it looks like a very appealing option. This option has an intuitive interface to easily reinvest earned money. Although the starting interest is high, the lack of interest increase makes the next investment option more appealing for me. Companies’ sizes and abilities to return lent money is also higher in the next option. Do not forget that those small businesses Lending Loop lends to are rejected by banks, and therefore this investment is riskier than the next option.
Dividend-Paying Stocks
Among all companies traded on stock exchanges, I prefer to invest in those that pay dividends. You can read why here. Most likely, dividend-paying companies with good fundamentals will continue to pay dividends even in uncertain market times. Starting dividends yield of 3%–4% and dividends growth average in recent years of 8%–10% is a good assumption for our calculation. Let’s take TD Canada Trust (TD), for example; its current yield is 3.36%, and its five-year dividend growth rate is 9.7%. Investing 10,000 CAD in TD will buy 140 shares, which will pay a quarterly dividend of 84 CAD. These 84 CAD can be reinvested in buying one more share of the bank with DRIP every three months. After ten years this option will pay us 6,067 CAD in interest, not including equity appreciation, and growth will continue after that. After ten years we will earn 7.73% on our initial invested 10,000 CAD. A year later it will pay 8.48% and then 9.30% and so on, thanks to compound interest.
Conclusion
Guess where banks will offer to invest your money? You are right—in options less appealing for you, namely, savings accounts, bonds, GICs, and mutual funds that the bank owns.
The picture will be different if we talk about investing 100,000 CAD. In that case, real estate and private mortgages come into consideration as well. You can read here about our experience with private mortgages and real estate.
Dear reader, I will go with dividend-paying stocks for investing 10,000 CAD, but where do you prefer to invest your 10,000 CAD?
My options would be dividend growth stocks as well as selling cash secured put options. Dividend growth stocks investing is very powerful because of the compounding effect. Hopefully, a lot of more people will start to appreciate it. Thanks for sharing!
Gladice thank you for reading. I like income stream from dividends because it is predictable, their hikes and as you mentioned their compounding effect.
Nicely written article! Keep up the good work!
Dividend Income Stocks thank you for stopping by.
With the stock market correction inevitably coming, do you think it’s smart to invest long-term in anything that might fall sharply in the next 2-5 years?
Isn’t it better to wait till the market dips and then enjoy double digits growth each year?
George thank you for stopping by. I think it is impossible to time the market and I am OK with share price drop in uncertain market times. If the market sharply drop I will see it as opportunity to buy and increase holdings in undervalued equities.