Four long-term investment strategies to grow your savings

Investing for a long-term goal like retirement likely involves facing economic shifts and jittery markets on top of competing financial obligations—all of which can make it hard to keep your focus over time. These four strategies may help you weather the ups and downs of the markets, balance your priorities, and grow your retirement savings.

Through changes in your life, your job, or world events, there are proven long-term retirement strategies you can use to manage risk, maximize your opportunities for growth, and stay focused on your goals over the years—or decades—until your retirement.

1 Diversifying to manage risk

Diversification can be one of the most effective ways to manage risk over the long term. It involves spreading your money among different types of investments—or asset classes—while also spreading it among different investments within each asset class. This can help you manage risk in two ways:

1 Balancing risk and returns over time—Some asset classes offer low risk and low returns, and others offer higher risk and higher returns. Diversifying can help balance potential risks with returns of your portfolio in line with your own risk profile.

2 Weathering market fluctuations—Within each asset class, investments can behave differently, with some doing well under certain market conditions, while others do better under different market conditions. Diversifying within asset classes can help balance the gains and losses from individual investments and keep your portfolio on an even keel during market fluctuations.

One more thing about diversifying

To help keep your investments diversified with minimal effort on your part, consider a ready-made portfolio, such as a target-date or a target-risk fund. These are professionally managed, fully diversified portfolios that align with your retirement goals and your risk profile.

2 Putting money in consistently

When you contribute to your plan consistently, even small amounts can lead to significant growth in retirement savings over time, while helping you smooth out the effects of uncertain markets. This is mostly due to two factors:

1 Compounding interest happens when the interest that your investments earn is reinvested. The reinvested amount earns more interest, which can mean growing your savings faster over time. Even a small regular contributions can grow significantly thanks to compounding.

2 Dollar cost averaging happens when you regularly invest a fixed amount of money in your plan, regardless of the price of investments or how the market is doing. Your contribution buys more units when prices are low and fewer units when prices are high. This can help lower the average cost per unit and reduce the risk of making a big investment at an unfavorable time.

One more thing about contributing

Starting with smaller regular contributions can make it easier to make saving fit with your financial priorities. Over time, consider increasing the amount, such as when you get a raise. You could also take advantage of employer-matching contributions if your workplace group retirement plan offers them.

3 Taking the long view

We’ve just seen how time can work for you when you contribute consistently to your retirement savings. But time can be your ally in other ways:

• It can let you take more risk for higher returns early on. If retirement is far off, you can generally afford to take more risk since your investments have time to recover from downturns. This allows you to consider higher-risk investments with higher potential returns, then adjust as you get closer to retirement.
• It can help you stay focused through market volatility. Markets go down sometimes, but over time they tend to go up. Understanding this can help you stay invested during a downturn instead of taking your money out and locking in losses. Remember, you don’t gain or lose until you sell your investments.

One more thing about your retirement savings

They’re for retirement. Even if you can access them sooner, there are things to consider, such as taxes, losing contribution room in your RRSP, reducing your compounding interest, and locking in your losses if you withdraw when markets are down. For shorter-term goals, consider other types of investments that may be more appropriate, so you can let your retirement savings grow.

4 Getting advice

How you implement these strategies depends on your own personal situation. This is where financial advisor guidance can help. Canadians with an advisor are 85% more likely to report having a comprehensive retirement plan, and 65% of Canadians with a financial advisor say they’re knowledgeable about selecting and managing their investments.¹

A financial advisor can bring these long-term strategies together by crafting a tailored investment plan for retirement. Your advisor can assist in building a well-diversified investment portfolio, set up contributions that fit your financial priorities, help you manage risk, and keep you on course through times of market volatility.