INVESTING

Long-term investing is about building wealth steadily over years and decades, rather than trying to profit from short-term market swings. In Canada, successful long-term investing requires discipline, a clear understanding of risk profile, and a commitment to diversified portfolios designed to withstand market volatility. While short-term investments may tempt with quick gains, they also carry the danger of losses from emotional reactions or ill-timed trades.

The essence of long-term investing is consistency and patience. Investors who adopt a long-term perspective can take advantage of the power of compound growth, reduce the impact of temporary market downturns, and align their investments with financial goals, whether funding a home, a child’s education, or retirement. By focusing on time-tested strategies such as holding index funds, growth stocks, value stocks, and a mix of small cap stocks, Canadians can build resilient portfolios that perform across a variety of market conditions.

This playbook will outline the key principles of long-term investing in Canada, including how to build a diversified portfolio for the long term, strategies for risk-averse investors, managing capital gains taxes, and practical steps to achieve long-term investing success.

What “Long Term Investing” Really Means

Time Horizons & Compounding

For Canadians, long-term investing generally refers to a horizon of 10 years or more, with retirement savings ideally spanning 20-40 years. This extended timeframe allows the power of compounding to work, where returns generate further returns over successive years. Even modest annualized growth of 5-7% can meaningfully outpace inflation, and small differences in annual returns accumulate into substantial wealth gaps over 20-30 years.

Long-term investing also allows investors to absorb the natural cycles of business, politics, interest rates, and recessions. Market volatility that feels alarming in the short term tends to smooth out over decades, revealing the signal amid the noise. For example, Canadian equity markets have weathered multiple recessions, crashes, and global crises, yet long-term investors who stayed invested saw meaningful gains.

Framing investing over decades also reduces emotional decision-making. Investors are less likely to panic during temporary market drops or chase the latest hot stock, aligning with the Canadian Investment Regulator Organization (CIRO) investor-protection guidance. A disciplined, long-term mindset shifts the focus from predicting daily movements to consistent contributions and adherence to a diversified strategy.

Risk ≠ Ruin: Market Volatility in the Stock Market vs. Permanent Loss

It’s crucial to distinguish price volatility (normal, temporary fluctuations) from permanent loss, which occurs when an investor sells at the bottom or holds a failed asset. For example, diversified exchange-traded funds (ETFs) experience daily ups and downs, but the risk of ruin is relatively lower when compared with concentrated bets on individual stocks that could collapse entirely.

Volatility may feel uncomfortable, yet it is the price of long-run growth. Behavioural cues show investors often overreact to downturns, selling out of fear even though historical recoveries typically follow. Consider the 2008 financial crisis, the 2020 COVID crash, and 2022 market corrections: each saw sharp short-term declines, but markets rebounded over subsequent years, often exceeding pre-crash levels.

Understanding this distinction aligns with recommendations from institutions like Schwab, which stress that properly framing risk prevents emotional errors, keeps portfolios on track, and allows Canadians to benefit from the long-term compounding effect. Long-term investing is not about avoiding volatility; it’s about embracing it responsibly to achieve enduring financial growth.

Choosing An Account (TFSA, RRSP, FHSA, RESP)

TFSA

For most Canadians, the Tax-Free Savings Account (TFSA) is an ideal starting point for long-term investing. Its biggest advantage is flexibility: contributions grow tax-free, and withdrawals are not taxed or deducted from the contribution room. This makes the TFSA perfect for both short-term liquidity and long-term wealth building.

Who benefits most: lower- to mid-income earners, gig workers, and anyone uncertain about their future tax bracket. The TFSA also suits those wanting an emergency fund component alongside equity ETFs for long-term growth.

Guidelines:

• Keep a portion liquid for unexpected expenses.
• Use equity ETFs or mutual funds for long-term compounding.
• Avoid day trading or speculative moves that can trigger penalties or excessive taxes.

Behavioural advantage: the tax-free growth encourages investors to stay invested through market volatility, reducing emotional trading and improving long-term returns.

RRSP

The Registered Retirement Savings Plan (RRSP) is primarily for Canadians looking to defer taxes. Contributions reduce taxable income, making RRSPs especially advantageous for higher earners. The strategy is simple: contribute at your highest marginal tax rate and withdraw in retirement when your rate is lower.

Edge cases:

• Borrow-to-invest strategies can leverage contributions but increase risk.
• Pension-plan holders may use RRSPs to maximize available room.

Best practices: automate contributions through payroll, reinvest tax refunds, and avoid early withdrawals due to withholding taxes. Aligning contributions with your risk profile and ensure your RRSP use matches your personal circumstances.

FHSA & RRSP HBP

The First Home Savings Account (FHSA) provides both tax deductions on contributions and tax-free withdrawals to purchase a first home. Contribution limits and deadlines must be coordinated with the RRSP Home Buyers’ Plan (HBP).

Comparison:

• FHSA: withdrawals are tax-free, no repayment required, which means many Canadians prefer them for long-term compounding.
• HBP: increases purchasing power, but withdrawals must be repaid over 15 years.
• Example strategy: contribute to FHSA first for long-term growth, then use HBP strategically for down payment needs.

RESP

Registered Education Savings Plans (RESPs) leverage the 20% Canada Education Savings Grant (CESG) and additional provincial grants. Annual contribution caps and long 18-year horizons make RESP a powerful tool for education savings.

Investment behaviour: start aggressively in equities when the child is young, then gradually de-risk approaching age 17. Family plans can consolidate contributions for siblings, whereas individual plans suit personalized strategies.

RESP’s goal-specific nature means investors may need a long-term perspective but may not rely on it for their own retirement.

Build A Portfolio for Long Term Investing Success

Index Funds & ETFs vs. Stock Picking (Growth Stocks & Small Cap Stocks)

For long-term investing, index funds and ETFs offer a simple, low-cost path to market returns. These vehicles track broad market indices, like the S&P 500 or Toronto Stock Exchange (TSX) Composite, capturing gains from hundreds of companies in a single fund. Costs are minimal, reducing the drag on long-term compounding.

By contrast, individual stock picking carries higher risk and often produces lower average returns. Studies from firms like CIRO and Schwab show active traders consistently underperform, mainly due to poor timing, emotional reactions to market volatility, and overconfidence. Stock picking also exposes investors to single-company failure, which can permanently damage returns.

Global diversification is critical. The Canadian market is heavily concentrated in financials and energy, so adding U.S. innovation stocks or international value opportunities smooths portfolio volatility and captures broader growth cycles. Behavioural advantages also favour index investing: investors are less tempted to chase hot sectors or sell in panic.

For simplicity, all-in-one ETFs combine multiple asset classes into one ticker, offering pre-set allocations across equities, bonds, and sometimes real assets. These products are ideal for investors who want low-maintenance portfolios aligned with their long-term goals without the temptation to tinker.

Asset Allocation by Financial Goals and Nerves

Asset allocation (how investments are split across stocks, bonds, and cash) accounts for roughly 90% of long-term portfolio outcomes. Choosing the right mix depends on your time horizon, risk tolerance, income stability, and risk capacity, consistent with FINTRAC-style suitability assessments.

Typical long-term allocations:

• Aggressive: 90% equities/10% bonds
• Growth: 75% equities/25% bonds
• Balanced: 60% equities/40% bonds
• Conservative: 40% equities/60% bonds

Long-term investors can also use glide paths (gradually reducing equity exposure as life events like retirement or university funding approach) to manage sequence-of-returns risk.

Misalignments can be costly: a nervous investor in a 90/10 portfolio may panic-sell during a market drop, sacrificing long-term growth. Investors often choose to adjust allocations to match both financial goals and emotional comfort.

Rebalancing: Bands, Frequency, and Simplicity

Rebalancing is the process of restoring your portfolio to its target allocation, trimming outperforming assets and adding to underperformers. It enforces discipline, supports buy-low/sell-high behaviour, and controls risk over time.

Two main methods exist:

• Calendar-based: rebalance annually or semiannually.
• Band-based: rebalance only when allocations drift ±5% (or another pre-set threshold).

Automatic contributions act as organic rebalancing, gradually buying underweight assets without requiring manual intervention. For non-registered accounts, consider the tax implications of selling investments when rebalancing.

Rebalancing ensures your portfolio remains aligned with both your long-term strategy and risk tolerance, while preventing emotional reactions from dictating investment decisions. Simple, consistent practices, e.g., using index funds, diversified allocations, and disciplined rebalancing, are the backbone of successful long-term investing in Canada.

Fees and Taxes: Impact on Long Term Growth

MERs, Trading Costs, and Fee Drag

Even the most disciplined long-term investing strategy can be undermined by fees. The Management Expense Ratio (MER), trading commissions, foreign exchange (FX) fees, and advisor fees all quietly erode portfolio growth over decades.

Trading fees and FX conversion costs can further chip away at returns, especially for investors frequently buying U.S. equities or international ETFs. Automated, low-cost platforms, or all-in-one ETFs, help minimize fee drag while keeping the portfolio aligned with your long-term plan. Understanding fees (and their cumulative impact) is critical for achieving long-term investing success.

Basic Tax Considerations & Account Placement for Many Investors

Tax efficiency is another powerful lever for long-term portfolio growth. Certain assets benefit from being held in specific accounts:

• Bonds: best inside RRSPs to defer interest income taxation.
• U.S. equities: RRSPs avoid the 15% withholding tax on dividends.
• Canadian dividends: optimal in non-registered accounts to benefit from dividend tax credits.

Capital gains enjoy deferral until realization, but superficial loss rules prevent immediate tax-dodging sales. Overcontributions to a TFSA trigger penalties, so careful monitoring is key.

Canadian tax brackets also affect long-term planning. High earners benefit from tax-efficient allocation, placing high-yield or taxable investments in registered accounts to maximize compounding. Conversely, TFSA contributions grow tax-free and withdrawals are untaxed, making them ideal for equities or growth assets.

In essence, fees and taxes silently erode returns. By minimizing MERs, leveraging low-cost ETFs, optimizing account placement, and understanding tax rules, Canadian investors can significantly enhance compounding power and achieve successful long-term investing outcomes.

Behaviour Is the Edge

Dollar-Cost Averaging & Being Successful Long Term

One of the simplest ways to harness investor behaviour for long-term success is through dollar-cost averaging (DCA). By investing a fixed amount on a regular schedule, e.g., monthly, biweekly, or even weekly, regardless of market conditions, investors automatically buy more units when prices are low and fewer when prices are high. Over time, this smooths out the impact of market volatility and removes the temptation to “time the market,” a practice that consistently underperforms due to behavioural biases.

Long-term studies show that investors who stay fully invested, even through crashes like 2008, 2020, and 2022, achieve better outcomes than those who react emotionally. The key driver isn’t picking the next high-flying stock or predicting the bottom; it’s psychological discipline. Regular contributions, paired with a long-term horizon, allow compounding to work effectively, reducing the impact of short-term noise on portfolio returns.

Rules That Prevent Bad Decisions

Behavioural guardrails can dramatically improve investment outcomes. Simple, pre-committed rules help manage loss aversion, recency bias, and herd behaviour, which often cause panic selling, chasing returns, or abandoning a plan.

Examples of practical rules include:

• 48-hour rule before selling: pause before reacting to negative news.
• Prewritten “panic plan”: define steps if your portfolio falls by a set percentage.
• Automatic contributions: remove procrastination and emotional timing from investing.
• Limiting news exposure: reduce anxiety and herd-driven decision-making during volatile periods.

By combining DCA with these behavioural guardrails, Canadian investors can stay aligned with their long-term investment strategy, avoid common pitfalls, and let disciplined investing outperform short-term market instincts. In essence, your behaviour (not stock selection) becomes the edge.

Maintaining Long Term Perspective: Manage Risk Like a Pro

Diversification & Drawdowns

Diversification is the cornerstone of managing investment risk. By spreading your portfolio across regions, sectors, and asset classes, such as Canadian, U.S., and international equities, bonds, and real assets, it reduces exposure to any single company or market event. A diversified portfolio smooths volatility, so a sharp decline in one stock or sector doesn’t derail your long-term plan.

Historical drawdowns illustrate the importance of diversification. During the dot-com bubble (2000), Canadian tech-heavy investors faced severe losses, while broad-market ETFs fared better. In the 2008 financial crisis, global equities dropped 30-40%, but balanced portfolios with bonds and cash saw smaller declines. Even the COVID-19 crash (2020) showed that recovery is possible when investors maintain diversified exposure. Understanding maximum drawdown (the largest peak-to-trough loss) helps investors set realistic expectations and remain calm during market stress.

Sequence-of-Returns Basics

For retirees or those nearing decumulation, sequence-of-returns risk is a major consideration. Even if a portfolio achieves the same average annual return over 20-30 years, the order of returns matters greatly. Early negative returns combined with withdrawals can deplete capital faster than late downturns, risking premature exhaustion of savings.

Consider a retiree withdrawing 4% annually: in Scenario A, a market downturn occurs in the first three years; in Scenario B, the same downturn happens in year 10. Despite identical long-term averages, Scenario A can leave the retiree short of funds within a decade.

Actionable strategies to mitigate sequence risk include:

• Cash buffers: maintain 1-3 years of spending in safe, liquid assets.
• Guardrails: set withdrawal bands or limits tied to portfolio value.
• Variable spending rules: reduce withdrawals during downturns.

For Canadians, this is particularly relevant for RRSP/Locked-In Retirement Account (LIRA) decumulation, where withdrawals are mandatory, and for managing TFSA or non-registered income. By combining diversification with careful withdrawal planning, investors can reduce emotional stress and improve long-term financial security.

Automate & Review

IPS Template

An Investment Policy Statement (IPS) is your personal rulebook for long-term investing. It clarifies your goals, time horizon, risk profile, and asset allocation, providing a roadmap for disciplined decision-making. Beyond numbers, an IPS includes behavioural guardrails (predefined rules that prevent emotional reactions during market volatility, such as a 48-hour cooling-off period before selling or limits on single-stock exposure).

Components of a practical IPS:

• Goals: short-, medium-, and long-term financial objectives, such as retirement, a home purchase, or education funding.
• Time Horizon: how long each investment goal will be in the market.
• Target Allocation: your diversified mix of equities, bonds, and cash, adjusted for risk tolerance.
• Rebalancing Rules: frequency or band-based guidelines for maintaining allocation.
• Behavioural Guardrails: “what I will not do” rules, such as avoiding panic trades or chasing hot sectors.

Keep it simple. The IPS isn’t a static document; it evolves with life changes, market conditions, and risk reassessment.

Auto-Contributions & Calendar Reminders

Automation transforms a good IPS into consistent results. Set up pre-authorized contributions to your TFSA, RRSP, FHSA, or RESP on each payday. By investing systematically, investors can take advantage of dollar-cost averaging, reduce procrastination, and remove emotional decision-making from the equation.

Complement automation with calendar reminders to ensure periodic reviews:

• Annual rebalancing to maintain your target allocation.
• Contribution deadlines for TFSA/RRSP to maximize room and tax advantages.
• Financial check-ins: review budgets, insurance coverage, and your IPS.

This structured approach reduces the temptation to react to market volatility or short-term headlines. It ensures that long-term investing remains a disciplined habit rather than an emotional rollercoaster. With an IPS in hand, automatic contributions, and scheduled reviews, Canadians can stay invested confidently, keeping long-term objectives on track while avoiding common behavioural pitfalls.

Example Case Studies for Long Term Investing Success

Case Study A: Young Accumulator

Meet Emma, a 28-year-old renter in Toronto with a moderate income. She has a TFSA and an FHSA for her long-term investing and home-buying goals. Emma follows a simple 80/20 ETF portfolio (80% equities for growth, 20% bonds for stability) and sets up automatic contributions each payday.

Her long time horizon of 30+ years allows her to tolerate short-term market volatility. The combination of dollar-cost averaging and tax-advantaged accounts enables her portfolio to grow steadily while maximizing the FHSA’s tax-free home savings benefit.

However, Emma faces behavioural pitfalls: she checks her portfolio frequently, which can trigger anxiety during market downturns, and she is tempted to chase hot stocks occasionally. By pre-committing to her Investment Policy Statement (IPS) and keeping her contributions automated, she reduces the risk of emotional trading. Over decades, even modest annualized returns of 6-7% can compound into significant wealth, highlighting the power of patience and a disciplined approach.

Case Study B: Pre-Retiree Couple

Now consider Raj and Priya, a mid-50s couple with high income and substantial RRSP and corporate accounts. Their primary objective is to balance long-term growth with protection against sequence-of-returns risk as they approach retirement.

They adopt a bucket strategy: equities for long-term growth, bonds for intermediate stability, and two years of cash to cover near-term withdrawals. This structure allows them to weather market downturns without selling equities at depressed prices.

Automatic contributions to RRSPs and systematic rebalancing help maintain their target allocation, while tax planning ensures they minimize capital gains and optimize withdrawals. By combining disciplined behaviour with strategic planning, they can maintain their lifestyle in retirement while avoiding panic-induced losses.

These two scenarios illustrate that successful long-term investing in Canada depends not only on asset allocation and account selection but also on behavioural discipline. Automated systems, clear goals, and risk-aware strategies protect investors across life stages, from accumulation to pre-retirement. Both Emma and Raj & Priya benefit from a plan designed to mitigate emotional decision-making and maximize long-term compounding.

Put It All Together: The Next 90 Days

Building a long-term investing habit doesn’t have to be overwhelming. The following 90-day roadmap outlines common practices for Canadian investors, focusing on account strategy, portfolio selection, automation, and defined behavioral protocols.

Week 1: Choosing An Account Strategy

This involves determining the allocation of contributions among TFSA, RRSP, FHSA, and RESP (where applicable). Each account type provides distinct functional characteristics. Common practices include utilizing the TFSA for tax-free growth and liquidity, the RRSP for higher-income brackets, and the FHSA or RESP for specific home-buying or educational objectives.

Week 2: Selecting An ETF Portfolio

This process may involve selecting a diversified portfolio that aligns with a specific risk tolerance and time horizon. Options can include all-in-one ETFs for streamlined management or a combination of equity and bond ETFs for a more granular approach. The inclusion of both domestic and international exposure is a method that may be used to mitigate volatility.

Week 3: Setting Up Auto-Contributions

Establishing automated transfers from a bank account to investment accounts can be used to ensure consistent contribution levels. This process may utilize dollar-cost averaging and can reduce the need for manual intervention or timing-based decisions.

Month 2: Drafting An Investment Policy Statement (IPS) & Rebalance Plan

This period may be used to document a simple IPS that outlines financial objectives, target asset allocations, and rebalancing protocols. Defining specific frequency or percentage-based triggers can provide a structured response to market fluctuations.

Month 3: Checking Fees, Taxes, and Risk Alignment

The final phase may involve a review of management expense ratios (MERs), account fees, and the tax efficiency of holdings. This ensures the portfolio may still align with the original risk tolerance and time horizon. Adjustments can be reserved for shifts in personal circumstances or primary objectives.

Behavioural Reinforcement

The efficacy of an investment plan can be linked to the consistency of its execution. Utilizing a combination of automation and pre-defined rules may minimize the impact of emotional responses to market volatility. Systematic actions taken during this 90-day period can establish a baseline for long-term compounding and portfolio stability.

Start Your Long-Term Investing Journey

Successful long-term investing in Canada isn’t about timing the market or chasing the next hot stock; it’s about disciplined, consistent behaviour. By selecting the right accounts, building a diversified portfolio, automating contributions, and following your IPS, investors can set themselves up for long-term growth while managing risk and taxes. Regular reviews and behavioural guardrails keep emotions in check, helping investors stay the course through volatility. Focus on what’s in your control: contribution consistency, allocation, and fees. Over time, these small, steady actions compound into meaningful wealth and financial confidence.

Get started with Questrade today.