What are my options for building real wealth without the stock market?

Here is the answer to this week’s reader question about growing money without any risk.

We aren’t given enough information on how to build real wealth today. It’s all about the stock market and Bitcoin, and I do not like those options. Too risky for my liking. What are my options?

—Rob

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How to build real wealth outside of the stockmarket or crypto

Wealth is a very personal thing. Some people define wealth as having financial security, while others view money as a stepping stone to buy free time and flexibility to enjoy money as you see fit.

Financial planners empathize with the fact that true wealth carries a different meaning for everyone. They also understand how frustrating and complicated many Canadians feel about managing or growing their money.

Given that everyone defines wealth, freedom and success through the prism of their personal goals, values and experiences, the best financial advice recognizes there is no one-size-fits-all solution to build wealth. Your dreams and expectations influence how to build a portfolio from the available financial products and channels.

Growing your savings: a checklist

Unlocking your personal path to greater wealth begins with three financial building blocks.

1. Managing your cash flow, effectively tracking how money flows in and out of your hands. 
2. Your current financial resilience, reflected in your emergency reserves so that unexpected expenses don’t derail long-term financial plans.
3. Learning how to build tax-efficient wealth. That third piece is often where many Canadians leave money on the table without realizing it.

Start with your registered accounts

The first step is simply to make a commitment. You don’t have to immediately commit large sums to an investment plan, but taking that single first step is your greatest wealth-generating decision.

Once you build a habit, it’s easier to maintain. Track your cash flow so you can analyze your financial situation with hard numbers instead of making decisions on a whim. Automate what you can, and refine how and where you invest as you go. Testing out different wealth-generating resources also helps you feel more comfortable taking risks through experience.

If you feel stocks or cryptocurrencies like Bitcoin are too risky to begin investing into, your tax-free savings account (TFSA) and registered retirement savings plan (RRSP) are reasonable places to start. A financial planner or advisor can help you determine the best way to leverage both of these registered accounts by considering your tax bracket and growth potential.

A TFSA is suitable for Canadians currently in lower tax brackets, but who expect to be in similar or higher brackets come retirement. Wealth accumulated in your TFSA is tax-free, and any withdrawals don’t count as income, making it ideal if there’s a sudden change in your financial resilience.

On the other hand, an RRSP tends to work best for people in higher tax brackets today, but also if you expect to be in lower brackets once you retire. Your contributions reduce taxable income and the amount of income tax you pay today, while withdrawals are taxed later.

Conservative products that can actually build wealth

Stocks and cryptocurrencies make the headlines. However, for Canadians with lower appetites for financial risk, there are many conservative products that can help you accumulate wealth. These channels help you avoid market volatility while still expanding your investments.

Guaranteed investment certificates (GICs) are one of the most straightforward resources. Your principal is protected, returns are locked in, and your deposits are insured through the Canada Deposit Insurance Corporation (CDIC), up to applicable limits. GICs may not outpace a strong equity year, but they won’t collapse in a bad one either.

If you have a sizable amount of capital to invest, hard assets tied to real estate are worthwhile investments. Real estate investment trusts (REITs) and mortgage investment instruments are alternative asset classes. They can generate income and provide diversification outside equities.

The most important step is simply to begin

Remember that there is no universal financial tool in an investment portfolio. How you define and equate value to wealth will influence the most practical ways to invest and grow your money.

The other critical point to remember is that inaction carries its own costs. The risk in trying to avoid all financial risk leaves money sitting in a chequing account without earning greater purchasing power.

A high-interest savings account (HISA) offers a more accessible option to grow your money. Interest rates may vary depending on the financial institution, but the best HISAs offer returns comparable to cash held in registered accounts.

There’s no lock-in period, and you’re free to withdraw the funds as you need them. Starting small, using more conservative financial channels puts time on your side in a way that waiting never will.

If you are unsure where to begin, a certified financial planner (CFP on their LinkedIn page) can help you calculate the best way to use your money and achieve your goals through wealth. Options exist, and the right combination of them will make your financial dreams a reality.

Read more from this issue of The Get:

1. How to stop yourself from shopping on your cell phone 
2. The risky business of hype buying and resale in Canada
3. Why Bruce Sellery says the 30% rule may be irrelevant
4. Are HVAC maintenance plans worth it for Canadians?