Let’s face it: guaranteed investment certificates (GICs) have not been sexy over the last decade.
With interest rates below historical norms, FAANGs taking a huge bite out of the market, and crude oil skyrocketing from $30 to $75 in just a couple of years, why would you waste your time with GICs?
Well, not everyone is so concentrated on the business headlines, and many people lack the time and energy to peer through corporate quarterly earnings. This is why GICs are superb investment tools because you still have your money working for you as long as inflation remains in check, and you won’t need to be fixated on the Toronto Stock Exchange (TSE).
Since the Bank of Canada (BOC) is normalizing interest rates, you can get a better-than-normal return. It may not be as great as it was in the 1980s when GIC rates were in the double-digits, but it’s better than what you have been getting in recent years.
Here are five reasons to pick GICs as your investment in today’s market environment:
1. Construct Your GIC Ladder
Do you want to climb the ladder of financial success? GIC laddering is the simplest and most rewarding way to do so.
GIC ladder is a technique to maximize the return on your GIC investments without locking in all of your cash into 90-day, two-year, or five-year GICs. It’s a great way to get the best GIC rates and a handsome return on your investment.
How do you begin? It’s easy: when every term fully matures, you reinvest the new amount, which is the original principal and investment return, in a five-year GIC term (you can also choose other lengths).
It’s that easy. You won’t need to worry about the Bank of Canada (BOC) raising interest rates either.
2. Online Banks Offer Competitive Rates
Yes, it can be more convenient to use your financial institution to acquire GICs. You just head into your branch, or access your bank’s website, and buy the desired GICs. However, it isn’t a guarantee that you will receive the best GIC rates around.
So, what should you do? First, shop around. Second, use online banks exclusively for GICs.
The reason for this is because online banks offer the most competitive rates around. The brick-and-mortar institutions of yesterday offer pittance on your GICs, and this can be incredibly frustrating, especially if inflation is on the rise.
Whether it is Tangerine or ICICI, you can be confident you’re getting better GIC rates than the big boys.
3. Protect Yourself in a Market Bubble Burst
It has been nearly a decade since the end of the Great Recession, and the major stock indexes are continuing their bull runs. It is really remarkable to be living in one of the biggest bull markets in modern history. But can it last forever? Unlikely.
The typical bull run lasts about seven to nine years. Since we are approaching its 10th year, it is inevitable that the bubble will burst, particularly as central banks gradually raise interest rates.
A GIC can protect you and your finances in a market bubble burst. Unless you know how to navigate the market in a recession, a GIC is your best line of defense that can still give you handsome returns.
4. Three Types of GIC Products in Canada
Despite its investment simplicity, there are several technicalities you need to know right now about GICs:
- There are registered and non-registered.
- Redeemable and non-redeemable: the former can’t be cashed out until maturity date, while the latter can be used prior to maturity date.
- Three types of GIC products: tax-free savings account (TFSA), retirement income plan (RIP), and retirement savings plan (RSP).
And there you have it. You have the information you need to pick the best GIC rates for your needs.
5. It’s a Great Complement to Your Portfolio
You are acquiring dividend stocks, you’re placing bets on a specific stock, you’re dabbing in ETFs, and you have a few mutual funds. It sounds like you’re a seasoned veteran with a superb, diversified portfolio. But why not add one more to it?
GICs can serve as a great complement to your overall portfolio. You can always have confidence that at least one of your investment will pay off during good times and bad times. You don’t need to allocate most of your resources to GICs, but keeping about 10 to 15 percent of your portfolio in GICs is a great option because you are guaranteed to have returns – if inflation remains tame.
Let’s be honest: most of us are terrible at investing. You can lay the blame on the government education system, your free-spending parents, and the societal trends of Keeping up with the Joneses. Whatever the case, you should improve your financial acumen, and this can start by purchasing a one-year term with the best GIC rates around. Before you know it, you’ll be shorting futures, buying shares in utility companies, and raking in the monthly dividends.