David in Burnaby, B.C: I have been investing in GIC's for over 10 years and have never lost a penny and I am mainly satisfied with my returns. At present, however, rates are extremely low. What do you think of the GIC investments that are guaranteed but also linked to stock market growth, etc., such as the GuaranteePlus Term Deposit offered by credit unions in B.C.?
David Trahair: I am a fan of simplicity and therefore not a fan of market-linked GICs. You have to check the fine print, but I think a lot of them pay zero interest if the related stock market goes down. That's too much of a risk for me. I'd rather be guaranteed the 3% or whatever the rate is.
Vince: Most charts I have seen show Equity Markets portfolio returns outpacing GIC's over the long term except for a brief period in the early 1980's. Are there some special GIC offerings that offer better returns?
David Trahair: Not that I know of. But it may be worth investigating having a Registered Deposit Broker ( https://www.rdba.ca/) do your looking for you. I have heard from people who found that a deposit broker could get a better rate than they could at the same institution. If so, you may be able to beat the published GIC rates in the charts.
James: My wife and I are both federal public servants in our mid-thirties earning $90 and $95K respectively. Our pension plan pays 2% of our best five years pay and we are eligible to retire at 55 (when we both will have met the minimum thirty years of service) with a 60% pension. In addition to our pension plan, should we be putting money in RRSPs/GICs?
David Trahair: It depends on how much money you'll need in retirement to do the things you want to do. If you decide to have kids that will have a major impact too as you'll have less money left over to save.
It will also depend on what your net worth is when you retire. For example, if you retire at 55 debt-free including your house mortgage (if you own a home) and don't plan an expensive retirement of say, travelling around the world, you may be fine with 60%. I strongly suggest, however, that people do save more than the minimum they think they'll need as a contingency for things like medical and other issues.
Paul: I am thinking that it would be a good idea to build a "GIC Ladder" in my TFSA in order to tax-shelter the interest. Assuming I have $5,000 in my TFSA now and will max out my contributions in each year, and I won't need access to the cash for 6 or 8 years, how would you recommend that I construct such a ladder?
David Trahair: It's pretty simple - divide the amount you have to invest each year by five - that would be $1,000 - and invest in a one, two, three, four and five year GIC at the best rates available. Then when each matures, invest at the best five year GIC rate you can find at that time. After five years you'll have a ladder of five year GICs maturing a year apart. Typically five year rates are the highest and the strategy reduces the risk you'll invest all the money at low five year rates.
Beth: Do you agree that inflation, typically used as the boogey man to scare people into the stock market is a paper dragon? What investment dealers don't tell you is that inflation hits the market just as hard...increased costs of goods sold, rent, salaries etc. Does inflation ever hit seniors? If a staggering 10% inflation occurs, wouldn't we be getting GIC's at 8-10%? If 10% inflation hit my grocery bill - I'd be paying $110./week. Big Whoop! I already own my major appliances/furniture/house. Can't I just hunker down and buy long term bonds that will pay me 8%? I have yet to meet a banker/investment dealer who will agree with me. Do they make more money off stock market investments as opposed to bonds?