Hey Lou,
I have a nice amount of cash sitting in GIC's and it's been there for a couple of years earning, as you know little interest. I love the security of cash but do you think I am losing out by not investing this money in something else. Is there anything else that I would think is safe?
JM
Hi JM,
I get a lot of investors asking the same type of question and I think that what is most important to all investors is to know your own self. I have a power point presentation that I developed for the Financial Forum in 2008 called "The 7 Steps to Successful Investing" that I would be happy to send you or any reader that is interested. Just send me an email.
The core of the presentation is that it can be so destructive to your capital to go against your basic investor profile. If you have built up a nice bag of dough in guaranteed income certificates, it says that you are have a degree of risk aversion. You have chosen reduced income for reduced risk. There is absolutely nothing wrong with that. You have made a decision based on your central investor profile.
When you chose lower returns for reduced risk, there will always be potential better returns somewhere else in the investing universe, but for the most part you will have to assume greater risk to achieve higher returns. Before you make any decisions on where to invest your nest egg, ask yourself -- are you prepared to take on greater risk for potential greater reward?
And let's not look down on the returns offered by GICs. They did better than many portfolios in the last while because they achieved one of the most important goals of investing. Preservation of Capital! You didn't make a ton but you didn't lose a ton either.
One thing you should know about GICs is how they are made. Banks buy portfolios of bonds - mostly Government of Canada issues that generate a certain rate of interest. They then slice those portfolio of bonds up into GICs and keep a piece of the income for themselves. You could achieve better results on your investments without increasing your risk by owning the bonds yourself.
Be true to yourself and if you are really ready to change your investor profile, make sure to undertake a course of study so that you are fully prepared for the experience.
Happy Capitalism.
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Lou Schizas