Lloyd Davidson, 73
Occupation
Retired engineer
The portfolio
Guaranteed investment certificates; a GIC-only investor since 1980.
The investor
For Lloyd Davidson, GICs are the ultimate worry-free investment. "I have never lost a minute of sleep worrying about my investments," he remarks.
They are guaranteed by the Canada Deposit Insurance Corp. (CDIC) in amounts up to $100,000 per institution (or subsidiary). And there is none of the uncertainty and variability in returns that stock market investors experience.
"The reason for going with GICs is that I believe you shouldn't take risks with your retirement funds. You will depend on them in your senior years to pay for property taxes, clothing and food for yourself and your spouse."
He was able to retire in 2002 despite a serious downturn in the stock market. "At the time," he reports, "some of my colleagues had to postpone their retirements because their stocks were down by as much as half."
As it turned out, Mr. Davidson's GIC-only retirement portfolio did as well as the stock market. "When I retired in 2002, I did an analysis and found my returns were within a few dollars of the S&P 500."
How he invests
What helped was negotiating GIC rates. "Once you have a fairly large amount to invest, you can ask a CDIC-insured institution for their best offer, and then take it to other places to see if they can beat it."
He usually holds a five-year ladder of GICs (funds are spread over GICs from one- to five-year maturities). This approach hedges against changes in interest rates.
Lately, he has concentrated funds in the shorter maturities because their rates aren't much lower than longer maturities. He also believes rates are headed up, so the shorter maturities will let his portfolio roll over faster into the higher rates.
Best move
GICs.
Worst move
He put some non-retirement funds into an index fund invested in the S&P 500. "It's up but the U.S. dollar is down, so my investment is showing a loss overall," he comments. "Investing in foreign markets comes with currency risk as well as investment risk."
Advice
"Don't hesitate to take your money where it gets the best GIC rate, as long as it is CDIC insured." And don't be swayed by advisers who warn GICs can't keep up with inflation and taxes – they want you to buy stocks and mutual funds because that's where they get their fees.
Special to The Globe and Mail
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