RSSJuly 2010 eNewsletter
IN THIS ISSUE:
- Are GICs a good investment choice?
- How I help you achieve your DREAMS
Are GIC’s a good investment choice?
What Is A Guaranteed Investment Certificate?
GICs is an investment product (like mutual funds, bonds) that guarantees you to protect your principle (the amount you put in) with a guaranteed income for a particular period of time.
How Do GICs Work?
When you purchase a GIC, you are essentially lending your money to the financial institution. At the end of the term you choose, the financial institution will return your money to you PLUS pre-determined interest.
For example today you can purchase a 2 year term GIC at 1.9%. This means if you invest $100, you will receive $101.90 in 730 days.
Where can I purchase a GIC?
You can purchase a GIC from a bank, a credit union, a financial institution and your Financial Advisor like myself. Be sure your financial advisor shops around for the best rate, if this is the investment you so choose.
Types of GICs:
Before you purchase a GIC, find out what option is available to you:
Cashable or Redeemable GICs – You can cash it in at any time based on the terms provided by the financial institution. If you cash it in before the term is complete, the financial institution will usually calculate the interest accrued to date. This option is available with most Financial Advisors.
Non-Redeemable GICs – You will not be able to redeem it until your term on your GIC is complete. This option is mostly available with banks and credit unions.
Index-Linked GICs – GICs that are linked to stock markets. This may also be known as Market-Linked GICs.
What are the Advantages of GICs?
Principle Protection: Depending on what you buy, money invested in GICs can be safe and secure. At the end of the term, you will get back your capital you original invested. However, if you have security in your mind, it is recommended that you talk to a Financial Advisor.
Safe Parking: If you are not sure where to invest your money for the long term, you can park your money in short-term GICS while you can search for other options.
What are the Disadvantages of GICs?
Liquidity: GICs are typically NOT easy to withdraw when you need your money right away. A high interest savings account offers better liquidity than GICs in most cases. With a GIC, your money is tied up and locked in for a specific period of time, i.e., one to five years.
Interest Income: If held in a non-registered account or a regular savings account, interest earned on a GIC is taxed at a higher rate, for example, taxed at your full marginal tax rate.
Subject to Inflation: Let’s say your GIC is giving you 2% interest. And consider that the annual inflation rate is 3%. If you keep $100 in your GIC for one year, you should have $102 in your hands after one year, right? Well, yes, technically, but that $102 is less than you started with. Due to inflation, you need $103 to buy same goods you would have bought with $100 a year ago. So actually, you lost money-$1, to be exact. Yes, real rates of return GICs can be negative or lower than what you actually see.
My thoughts on GICs:
I am not a fan of GICs. When we look at historic rates of returns on investments, GICs are the poorest performing investments in comparison to low and high risk mutual funds, the TSX, and individual stocks. I believe that you are better off in a conservative investment low risk investment that will allow you access to higher returns. If you need access to your cash in a short period of time under one year, you are better off with a high interest savings account. If you require an investment over a longer period of time of more than one year, you are better off seeking advice from a qualified Financial Advisor to design a custom plan for you.
Most Financial Advisors will not charge for their services to design a savings portfolio and investment plan for you. Your Financial Advisor should ask you the following questions before designing a plan for you:
- Will you lose sleep if your investment loses money?
- When will you need this money? In one year, five years, ten years or thirty years?
- How much risk are you willing to assume in your portfolio?
- Would you like to see steady continuous slow rising returns on your investment? Or are you ok with riding out the ups and downs of the market?
A qualified Financial Advisor can help you choose the investment that is right for you!
How I Can Help You Achieve Your Dreams
If we were sitting here three years from today, what needs to have happened, personally and professionally, for you to be happy with your progress?
Our firm specializes in making your dreams a reality.
Disability: “If you were too sick or hurt to work, what would your concerns be and how much income would you want your family to have?”
Retirement: “What are your thoughts on retirement? How do you envision spending your 60s, 70s and 80s?”
Education: “What role do you see yourself playing, financially or otherwise, in the education of your children or grandchildren?”
Asset allocation: “How do you approach asset-allocation decisions in your investments? Has this changed over time, and how do you see it changing in the future?”
Major purchases: “What major purchases or expenses do you see occurring, say over the next three years? How about over the next three to 10? Over the next 10 and beyond?”
Survivor income: “Of all the things you look forward to in your future, how would your family’s objectives change if you didn’t make it home tonight? What would you want me to tell your survivors about your intentions for them?”
Janea Bellay, Your Financial, Insurance & Investment Advisor
Contact our financial planning office in Saskatoon today, I am happy to help you envision your Financial Plan!
Janea Bellay Performance Financial Services Inc 217-3501 8th Street East Saskatoon, SK S7H 0W5 Tel: 306-281-3891 janea@performancefinancial.caTo remove your name from our mailing list, please click here.
Questions or comments? E-mail us at janea@janeabellay.com or call 306-281-3891.
LEGAL DISCLAIMER
Janea Bellay is an independent self-employed insurance and investment representative, licensed to sell insurance and investment products and services through Performance Financial Services Inc. This is an independent MGA brokerage, and part of the United MGA Group of Canada. Mutual funds are offered though Desjardins Financial Security Investments Inc. Commissions, trailing commissions, management fees and expenses may be associated with mutual fund investment. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. The information in this article is not intended nor should it be considered as providing specific legal or tax advice. Individuals should consult with their individual advisors to ensure that any information is applicable and appropriate to their specific situation.