Dear Nancy Woods,
Is there any alternative to Guaranteed Investment Certificates (GICs) in a retirement plan like a RRIF?
Bonds pay even less than GICs, blue chip dividend-paying stocks have alluring returns, but are expensive to sell when annual payments must be made.
Interest rates seem certain to rise, but the interest rate on a one and two year GIC is not enough to feed a large dog. Thanks, Neil
Dear Neil,
You should look at the rate of interest that is being paid by high interest savings accounts as well as T-bill or money market mutual funds. With the mutual funds, be sure to find no load ones and ensure that there are not any transaction fees or unknown penalty costs.
If you can take some or all of the annual payment in the form of an existing holding, also referred to as in kind, that would be a good option if you want to own dividend paying stocks.
You can transfer the amount of your withdrawal with an equal market value of any holding. You could also "swap" out securities for cash of equal value in a non-registered account if you wanted to get the dividend paying holding outside of the RIF to claim the dividend tax credit in the future when possibly rates have improved.
Nancy Woods, CIM, FCSI, is an associate portfolio manager and investment advisor with RBC Dominion Securities Inc. To ask her a question, send an e-mail to asknancy@rbc.com
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