GIC rates are so much better than we’re used to that it’s tempting to buy them from whatever bank or credit union is convenient.
But in today’s unsettled rate environment, you need to work extra hard to get the best rates possible. Nonchalance in choosing where to buy could cost you hundreds of dollars in interest. Here are three thoughts to help you get the best possible rates right now if you have money to put in GICs:
Banks have three types of GIC rates
Go online and look for posted rates, and then rate specials. Just google your bank’s name and GIC rates. Bank special rates are unusually competitive today, but don’t stop there. If you have a relationship with someone at your bank, mention a competitor’s better rate and see if it can be fully or partly matched. Banks may offer better returns if you have a large amount of money to invest or do a lot of business with the bank. It never hurts to ask.
There’s upward pressure on five-year GIC rates
When five-year GIC rates popped above 5 per cent at a wide selection of alternative banks during the summer, one of the drivers was a move higher by five-year Government of Canada bonds. The five-year Canada bond yield then declined, which is why some alt banks chopped their five-year rates back below 5 per cent. Lately, the five-year Canada bond yield has returned to those peak levels of early summer. Watch your favourite alt bank to see if 5-per-cent yields for five-year terms come back. Note that there are roughly eight online banks and credit unions offering 5 per cent for five years. At peak, there were roughly 11.
High rates won’t last
A recent interest rate forecast from CIBC Economics offers some helpful guidance on what to expect from rates. Government of Canada bonds are expected to move modestly higher by year’s end and then edge lower in 2023 and 2024. For example, the two-year Canada bond yield is forecast to rise from about 4.1 per cent in mid-October to 4.35 per cent in December, then hit 4 per cent in March, 3.75 per cent in June, 3.55 per cent in September and 3.1 per cent in December. The actual yield forecasts matter less than the idea that investors who like GICs have a few months to lock in rates at peak levels.
-- Rob Carrick, personal finance columnist
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The Rundown
Despite last week’s rally, the bear is not finished. Here’s what anxious investors should do
If you’ve looked closely at your financial statements recently, you probably found yourself thinking: “This can’t be possible.” Well, it is. Unless you’re heavily into energy stocks or out of the market entirely, the value of your portfolio has probably dropped by thousands, perhaps tens of thousands of dollars this year. Despite Friday’s welcome rally, all the TSX sub-indexes except energy and consumer staples are in negative territory. And consumer staples is only in the black by an eyelash. What’s an investor to do now? Gordon Pape shares some thoughts.
Want monster dividends? Check out this portfolio
Norman Rothery was working in the lab late one night, when he brewed up the frightfully profitable Dividend Monster portfolio, which mixes momentum with dividend investing. The concoction is an oddity, because most dividend investors take a slow and steady approach to the market while momentum investors try to leap from one hot stock to the next before the stocks flame out. But the strange brew performed remarkably well over the long term. Here’s the track record and the stocks that are in the portfolio right now.
Three strategies for recession-proofing your portfolio
What is the best way to prepare your portfolio for a recession ahead? Investors can’t avoid this question much longer. A good place to begin your own recession preparation is by looking at where experts think safety might lie. You won’t find much unanimity here – none at all, in fact – but, by understanding the strengths and weaknesses of different approaches, you can gain a better appreciation of where sweet spots may exist in today’s market. Ian McGugan tells us about three strategies to ponder.
The weak housing market is crushing U.S. homebuilders. Can the sector make a comeback?
The North American housing market is stumbling badly, as sales decline and prices fall from their recent highs. That’s not a promising backdrop for U.S. homebuilding stocks, which are now suffering through their worst year since the financial crisis in 2007-08. What will it take to save the sector from its current tailspin? David Berman takes a look, and explains why there may be an investment opportunity right now in the sector.
Why this equity strategist is buying health care stocks while diversifying away from banks
A recession, now considered inevitable by many market watchers, may not be all bad for longer-term investors who can stomach the short-term volatility, says Capital Group equity strategist Kathrin Forrest. Brenda Bouw talked to her to find out what she’s been buying and selling.
Five dividend ETFs to help you through the market madness
Readers sometimes ask John Heiznl: What’s your favourite dividend ETF? He’s narrowed it down to these five.
Others (for subscribers)
The most oversold and overbought stocks on the TSX
Monday’s analyst upgrades and downgrades
Global Investing
Nasdaq halts IPOs of small Chinese companies as it probes stock rallies
China stocks tumble as Xi’s team fans economic concern; yuan weakens
Ask Globe Investor
Question: I am planning to retire in 2023, and I would like to plan for my retirement drawdown from my LIRA and RRSP accounts.
Since I only have balanced funds (60 per cent equity, 40 per cent fixed income) in my LIRA/RRSP accounts, I am thinking of having two years’ worth of necessary cash and the rest in balanced funds to start my retirement drawdown. I will move money from the balanced fund to the cash bucket every year to top up if the market did well, otherwise later.
However, I came across another strategy: five years of necessary cash and the rest in growth securities (such as a global equity index ETF), to start the drawdown. I would move money from the growth segment to the cash bucket every year to top up if the market did well, otherwise later.
I would appreciate it if you could comment on the above approaches, comparing both and providing the pros and cons. Or suggest any other approach for my purpose.
Answer: The growth approach is more aggressive and could potentially result in losses. Having five years of income in cash greatly reduces the risk but it means that a significant amount of your capital will be earning a very low return. It’s impossible to predict whether your gains from the growth sector will offset the loss of profit from the expanded cash holdings, but it’s something you should consider.
The balanced approach is the more conservative solution and ties up less of your capital in cash.
Another approach used by conservative investors is a laddered GIC, and it’s worth considering now that interest rates are rising. Keep a year’s worth of cash aside and invest the balance equally in five GICs maturing in each of the next five years. At the end of year one, when the first GIC matures, set aside the amount of cash you’ll need that year and reinvest the balance in a new five-year term. This way, you’ll always have just one year of cash, while the rest of your money earns interest. The returns will probably be lower than either the balanced or growth approaches, but you’ll have less capital tied up and virtually zero risk.
--Gordon Pape
What’s up in the days ahead
Tempted to buy some bonds after their recent pummelling? Veteran fixed income fund manager Tom Czitron will have some suggestions.
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Compiled by Globe Investor Staff