Canadians Love GICs: Can They Do Better?

Group 1: Overview of GICs - Guaranteed Investment Certificates (GICs) have over $500 billion of Canadians' money invested, gaining popularity due to rising interest rates offering returns above 5% [3][20] - GICs have been a traditional investment choice for retirees focused on wealth preservation, but younger investors are increasingly using them as well [4][6] - GICs are issued by financial institutions, providing a guaranteed return and principal protection up to $100,000 per category, per institution through the Canada Deposit Insurance Corporation (CDIC) [4][8] Group 2: Investment Considerations - Investors must consider term length and whether to choose redeemable or non-redeemable GICs, as longer terms typically yield higher rates [6][8] - Liquidity is a significant factor; traditional GICs are locked until maturity, which can be limiting for investors needing quick access to cash [5][7] - GICs may not be risk-free, especially if investors have uncertain short-term cash needs, as they could miss opportunities for better returns elsewhere [8][20] Group 3: Alternatives to GICs - Money Market ETFs are presented as a more liquid alternative for managing cash, investing in short-term, high-quality debt, and allowing for trading during market hours [9][10] - BMO's Money Market ETF (ZMMK) yields around 2.6%, while ultra-short-term fixed income ETFs like BMO Ultra Short-Term Bond ETF (ZST) offer slightly higher yields with slightly more risk [11][12] - Investors should consider the tax implications of interest income from GICs and ETFs, and the potential benefits of holding these investments in tax-advantaged accounts [16][18] Group 4: Long-Term Considerations - While GICs may provide short-term safety, they risk losing buying power over the long run due to inflation, which can erode returns [22][23] - Historically, equity markets have outperformed fixed income investments over long time horizons, suggesting that GICs may not be suitable for long-term growth [22][23] - Investors should evaluate their cash needs and risk profiles when deciding between GICs and other investment options, considering both pre-tax interest rates and inflation [25][26]