When you hear the term GIC, I know what you’re probably thinking. Why would I lock my money up at today’s low interest rates? While that may be a fair point, you shouldn’t dismiss GICs outright. They still make sense for some investors; mainly those who are risk adverse seeking a stable long-term return.
Let’s take a closer look at long term GICS and why you should still consider investing in them.
What is a Long Term GIC?
Before we discuss long term GICs, it helps to understand what a GIC is. GIC is short for guaranteed investment certificate. It’s considered a safe and secure investment similar to a savings account. However, unlike a savings account where you can withdraw your money at any time, with a GIC your money is locked up for a set period of time (referred to as the term).
GICs are considered a low risk investment. That’s because you don’t have to worry about losing the money you sink into them, as your initial investment is fully guaranteed. In exchange for locking up your money, you’ll earn interest on your money for the duration of the GIC term.
Now that you understand what GICs are, let’s discuss long term GICs.
A long term GIC is simply a GIC with a term of one year or longer. Although GICs usually vary in length, the term is typically one to five years, seven years or 10 years. Usually the longer you lock in your money, the higher the interest rate you’ll earn.
When a Long Term GIC Makes Sense
With interest rates as low as they are, you may be wondering if it’s a good idea to lock up your money at today’s GIC rates, especially when interest rates could head higher in the future. It’s really a crapshoot. The so-called experts, economists, have been saying that interest rates would be heading higher for years and so far that hasn’t happened. Interest rates have actually gone down, not up.
Instead of trying to time the market and speculating on where interest rates are heading in the future, it’s helpful to come up with an investment strategy for your GICs. GIC laddering is a popular way to spread risk when investing in GICs. When you ladder your GICs, instead of sinking all your money into one GIC, you spread the risk by buying several GICs, with each one timed to mature one year after the other. By laddering your GICs, you don’t have to worry about timing the market.
While long term GICs can be decent investments, unless you’re super risk-adverse, you probably don’t want to invest your entire portfolio into long term GICs. That being said, long term GICs can be perfect to add to the fixed income portion of your investment portfolio. Although long term GICs don’t tend to offer as high a potential return as stocks, mutual funds and ETFs, they remain a safe, solid investment that have a place in many investment portfolios. As you can see long term GICs like the ones found on RateSupermarket.ca can be a worthy addition to your investment portfolio. Next time you’re considering investing your money into something; hopefully you’ll consider sinking s