Where should you invest your money?
Seems like a simple question, but there are quite a few right (and wrong) answers. It really depends on how different asset classes perform and the factors driving that performance. A popular way to invest with confidence is to look at the best performing assets over a certain time period. Not only will it tell you what to expect in the way of return on investment, it’ll also help you understand how to position your investments in the short- and long-term. GIC’s, Gold and Bitcoin, all 3 of them have been in the conversation as safe haven for market volatility. Let’s analyze how they did and how safe they are.
GIC’s
GICs are short-term savings products issued by institutions such as banks, trust companies and credit unions. Think of a GIC as an 'I owe you' – you loan an institution a sum of money for a specified period, and in return, the institution pays you a specified rate of interest and returns your original principal on the stated maturity date. GICs are considered short-term products as they typically have holding periods between one to five years.
The advantage of GIC’s is the principal protection. Unlike stocks and bonds, which can be volatile and rise and fall in value, GIC’s do not change in value and don’t fluctuate. Disadvantages are that they must be held until maturity or penalties apply. Unfavourable taxation and very low returns are characteristic also. GIC’s used to be attractive but haven’t been over the last few decades. Their returns can’t keep up with inflation and after tax, they are a losing proposition. In a market downturn, some look to GIC’s because they are not happy with their current returns and out of fear for more volatility. Moving money into GIC’s when markets are down is an understandable reaction, but destructive to overall returns.
Someone who started a GIC at the beginning of 2023 as a response to their negative 2022 investment statements, has most likely locked in at around 4.8%. Halfway through the year, markets are up about 10%. GIC’s have always been outperformed by the markets, unless you can precisely time a market downturn. So, why do we use GIC’s for some clients, knowing that performance will not be favourable? For some investors and some situations, GIC’s can be a viable choice. Unfortunately, many use it to protect their assets at the wrong time. But investing is not always just about the numbers. Sometimes the peace of mind from having your principal protected, can be more valuable than a few extra percentages and GIC’s can be part of your overall retirement strategy.
Next week we look at Gold and Bitcoin.
