Retired Money

By Jonathan Chevreau on January 24, 2024
Estimated reading time: 8 minutes

By Jonathan Chevreau on January 24, 2024
Estimated reading time: 8 minutes

GICs were embraced by many Canadian investors last year, whether conservative or not. With rates expected to fall again in 2024, how should retirees and near-retirees incorporate them?

For years, the humble GIC—guaranteed investment certificate—was disparaged by the fixed-Income cognoscenti and more often than not financial advisors. But, things started to change when interest rates started rising a few years ago in Canada and the U.S. As of January, DIY investors in Canada should be able to find 1-year GICs paying about 5%, falling to a tad over 4%, if you go out four or five years.

While fixed-income investors were brutalized in 2022 with unexpected losses even in supposedly safe bond funds, Canadian investors who put some of their fixed-income into GICs were likely spared the carnage.

That includes my family, who for the last few years had parked some cash into laddered 2-year GICs. Today, we are gradually laddering into 5-year GICs while crossing our fingers that our modest bond exchange traded fund (ETF) positions return at least to a break-even level.

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To be sure, some financial advisors are still skeptical about GICs—even now with rates at near-generational highs. It’s true that GICs can be a bit illiquid if you lock up your funds for 5 years, although you can get around that by laddering and having some mature two or three times a year. Another option is cashable GICs, which pay a bit less in return for the added flexibility.

A recent MoneySense survey on “Bad Money advice” touched in part on GICs. Almost 900 readers were polled about what financial trends they had “bought into” at some point. The list included AI (artificial intelligence), crypto, meme stocks, side hustles, tech and Magnificent 7 stocks and GICs. Perhaps it speaks well of MoneySense readers that the single most-cited response was the 49% who said “none of the above.” The next most cited was the 16% who cited a “heavier allocation to GICs.”

I did find a couple of other........

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