Who doesn’t know that guaranteed investment certificates were a terrible investment until the Bank of Canada started raising interest rates last year?
I only ask because of attempts made by advisers and investment companies to trash GICs by comparing their past performance against stocks, bonds and various investment products. Wow, do GICs look weak. Wouldn’t you be better off with some nice bank mutual funds instead, or perhaps a market- linked GIC offering returns tied to stocks?
The point of highlighting the patheticness of past GIC returns is to drive sales of more lucrative products. It’s certainly not to provide objective investing commentary. If that were the case, then an acknowledgement would have to be made that a long decline in interest rates in past decades killed GIC returns while also turbo-charging stock and bond returns.
Looking forward, diversified portfolios of stocks and bonds will likely outperform GICs if you can hold at least five to 10 years or more and not sell at a low point. What GICs give you is a locked-in, guaranteed return of 5 to 6 per cent annually for the next through five years.
Historical GIC returns can be found in a chart on the ATB Investment Management website that shows one-year GICs averaged 4.1 per cent since 1982, five-year GICs averaged 5.6 per cent and a diversified portfolio with a 60 per cent weighting in bonds and 40 per cent in stocks averaged 8.9 per cent. Inflation averaged 2.7 per cent, so all these investment options produced real returns, which means in excess of inflation. Note that these returns are all shown on a pre-tax basis. GICs produce interest income, which in non-registered accounts is taxed with a heavier hand than dividend income or capital gains.
The ATB chart actually flatters GICs by including the 1980s, a period of sky-high rates. A little over three years ago, the best GIC rates available were roughly 1.5 to 2 per cent for terms of one through five years. Incidentally, the chart flatters balanced portfolios of stocks and bonds as well. It’s unlikely they’ll produce returns close to 9 per cent in the years ahead.
Historical GIC returns do have some relevance in that they remind us GICs will never win any long-term performance contests. Down the line, today’s GIC investors will have to consider a move into riskier assets with the potential for better returns.
For now, GICs offer guaranteed, competitive returns for one through five years. In today’s hyper-stressful world, there’s a market for that.
— Rob Carrick, personal finance columnist
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Question: I have a great-nephew who was born in Central America six months ago. His parents (both Canadian citizens) live and work there. He has a Canadian passport. Can you suggest how to set up a registered education savings plan for someone who does not live in Canada?
Answer: Unfortunately, you and your great-nephew are out of luck. According to the Government of Canada website:
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TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
