After years of being forced into the stock market, investors may have another option in a long-ignored financial instrument
Yield-seeking investors who have long been pushed into the stock market could now have a new option as return rates on guaranteed investment certificates (GICs) increase, according to the head of one Bay Street money manager.
“TINA is gone,” Lyle Stein, president of Forvest Global Wealth Management, said in a recent interview with BNN. “GICs are now affording that alternative.”
While conceding that the difference tax treatment of dividends and interest income could be a factor, he compared the return of a GIC to the 4% dividend yield of the Royal Bank of Canada.
Presently, many GIC products with terms of at least one year provide return rates that are more than 4%. Since the money invested in GICs is insured, they also provide more protection than stocks.
Investors have been shifting cash out of RBC’s mutual funds and into GICs, the Big Six bank's executives acknowledged during a conference call announcing earnings last week. According to them, RBC’s GIC products have seen $10 billion in inflows just in the past few months.
Stein added that it is his responsibility as an asset allocator to invest capital in ways that would yield the highest rates of return to satisfy client needs.
“Investing is about basically saying, ‘Where do I want to allocate my money today, to meet my needs at some point in the future,’” he said.
“And if you can do that with a high degree of certainty — there is in effect no risk. If you need $25 five years from now — are you better off putting $100 into a five-year GIC or playing the market, knowing that you may not have that $25 that you need? You can decrease your risk by matching the investment you make to when you need the money.”
