How is market-linked GIC?
Just know this kind of GIC recently. It is said it has the potential to make more profit. Anyone knows about it? Is it worth to invest in?
Dec 3rd, 2018 1:40 am
Dec 3rd, 2018 3:33 am
Dec 3rd, 2018 9:20 am
Dec 3rd, 2018 9:35 am
Sometimes, only the principal is guaranteed, and at the end of a term, you could earn zero interest. It sounds bad, but in the market conditions that would lead to that, some investments would be losing value.
Dec 3rd, 2018 11:03 am
Dec 3rd, 2018 1:17 pm
This makes sense when considering putting all your money into the market versus putting everything into a market-linked GIC... but fortunately those aren't the only 2 options. You could also split your money between the market and a regular GIC.rkjredflag wrote: ↑ Sometimes, only the principal is guaranteed, and at the end of a term, you could earn zero interest. It sounds bad, but in the market conditions that would lead to that, some investments would be losing value.
Dec 3rd, 2018 1:40 pm
I think these market linked GICs have their target customer as a nervous investor, who is risk adverse, and not interested in doing a lot of reading and learning to better understand their options. But, they want the opportunity to earn more, than some base GIC rates.nmclean wrote: ↑ This makes sense when considering putting all your money into the market versus putting everything into a market-linked GIC... but fortunately those aren't the only 2 options. You could also split your money between the market and a regular GIC.
From many places you can get a 5-year GIC for 3.5%, compounding annually, which is about 19%. If that's half the money, the other half could lose 18% and you would still have the 1% gain (on half... 0.5% gain on the total). Consider that even in the recent crashes of 2000 and 2008, there was never a total loss of more than 11% over any 5 year period (source).
You could go more conservative and put 75% in the GIC. If the market lost 50%, it only takes 12.5% off your total, but the GIC adds 14%. So even with a repeat of the Great Depression you would earn something, not zero.
In the more common case, you would see 40% or more from the market. On 50/50 that's a 30% gain, and on 75/25 it's a 24% gain. These market GICs are usually capped, don't include dividends, or have some other rule that lowers your potential return. I think in most cases it's much more worth it to just take the split approach with an index fund, and treat both as if they are locked in.
Dec 3rd, 2018 2:25 pm
Dec 4th, 2018 11:13 am
I agree with your comments 100%.zcypher wrote: ↑ Just be sure to carefully understand the terms and conditions. Usually, people buy GICs because they offer a bit higher rate than high interest savings account in exchange for the funds being locked in for a certain period of time and it's guaranteed as the name implies. However, with market-linked GICs usually the guaranteed part is just the principal and a very low rate. For example with TD: https://www.tdcanadatrust.com/products- ... CTable.jsp
Those rates look good right? TD Canadian Top 60 GIC, guaranteed return: 5%. Not so fast. Scroll down to the fine print at the bottom, and it says "Equivalent to the total return over the term of the investment (i.e. not an annualized rate)". The ACTUAL guaranteed return on those market linked GICs are between 0.3%-0.9%! Yikes.
I highly recommend sticking to the standard high interest savings and regular GICs if you're extremely risk-averse (guaranteed not to go down in value). There are some financial institutions offering up to 3.75% on GICs right now, but those rates are usually for 5-year terms. I think EQ Bank has the highest short term rate for 3 months at 3.33%. Otherwise, accepting some level of risk brings in the possibility of much greater returns in the market. Can't have it both ways.
Dec 4th, 2018 1:25 pm
Looks like Meridian is one: https://meridiancu.ca/personal-banking/ ... yrgic.aspx
Dec 4th, 2018 8:50 pm
Dec 4th, 2018 10:47 pm
Dec 6th, 2018 9:02 am
Dec 6th, 2018 5:40 pm
Your warning about TD GIC's is on the money, I had to help an aunt get out of such a GIC where TD did not mention the rate is not annual, TD reps seem to care more about the commission they make on these than on making sure their GIC customers are fully informed of their investments.zcypher wrote: ↑ Just be sure to carefully understand the terms and conditions. Usually, people buy GICs because they offer a bit higher rate than high interest savings account in exchange for the funds being locked in for a certain period of time and it's guaranteed as the name implies. However, with market-linked GICs usually the guaranteed part is just the principal and a very low rate. For example with TD: https://www.tdcanadatrust.com/products- ... CTable.jsp
Those rates look good right? TD Canadian Top 60 GIC, guaranteed return: 5%. Not so fast. Scroll down to the fine print at the bottom, and it says "Equivalent to the total return over the term of the investment (i.e. not an annualized rate)". The ACTUAL guaranteed return on those market linked GICs are between 0.3%-0.9%! Yikes.
I highly recommend sticking to the standard high interest savings and regular GICs if you're extremely risk-averse (guaranteed not to go down in value). There are some financial institutions offering up to 3.75% on GICs right now, but those rates are usually for 5-year terms. I think EQ Bank has the highest short term rate for 3 months at 3.33%. Otherwise, accepting some level of risk brings in the possibility of much greater returns in the market. Can't have it both ways.
Dec 7th, 2018 2:12 pm
Dec 7th, 2018 9:42 pm
Dec 7th, 2018 11:51 pm
I suppose it’s a matter of perspective, but even though there’s a minimum return and no risk to principal, I do view the market-linked products as “risking” the much higher guaranteed growth that regular GICs offer.MarinersFanatik wrote: ↑ Would this be a reasonable investment if I wasn't willing to risk losing any of the principal but still wanted higher returns than a traditional GIC would yield? My parents might be downsizing soon and they're probably going to have some money to invest, but are not likely going to want to risk losing any of the principal.
Dec 7th, 2018 11:59 pm
I've looked at ScotiaBank's Equity Powered GIC and it looks like they have one that offer a potential max of 44% over a 5-year term. Thought that might be interesting.Mike15 wrote: ↑ I suppose it’s a matter of perspective, but even though there’s a minimum return and no risk to principal, I do view the market-linked products as “risking” the much higher guaranteed growth that regular GICs offer.
Looking at TD’s products, for example, their market-linked Bank&Utility (50% TSX Bank Index, 50% TSX Utility Index) product is:
2yr - Min 0.75% Total after 2yrs, Max 5.5% Total
3yr - Min 2.00%, Max 18.88%
5yr - Min 2.75%, Max 25%
No risk to principal, right? But you’re “risking” the guaranteed gain you’d get in another product to potentially have a shitty minimum return. TD’s “normal” GIC rates are 1.6%, 1.8%, 2.2% for those terms, per annum, compound interest. A place like Oaken would be better, but even at TD’s rates, $10,000 principal would be guaranteed $10,323 2yr, $10,550 3yr, $11,149 5yr. You’re risking a guaranteed $11,149 to instead be as low as $10,275 so maybe it could be as high as $12,500. Go with a 5yr 3.60% at Oaken and you’re guaranteed $11,934... almost up to TD’s maximum. 5 year’s an extreme example, but 2yr and 3yr look good at a higher-yield “non-bank” lender too. 3yr 3.35% at Oaken is guaranteed $11,039.
Some of TD’s other market indices are even worse deals.
Dec 8th, 2018 12:18 am
At first glance that does seem like it has better potential than TD’s. It is tied to their chosen basket of 10 particular equities though. Could be great, or Enbridge and QSR performance could drag down strong BMO and NBC returns. Or vice versa. That one’s also got 0% minimum return, which is losing money after inflation.MarinersFanatik wrote: ↑ I've looked at ScotiaBank's Equity Powered GIC and it looks like they have one that offer a potential max of 44% over a 5-year term. Thought that might be interesting.
ScotiaBank Equity Powered GICs