Personal Finance

How is market-linked GIC?

  • Last Updated:
  • Dec 8th, 2018 12:18 am
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Newbie
Jun 14, 2018
74 posts
68 upvotes
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.
Deal Fanatic
Nov 24, 2013
5539 posts
2140 upvotes
Kingston, ON
MarinersFanatik wrote:
Dec 7th, 2018 9:42 pm
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.
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.
Newbie
Jun 14, 2018
74 posts
68 upvotes
Mike15 wrote:
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.

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.
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
Deal Fanatic
Nov 24, 2013
5539 posts
2140 upvotes
Kingston, ON
MarinersFanatik wrote:
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.

ScotiaBank Equity Powered GICs
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.

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