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Email this4:20 pm
April 27, 2017
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zgic said
I saw that and I am saying that I am getting today:
2 year GIC for 3.90% from RBC Direct Investing. 5 years still higher. So those are outdated numbers.
Sorry, the point is that we know the actual real return for the last 5 years, which is negative on 5-year GICs. I have zero idea what the real return will be on your 2 year GIC, so it's completely useless for the purpose of illustrating inflation risk. We are not talking about current rates, we are talking about current risks.
4:44 pm
August 27, 2026
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I just cannot help myself.
You said:
“Sorry, the point is that we know the actual real return for the last 5 years, which is negative on 5-year GICs. I have zero idea what the real return will be on your 2-year GIC, so it’s completely useless for the purpose of illustrating inflation risk. We are not talking about current rates; we are talking about current risks.”
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If you go with the 5-year GIC under those specific conditions, that is one thing. But it is not a real-world example, as I stated before, if you manage the portfolio well.
You have zero idea what the after-inflation return is on a 4.25% GIC when the latest inflation reading was 3%. The after-inflation return is 4.25% − 3% = 1.25% for this year.
As I said, a real-return bond is a government bond that adjusts for inflation. I gave you the bond number and maturity date. It provides a return plus inflation protection.
I would question how we can discuss these things when you do not know how to calculate the after-inflation return on anything. You do not know what a real-return bond is? Why?
You raised a concern about inflation and GICs (bonds). This solves that problem.
I consider myself an average investor, and I know enough to be able to speak about the effects of inflation on a portfolio.
It is impossible to discuss these things with someone who does not understand or agree on the basics of economics. Without that understanding, how do you invest?
5:36 pm
April 27, 2017
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Real return bonds are no longer issued in Canada as of 2022. You can buy them on secondary market. They are basically illiquid with a large spread. You can hypothetically buy a “second-hand” 100K 3% RRB and hold it until maturity in 2036. That coupon gets taxed, of course. So effectively there is no market because nobody buys or sells them.
I would question how we can discuss these things when you do not know how to calculate the after-inflation return on anything. You do not know what a real-return bond is? Why?
Thanks for illustrating that every accusation is an admission. Bye. Ignore.
7:12 pm
August 30, 2023
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mordko said
Sorry, the point is that we know the actual real return for the last 5 years, which is negative on 5-year GICs. I have zero idea what the real return will be on your 2 year GIC, so it's completely useless for the purpose of illustrating inflation risk. We are not talking about current rates, we are talking about current risks.
But GICs are the only fixed income vehicles to beat inflation. As even GoC bonds give lower returns.
7:36 pm
April 27, 2017
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zgic said
But GICs are the only fixed income vehicles to beat inflation. As even GoC bonds give lower returns.
We don’t know that because we don’t know future inflation. Inflation during turbulent times is notoriously hard to predict. And we do know that GICs don’t always beat inflation. It's a risk and probability of losing purchasing power by locking in is far, far higher than the probability of events which CDIC and CPIF would cover.
7:49 pm
August 30, 2023
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mordko said
We don’t know that because we don’t know future inflation. Inflation during turbulent times is notoriously hard to predict. And we do know that GICs don’t always beat inflation. It's a risk and probability of losing purchasing power by locking in is far, far higher than the probability of events which CDIC and CPIF would cover.
I am just saying, if you want to stay in fixed income, there is no other choice than GICs for better yield with similar risk. Period.
4:33 am
August 27, 2026
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mordko said
Real return bonds are no longer issued in Canada as of 2022. You can buy them on secondary market. They are basically illiquid with a large spread. You can hypothetically buy a “second-hand” 100K 3% RRB and hold it until maturity in 2036. That coupon gets taxed, of course. So effectively there is no market because nobody buys or sells them.I would question how we can discuss these things when you do not know how to calculate the after-inflation return on anything. You do not know what a real-return bond is? Why?
Thanks for illustrating that every accusation is an admission. Bye. Ignore.
Well, Aviso makes a market in them, according to research, and will sell them retail.
But the good broker I had there, who was a CA, retired. I really liked him liked me, and the new guy is not very good at all.
Does anyone have a good full-service broker who sells all the products and has a CA or another accounting degree, specializing in taxes as a CA does?
The last guy I really liked and was convinced that GICs were the way to go. Or maybe a little bank stock You can get ahead of inflation with GICs and don’t always lose, as the article suggested in a magazine that makes its money by selling ads to companies that sell stock products.Now we are getting Down to stuff that might be useful to me
6:38 am
April 27, 2017
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zgic said
I am just saying, if you want to stay in fixed income, there is no other choice than GICs for better yield with similar risk. Period.
For myself the choice was bond ETFs and cash because rebalancing is a key part of my overall risk management approach. I can’t lock in by having most fi in GICs, it's too risky. Ben Felix has a good video on this.
8:24 am
October 27, 2013
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zgic said
But GICs are the only fixed income vehicles to beat inflation. As even GoC bonds give lower returns.
That would need fact sourcing over rolling periods of time to be certain and it may not be easy to find research on that in the context of 20-50 years of history. https://www.ratehub.ca/blog/th.....gic-rates/ provides some insight on this whereby GICs have generally provided a pre-tax real return but marginally so, and not always. On an after tax basis for most....who pay income taxes, GICs do not appear likely provide an after tax real return on a 5, 10, or 20 year rolling period basis.
Posts here which try and justify a position with a sound bite at a point in time, e.g. current GIC rates at RBC DI, are data mining. They don't lend any credibility to one's argument for value over sustained periods of time.
I have bought GICs from time to time over since the 1970s but only as a means to 'essentially stay whole on a real, after tax basis'. IOW, a place to 'hold' funds and not lose on a real, after tax basis. I have never held GICs as a means of growing wealth because they don't do that. For that, one needs to move to asset classes with a risk/reward ratio as my links to Stingy Investor https://www.stingyinvestor.com.....etMixer.pl prove again and again and again.
I do concur GICs have out performed equivalent terms of Government bonds, with approximately the same degree of security, at least at a federal level but they don't beat inflation either on an after tax basis. One has to move into the investment grade corporate bond sector to do that, and/or to increase term relative to 5 year GICs and it is not clear to me the premium outweighs the risks (credit, term and security risk) of doing so.
There are all sorts of bond ETFs one can analyze on a 1, 5, 10 and longer basis on Morningstar or otherwise, to compare nominal returns and perhaps compare those returns with the GIC graph in https://www.ratehub.ca/blog/th.....gic-rates/ I leave that to the reader to analyze the differences and whether the risk (as measured by volatility) is worth it. I no longer think bonds are worth it.
This thread long ago migrated from insurance risk, e.g. CDIC vs CU Deposit Insurance vs CIPF, which is a different matter (from performance return). Some place great importance in the differences and it can be, for anyone entrusting their accounts to marginal players in the marketplace who do not have a long track record and a significant standing (reputation) in the market. I simply do not go down that rabbit hole. I have a diversified portfolio held at a big bank brokerage for which CIPF insurance is essentially meaningless.
3:58 pm
August 30, 2023
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AltaRed said
That would need fact sourcing over rolling periods of time to be certain and it may not be easy to find research on that in the context of 20-50 years of history. https://www.ratehub.ca/blog/th.....gic-rates/ provides some insight on this whereby GICs have generally provided a pre-tax real return but marginally so, and not always. On an after tax basis for most....who pay income taxes, GICs do not appear likely provide an after tax real return on a 5, 10, or 20 year rolling period basis.
Posts here which try and justify a position with a sound bite at a point in time, e.g. current GIC rates at RBC DI, are data mining. They don't lend any credibility to one's argument for value over sustained periods of time.
I have bought GICs from time to time over since the 1970s but only as a means to 'essentially stay whole on a real, after tax basis'. IOW, a place to 'hold' funds and not lose on a real, after tax basis. I have never held GICs as a means of growing wealth because they don't do that. For that, one needs to move to asset classes with a risk/reward ratio as my links to Stingy Investor https://www.stingyinvestor.com.....etMixer.pl prove again and again and again.
I do concur GICs have out performed equivalent terms of Government bonds, with approximately the same degree of security, at least at a federal level but they don't beat inflation either on an after tax basis. One has to move into the investment grade corporate bond sector to do that, and/or to increase term relative to 5 year GICs and it is not clear to me the premium outweighs the risks (credit, term and security risk) of doing so.
There are all sorts of bond ETFs one can analyze on a 1, 5, 10 and longer basis on Morningstar or otherwise, to compare nominal returns and perhaps compare those returns with the GIC graph in https://www.ratehub.ca/blog/th.....gic-rates/ I leave that to the reader to analyze the differences and whether the risk (as measured by volatility) is worth it. I no longer think bonds are worth it.
This thread long ago migrated from insurance risk, e.g. CDIC vs CU Deposit Insurance vs CIPF, which is a different matter (from performance return). Some place great importance in the differences and it can be, for anyone entrusting their accounts to marginal players in the marketplace who do not have a long track record and a significant standing (reputation) in the market. I simply do not go down that rabbit hole. I have a diversified portfolio held at a big bank brokerage for which CIPF insurance is essentially meaningless.
Thanks AltaRed for your detailed answer.
Summarizing for my understanding:
GoC bonds are not better than GICs
Bond ETFs - NOT worth it
GICs - a place to 'hold' funds and not lose on a real, after tax basis.
I am also trying to think how to make my life simple (which vehicle to use and not think of money management ruling one's life) as lot of thinking already goes into executing a stock portfolio
Also if GICs are not really a good tool, I fail to understand why hundreds of people on this site discuss daily about GICs and HISAs (and the charts) and find this site so useful and discuss about all these small promos (few months) with so much attention. 
5:20 pm
September 11, 2013
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zgic, this site is for people who are interested in earning some interest income from part or all of their portfolio, simple as that.
And no-one said GICs are not a good tool for that. They may or they may not be depending on various factors in each person's situation.
Nor would I assume you can't "lose on a real, after tax basis". You may, or you may not, depending on what happens with inflation rate and taxes during the time you hold them.
5:02 am
August 30, 2023
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Bill said
zgic, this site is for people who are interested in earning some interest income from part or all of their portfolio, simple as that.And no-one said GICs are not a good tool for that. They may or they may not be depending on various factors in each person's situation.
Nor would I assume you can't "lose on a real, after tax basis". You may, or you may not, depending on what happens with inflation rate and taxes during the time you hold them.
Thanks Bill. You summed it up nicely in 1 sentence. “ To earn interest income from part or ALL of their portfolio“
12:26 pm
November 21, 2015
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One should hold only those "where to put my money" instruments that one can peacefully sleep with, and not feel remorseful if something does not work out according to one's mental models, projected interpretations, and constructed scenarios. At "that time" it looked as a good idea, so what? Conflict exists in the mind of the observer and not in the subject matter. The world preys on people's greed and it telling them to invest "to get more". Is 100K enough? Is 1M enough? Are 10M enough? Irrespective of one's wealth you always hear of "your" need to earn more. I use Peter's site, this site, to get a whiff of "safe", insurance covered promos resulting in 4.90% average, enough to support my lifestyle of today and that of the future. Thank you, Peter, for maintaining this forum. In peace, julio.
1:42 pm
October 27, 2013
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Bill's post is indeed succinct and to the point. Many folk have a fixed income component to their portfolio, some more than others and are willing to accept various degrees of certainty relative to yield.
4:33 am
August 30, 2023
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AltaRed said
Bill's post is indeed succinct and to the point. Many folk have a fixed income component to their portfolio, some more than others and are willing to accept various degrees of certainty relative to yield.
But when someone said that, one could make their entire portfolio with GICs, it did not get any positive comments here I believe.
10:21 am
October 27, 2013
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zgic said
But when someone said that, one could make their entire portfolio with GICs, it did not get any positive comments here I believe.
That is where we part ways. I do not believe for one minute, nor do I believe Mordko believes, nor do a majority of other people believe that one can have an entire portfolio in 'secure' investments such as GICs and HISAs and build any wealth.
At the best, one can likely only stay even on a post-inflation, after tax basis over rolling periods of time of 3, 5, 10 years. That will vary a bit depending on one's individual marginal tax rate and how much work people are willing to put in to 'reach for yield' in promos and non-CDIC/CUDIC insured vehicles such as corporate bonds, long(er) terms such as 10 years, etc.
'Staying even' may be good enough for some and I accept that premise, but if one really wants 'their money to make money', they will need to have a portion of other investments in their portfolio that have capital risk and pricing volatility to them to receive additional 'reward' (return). There are many ways to do that in a measured, calculated way that is beyond the scope of this forum/website. Hence my linked references to the Stingy Investor Asset Mixer in post #49. It is why resources like https://www.finiki.org/wiki/Main_Page exist. Investing has never been easier and never been more investor friendly than it is today.
To the extent we cannot agree, as evidenced in 50 or so posts in this thread, we will simply need to agree to disagree.
11:25 am
August 30, 2023
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I invest in stocks too.
I think there is some confusion here.
Once wealth is built, which might be the situation for many folks here:
“ To earn interest income from part or ALL of their portfolio“
11:06 am
August 30, 2023
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mordko said
For myself the choice was bond ETFs and cash because rebalancing is a key part of my overall risk management approach. I can’t lock in by having most fi in GICs, it's too risky. Ben Felix has a good video on this.
I do a total of just < 100k (principal+interest) as each CDIC GIC with each separate institution.
Currently RBC Direct says they have over over 20 Canadian financial institutions.
Also just started my first GoC bond of 10k
11:17 am
April 27, 2017
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zgic said
I do a total of just < 100k (principal+interest) as each CDIC GIC with each separate institution.
Currently RBC Direct says they have over over 20 Canadian financial institutions.
Also just started my first GoC bond of 10k
Yes, this deals with the CDIC issue (at the expense of added complexity) but my point was a little different. The only reason I have fixed income is to do with risk management for the overall portfolio. So, I keep a fixed allocation of 70% equity and 30% fixed income. Say the stock market tanks… That's the only time I really need my fixed income - to rebalance by selling bonds and buying stocks. If it's all sitting in GICs then it becomes unusable and therefore useless. I can have some GICs as long as most of my FI is in liquid assets. That's what I need to manage risks that matter to me, and which are far higher than those covered by CDIC.
