Typically, a large number of people have Canada Savings Bonds or GICs maturing this fall, and, typically, they have not considered where to reinvest the money because the money has been tied up for several years. People only become concerned about this money the year that the investments mature. If these maturities have not been accounted for in your existing financial plan, it is necessary to make some adjustments by adding the funds and reviewing your diversification in relation to your needs.
The Bank of Canada held steady on the rates last month, which means that your maturing GICs or bonds will not be getting rates any higher than those that have been available all summer. Summer, on the other hand, was not so steady in the markets. We saw a lot of volatility and year to date gains washed away in a matter of weeks.
I receive a number of phone calls from people just wanting to ask me a question, and it shows that many people have the same concerns, but, because the needs aren’t the same, there is no common answer. Questions beget questions and how would you answer these: Do you require a monthly income from your investments? Do you draw any principal down with your withdrawals? Do you know how long your money will last? What is your first, second and third priority – safety, income or growth? Do you understand and are comfortable with what risk means to you? Over $100,000. in GICs at one institution may be low risk to one person, but blue-chip dividend paying stocks may be low risk to another individual.
Another common question: “can I avoid having benefits clawed back?” Once again, there are a number of items to look for in portfolios; one that is often the culprit is holding interest bearing instruments such as GICs outside an RRSP, and, dividend or capital gain potential held inside your RRSP.
Another tweak to your portfolio may be to exchange an interest paying mutual fund for a dividend paying one. Take advantage of return of capital funds; you still have the potential for growth, and you may not lose some of your benefits because your income is too high.
If you wish to have a 100% government guarantee, you will be choosing from institution’s GICs (CDIC and CUDIC limits are $100,000. per owner(s)/per institution) and government treasury bills, which really have no limit as the government guarantees the full amount.
Currently the GIC rate is higher than the T-bill rate; so many people spread their investments around various companies in order for the full amount to be safe. Once again, make sure you maximize your return by checking out the offers from different companies, and, never just let a maturity automatically roll over into another term.
In most cases you will be locked in, and you will not have received the best available rate. As always, as a service, you should have received a reminder call from the institution ahead of the maturity. This gives you time to discuss and think about your options.
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