Fixed income should be a part of every investor’s portfolio, says Tim Wilson, vice president, chief financial officer, Equitable Trust in Toronto, and guaranteed income certificates (GIC) are currently the best option to consider for that asset class.
“[GICs] are particularly interesting at this point in the economic cycle,” says Wilson. “There is still a lot of uncertainty, we’ve seen volatility in the stock markets recently, which reinforces having a portion of everybody’s portfolio allocated to, what you’d call, fixed income products.”
In selecting a fixed income product, Wilson argues that investors, and their advisors, should choose GICs because they have “substantially outperformed” other traditional products, such as money market funds and government bonds. For example, an investment in a three-year GIC, said Wilson, would see a return of 2.6% compared to 1.9% in a government of Canada bond or 0.5% in a money market fund.
While a GIC return in the two to three per cent range still may seem low to some advisors and their clients, that return is still high enough to beat inflation, according to Wilson. “The latest core inflation number I saw was 1.1%,” he says, “and a five-year GIC would return more than double that.”
As well, Wilson suggests that GICs are useful for investors at any age and not just for people in retirement. GICs can help investors who are saving for a child’s education in a registered education savings plan, says Wilson, or a young couple saving for their first home. “They’re concerned about their principle,” he says, “they need to park their money in something safe and secure and beat the rate of inflation.”