Quote:
Originally Posted by PeanutButter
The only people who care about a 5% GIC are old people with cash.
Don't forget the S&P's average annual return is 10%, so when the risk free rate gets closer to that number, more people will simply go with the risk free rate. Risk free rate referring to GIC's and the like.
There are many in my parent's generation, my uncle included who lost their shirt in the dot.com bubble and ever since then, they have never invested again. There are also many who know people who lost their shirt in the dot.com bubble which affirmed their belief that you shouldn't invest in the stock market and that it's "dangerous".
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I care about a 5% GIC despite being primarily being a stock investor and to bring home that point, I believe equities when done in a prudent way is more lucrative than real estate.
Why? Reasons are below:
1) Because it affects the stock market. GICs are one type of investment instrument. When people make an investment they think about risk and return. A lot of people are actually risk intolerant. By having a GIC guaranteeing 5% return (sure it's long term less lucrative than equities) it's supremely attractive when it hasn't been for a long time.
What this means is that the more attractive it becomes for many people, rather than investing in equities or real estate, they invest in a GIC. This in turn directly reduces the amount of liquidity/monies in the stock market.
Not to mention age, lifestyle, etc.
2) I believe the 1-year GIC is an extremely smart decision right now for anybody. The reason is simply that there is a 100% chance there is going to be a recession/systemic calamity and a resultant stock market crash. Put money into a 1-year GIC/savings account now and wait until 1-2 years and take it out/buy when equity prices are depressed. This is what I've been telling my parents to do.
Hold liquid cash (returns don't have to be great now) -> buy Canadian bank stocks when they're paying 7-9% dividend yield (prices low) -> ride until it recovers whilst getting paid 7-9% dividend which would be even and or above current mortgage rates.
This is the safest strategy with a moderate reward that I've strategized for my parents.
That crash is coming within the next 1-3 years.