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 The
Companion Advisor: Fixed
Income
Maximizing returns on GICs - 3 Pointers
A Companion Advisor Article
It's often said that by starting early and investing often - Then
the longer your investments has to grow, the more opportunity you have
to reap the benefits of compounding interest.
1. If you are not relying on your GICs as a source of regular income,
then opt for compound interest to maximize your return - Compound
interest is the interest that you earn on your interest. For example,
if you invested $10,000 and earned four per cent interest in the next
year, your interest income would be $400. If you earned four percent again
the following year, the $16 you would earn on the $400 would be your compounded
interest. Compounding interest is a compelling reason to invest for the
long-term, especially for RRSPs or in a GIC laddering program where your
investment has been designed to provide income over a number of years.
2. Make sure your overall portfolio is well diversified - Divide
your assets across a range of investments funds that include such securities
as stocks, bonds and/or holding term investments. "By selecting a
diverse range of investments that react differently to economic conditions
you limit your exposure to risk in even the most unpredictable economic
situations," says Julie Sheen, Vice-president, BMO Term Investments.
"The high and low performance of a particular holding can be offset
by the performance of the other holdings in the portfolio."
3. Ladder the maturity dates of your GICs - This is one way to
diversify the GIC component of your portfolio to help you meet your goals
and reduce your risk. Laddering helps maximize your overall return by
using the GIC with traditionally the highest rate of interest - the five-year
GIC - while giving you flexibility and access to your funds. Here's how
it works:
- First, you divide your total GIC investment into five equal portions,
and invest them in five different GICs - ranging from one-year to five-year
maturities. This way, one of your GICs will mature each year.
- Next, when each GIC reaches maturity, you use that portion of your
investment to buy a new five-year GIC.
In addition to giving you access to some of your money each year, laddering
helps smooth out interest rate fluctuations and increases your return
potential by reducing the impact of interest rate dips. Some of the major
banks offer automatic laddering - a convenient solution for investors
interested in this strategy - However, its a simple process to do it with
our help.
For more information on building a Guaranteed Investment Certificate
portfolio that provides high income, flexibility and security of capital,
call Fiscal Agents your Money Management Made Easy® people where the
difference is more money in your pocket.
With information provided by BMO Term Investments.
Related site data:Do
you want to be rich on $2000 per year - Compounding the compounding question?
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, Fiscal Agents Money Management Newsletter
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