Guaranteed Investment Certificate (GIC.TO)

Right now and for the next year or two, interest rates are priced in to coming down in both Canada and the US. He doesn't think they're going to come down as much as is priced in.

In Canada, 5 x 25 bps rate cuts are priced in looking out one year. That's about right, and means that interest rates will be 125 bps lower a year from today. Overnight rate now is 4.25%, so 125 bps takes us down to ~3%. So a 3-year GIC would be in the range 3-3.5%, compared to the 5% of today.

When the government lowers rates, GIC rates go down. And vice versa. We're now on a rate-cut path because we're worried about a slower economy.

At the time, rates were bumping up against 6%. Everyone was calling for a recession. Great opportunity in registered accounts to win by not losing. Still pretty attractive now. Most folks don't want to be 100% equities.

Though equities did end up outperforming, he's not unhappy. This was a great anchor in a very tumultuous year. Let clients sleep at night. Chances of a recession were very high, and it was time to be defensive.

An investor could do the same thing today. Still really juicy. It's a bird in the hand.

Yes. In a balanced portfolio, having some component of GICs does make sense. But you lose liquidity, there's reinvestment risk at lower rates upon maturity, and there's an opportunity cost by not being in the market.

Something with smart flexibility, like a money market fund, lets you get your money out whenever you want. Because we don't know what the world's going to look like in 1 month, 6 months, or a year from now.

GICs at 5.5%.

Can't go wrong if you need money in the short term. Tax benefits to dividends, and they'll grow slowly over the years. So a dividend-paying and -increasing stock would be better, but the risk/reward is something to consider.

We're not going into a bear market, but you want to stay on your asset allocation. When you get yields as high as they are right now (5.5-5.8%), that's something to hang your hat on. You're being paid really well to be safe and take some risk off your portfolio.