Investment for Canadian Employees PART 6 – GIC, Bond

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If you exclude stocks as a financial investment product, there are Bonds and the safer GIC (Guaranteed Investment Certificate).

GIC

GIC is a product where a bank pays interest at a set interest rate for a specific period of time. It’s like a high-interest deposit guaranteed by a bank. However, if you withdraw before maturity, you may lose money on interest. There are also GICs that do not incur any loss even if repaid early (Cashable GIC), but the interest rate is slightly lower.

In times of high interest rates like these days, there are GICs that give interest of over 5%, so I have seen many people buy GICs with a maturity of 6 months or 1 year for short-term funds that are not investment assets.

Bond

A bond is a certificate issued by a company or country promising to pay a specified interest rate. It has a maturity date and pays interest at a set rate. Interest payments are usually made quarterly, semi-annually or once a year at a set interest rate.

Bonds can be purchased directly from a securities account or invested indirectly through ETFs. It is easier to invest through ETFs than to purchase directly.

In the Canadian stock market, you can purchase ETFs for various bonds such as VGV (Canadian government bond), HTB (US 7-10 year government bond), and ZTL (US long-term government bond).

If the outlook is strong that the economy will deteriorate as it has these days and the stock market will fall, holding bonds is a good choice. This is because when the economy is bad, the government lowers interest rates and when interest rates go down, bond prices rise. The stock market is highly volatile depending on the economy, but bonds are easier to predict than the stock market because you only need to know the direction of interest rates.

However, hedging stock investments by holding bonds does not seem to work well these days. Rather than determining interest rates according to the economic cycle, the government forces interest rates to be raised or lowered in response to external factors such as pandemics or wars, making bond investment more risky than before.

And when the economy is bad, the company’s profits fall and stock prices have to fall. However, when the economy is bad, the company’s stocks rise due to expectations that the government will lower interest rates. As a result, stock prices and bonds rise and fall together, causing stocks and bonds to rise and fall together. I am confused about whether diversifying investments is the right way to go.

So, many people who have money buy GICs that offer high fixed interest rates from banks because bond prices fluctuate a lot. However, when buying GIC online, there are cases where the conditions for GIC are not met, such as paying more interest the higher the amount. There is an ETF for these people.

CSAH.TO

If I want to see the same effect as buying GIC in a stock account, I can buy CASH.TO. If you want to invest all interest without receiving interest dividends in the meantime, buy HSAV.TO.

But the interesting thing is that these ETFs are called HISA (High Interest Saving Accounts), and most major banks do not sell CASH or HSAV. I ordered CASH from my TD Direct Investment account, but was confused when it said it did not sell CASH or HSAV.

So I left TD and moved all my investment accounts to Wealthsimple.

Next, let’s talk about that stock brokerage company, Stock Brokerage. This also has many interesting stories.

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