Why You Should Not Rush Into GICs

2022 will be remembered as the year of rising interest rates in our economy. Canada has led the charge globally, increasing its interest rates at a torrid pace. The reason for this interest rate increase stems from our inflation issue. Inflation in Canada at its highest point was 8.1%, approximately 4X higher than it has been on average in recent history.

Inflationary issues originated with the pandemic, and our response to it, from quarantines and government benefits to supporting our population during this time. The supply of goods and services was low due to quarantines and the lack of a workforce to manufacture these goods. While at the same time demand for these goods was high because government benefits injected more money into the economy. When dealing with high demand and low supply, that is the perfect environment for inflation. How can we curb demand in our economy? We raise interest rates, so the average household may spend less on “wants” because more of their budget is allocated to debt repayment.

With interest rates on the rise, major stock markets worldwide are experiencing negative returns, but what has begun to be more attractive to investors is fixed-term investments like GICs. GICs pay based on the available interest rates, so their projected returns are higher than we have seen in recent history. So those who have been nervous about stock market volatility may think they can find comfort in a GIC investment. That would be a mistake. When investing, our goal is not just getting the highest return possible but choosing the investment that will exceed inflation in the long term. That has always been investing in the stock market.

We have experienced market downturns today should not be seen as the wrong time to invest. Instead, it has been the exact opposite. Basic financial principles have always told us we want to buy low and sell high; when stock markets are down like they are, that will make it the ideal time to invest. Our history tells us these periods of negative markets do not last long, so therefore this opportunity will not present itself forever. The recovery will happen; it is just a matter of “when” if you are invested in a globally diversified portfolio.

Investing in a globally diversified portfolio, made up of thousands of companies in different countries and industries worldwide, is the only way to guarantee we will stay ahead of inflation. Choosing the correct investment is not difficult; however, staying disciplined during the stock market swings is. That is why you work with professionals like us. We look beyond the headlines and the fears of the day-to-day but instead stay focused on your long-term goals.

Related articles

Top 5 Tax-saving Tactics Every Gen-Xer Should Know

Tax-Saving Tactics for Gen-Xers   In this week’s article, we’re exploring five essential tax-saving strategies explicitly tailored for Gen Xers. Born between 1965 and 1980, ...
Read More →

Episode 263: Overcoming Resistance – Key to Successful Financial Planning

Welcome to another episode of "Think Smart with TMFG," your weekly dose of relevant financial insights for everyday Canadians. In this episode, Senior Financial Advisor ...
Read More →

CPP Contributions: Pros and Cons

Working past age 65? Consider the pros and cons of contributing to the CPP.     As the population ages and many Canadians choose to ...
Read More →

Financial Planning Advice from Canada's Top Financial Advisors

Sign Up To Receive Email Updates On The Financial Industry And Complimentary Workshops.

By providing your e-mail address you provide The McClelland Financial Group of Assante Capital Management Ltd. with your express consent to send you electronic communications. If you choose to discontinue receiving e-mails, you may withdraw consent by contacting tmfg@assante.com.


Get actionable financial insights from the Top financial planners in Toronto.

Toronto's Top Financial Advisors
Copyright Assante Wealth Management. © 2024

Disclaimer | Assante advisory services are offered through Assante Capital Management Ltd. Assante Capital Management Ltd. is a Member of the Canadian Investor Protection Fund and Investment Industry Regulatory Organization of Canada. The services described may not be applicable or available with respect to all clients. Services and products may be provided by an Assante advisor or through affiliated or non-affiliated third parties. Some services and products may not be available through all Assante advisors. Services may change without notice. Insurance products and services are provided through Assante Estate and Insurance Services Inc.

We have a team of advisors each specializing in varying portfolio sizes. Please let us know the approx. amount of your investable assets to help us to direct you to the advisor that is best suited to you.