This might be a rather long post for me. You won't see a lengthy blog post from me unless it's about a particular company. The past few days I've had a some thoughts, and figured it's time to write up a decent post. My Mom recently had a couple of GIC's that came up for renewal. Over the course of 30 odd years that's all my parents invested in, and to some it may seem futile but they've actually come out ahead by averting any major downtrends in the stockmarket.
GIC rates are at historical lows, and the analysts keep saying rates will go up. But when?? They've been saying that for years and it hasn't happened yet. Also keep in mind that any rate rises are negative for Canadian Businesses and could stifle the economy.
If there's a rate increase it isn't going to impact her, or my portfolio in any significant way as the rate increases will be slow, steady and small to begin with. So what if you lock in a rate at today's GIC 5 year term of 2.9%, there's always another shorter term GIC maturing that particular year with which you can lock in at the best available rate at that time...provided you have laddered your fixed rate income products for 5 years.
Let me explain. Say you have $50,000 and you don't want to risk that capital on the markets. You purchase a 1 year, 2 year, 3 year, 4 and 5 year GIC with 10,000 in each. At the end of each term, you then invest the proceeds plus interest into the BEST rate you can get for a 5 year GIC. What happens is every year, you will have 1 term maturing, plus interest which is then reinvested on a 5 year term. It's called the magic of compounding.
This is a must read article that was in today's Financial Post.
http://www.financialpost.com/personal-finance/Falling+fixed+income+ladder+hurts/5144635/story.html
We're in our mid 50's and it's time to reevaluate our investment positions. This is what I believe is a decent structure with a few other things to offset the present low guaranteed rates of return.
50% in GIC's laddered over 5 years
10% - 20% in precious metals
20% in Canadian Bonds
10% in Real Return Bonds
10% divided between small caps, overseas or any other specific sector (I happen to like the water sector)
Keep in mind, I'm using 50% because of our age. If you're in the 40's the fixed amount should equal your age - 40%. If you're 20 and just starting out, 20% fixed and the rest in equities and bonds (provided you have the stomach to stand extreme volatility.)
Home Trust usually provides the best rate that your broker or bank will have access to.
Precious metals could be divided up between a bullion fund, and a Canadian stock precious metals fund. I'm invested in Dynamic Precious metals, Sprott Precious Metals and the Sentry select metals funds, but those are all equity funds. If you want bullion, the Sprott Physical gold bullion fund holds just gold. You can also purchase GLD but it is priced in US$ so you have to also keep an eye on currency rates.
A better choice might be CEF.A - the Central Fund of Canada which holds gold and silver bullion.
The TD Canadian Bond fund covers your bond allocation, and the TD Real Return Bond fund will offset any inflationary rises.
For the water sector I like Claymore Global Water ETF - CWW
In fact, any Claymore Fund will usually outperform the index or its peers. It is still considered an index fund, and yet is actively managed.
The Claymore Canadian Monthly Financial Income ETF - FIE currently yields 6.9%
http://www.theglobeandmail.com/globe-investor/markets/stocks/summary/?q=FIE-T
http://www.theglobeandmail.com/globe-investor/markets/stocks/summary/?q=CWW-T
The get more indepth information on the Claymore family of ETF's please visit their website.
http://www.claymoreinvestments.ca/en/investment-options/exchange-traded-funds/etf-home.aspx
Let's face it, your investments should be as simple as possible and after seeing how well my parents have faired through years of volatility, upheavals, bull markets, crashes, and bear markets I'm beginning to actually believe in the wisdom of choosing fixed, guaranteed investments.
Lastly, I want to bring your attention to the Sprott Diversified Yield fund.
This is a fairly new fund and 1 year returns are not available as of yet.
However, I just looked this one up and it was launched in August 2010, and has a rate of return since introduction of 7.32%...not too shabby!! We've held this since inception.
http://www.theglobeandmail.com/globe-investor/funds-and-etfs/funds/summary/?id=81300&cid=Sprott Asset Management LP
See the links below for any funds, or investment choices mentioned.
http://www.theglobeandmail.com/globe-investor/funds-and-etfs/funds/summary/?id=18339&cid=TD Asset Management Inc.
http://www.theglobeandmail.com/globe-investor/funds-and-etfs/funds/summary/?id=18351&cid=TD Asset Management Inc.
http://www.theglobeandmail.com/globe-investor/funds-and-etfs/funds/summary/?id=17644&cid=Dynamic Funds
http://www.theglobeandmail.com/globe-investor/funds-and-etfs/funds/summary/?id=55251&cid=Sprott Asset Management LP
http://www.theglobeandmail.com/globe-investor/funds-and-etfs/funds/summary/?id=50507
I hope this information is useful to those looking for "safer" alternatives to just equities.
No comments:
Post a Comment