Guranteed Investment Certificates (GICs) have continued to be a hot commodity for investors looking to park some cash in an investment that can at least keep up with inflation.
After all, having a large cash balance in a bank account will return almost nothing, and while investing in anything seems to be risky these days given elevated valuation multiples in equity markets and a rising interest rate environment making bonds and other fixed income investments look like a terrible idea, having said cash put aside in a GIC is a relatively risk-free way of earning an inflation-beating return, depending on which company an investor choosing to park their money with.
Oaken Financial, a company linked to previously embattled Canadian alternative lender Home Capital Group Inc. (TSX:HCG) has offered some of the highest one-year GIC rates in the country at more than 2%.
With inflation likely to remain muted and under the 2% threshold sought by government around the world, having money put aside for one year with up to $100,000 guaranteed by the Canada Deposit Insurance Corp, parking a sum of money which is less than triple digits in a one-year GIC could be the way to go for investors betting on now not being the right time to put their capital to work.
I have been concerned for some time now about valuation levels and a potential bear market in bonds, and as such, am considering such alternatives for myself.
That being said, investing in GICs from firms which may be more shaky than your traditional Big 6 bank does hold some level of near-term risk. If such companies get into financial trouble (which in the case of Oaken Financial appears to be significantly reduced by a recent investment by Warren Buffett's Berkshire Hathaway Inc. (NYSE:BRK.A) in Home Capital), investors could potentially have their cash tied up, at least temporarily, by regulators.
Having said that, a guaranteed short-term return of more than 2% is a very decent alternative for investors looking to hold liquidity for the near-term and avoid inflation-related losses related to having a substantial cash position.
I believe cash will remain a great investment in 2018, and other conservative investors who feel the same way would be well served by considering a high-yield GIC option.
Invest wisely, my friends.
