Young investors have been thrust into a frothy market over the past decade, but it also presents challenges that differ from previous generations. Central banks were forced to explore radical stimulus and monetary policy solutions in response to the 2007-2008 financial crisis.
Since then, benchmark rates have remained at or near historic lows. This has led to more available credit and surging stock valuations, but traditional savings products have been rendered virtually irrelevant.
Many Gen Xers and millennials may remember hearing positive things about Guaranteed Investment Certificates (GIC) as a savings vehicle in their youth. The financial crisis and ensuing change in monetary policy put GICs in the doghouse. This has worsened as Canada’s inflation rate has now surged to a 10-year high.
Even the best GIC rates in Canada struggle to keep up with inflation. That is not a recipe for success, especially for young investors who should seek to maximize capital growth and investment income as they have a long-time horizon. Some of the best GIC rates you can sleuth for on Ratehub offer a dismal 1.55% for a one-year term.
Instead of chasing GICs, young investors should zero-in on dependable income-yielding equities. For example, Fortis (TSX:FTS)(NYSE:FTS) is a top Canadian utility that has delivered 47 consecutive years of dividend growth. It last paid out a quarterly dividend of $0.505 per share, which represents a 3.6% yield. That’s right, even a solid dividend stock is just keeping up with inflation in this environment. Young investors should take note and avoid GICs.
