McMurtry Investment Report and Model Portfolios™

Invest in Canadian bank common shares or bank GIC’s – This is a no brainer

Many of you may still have investments in Canadian bank GIC’s. In a period of rising interest rates like we have today, bank GIC’s do perform better than fixed income securities because the price is never marked to market. However due to their lack of liquidity, I do not recommend them. Liquidity is something we take for granted, but many investments we make are not liquid at all. Private fixed income and lending is an example of this. It is true that you can cash in your GIC’s before maturity, but only if you forfeit all your interest.

Some of you are terrified of the stock market, preferring to invest your hard earned capital in bank GIC’s. This is clearly a poor choice.

In my opinion investing in Canadian bank common shares is a far better investment than bank GIC’s over the long term. While bank shares represent common equity and involve much more price volatility than GIC’s with their fixed income guarantee, the long term returns from bank shares far exceed GIC’s. In addition bank GIC’s never go up in value and are a very poor hedge against inflation.

Recommendation

Recommendation Stay away from investing in bank GIC’s. Invest your cash and fixed income portion of your portfolio in high interest savings accounts and short term 1-5 year bond ladders. US Real return bonds and Canadian floating rate ones should also be part of your portfolio. For those who have never invested in stocks before, consider taking a small percentage of your capital to invest in bank common stock. The dividend yields are much higher than GIC’s and you will also receive a dividend tax credit for monies invested in your non registered and non TFSA accounts.
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