GICs vs. equities: How investors should play the elusive drop in interest rates

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'We still have to remember long-term investment returns,' says one strategist.

The Producer Price Index in March rose 0.2% from the previous month, a lower rate of growth than economists had forecastHigher rates on money market funds and fixed-income options like GICs have driven billions in that direction since the Bank of Canada’s rate began its post-pandemic climb. its benchmark interest rate at five percent, many investors remain in a state of limbo as they await a rate cut from the central bank.

Higher rates on money market funds and fixed-income options like GICs have driven billions in that direction since the Bank of Canada’s benchmark rate began its post-pandemic climb in March 2022. Data from the Investment Funds Institute of Canada show Canadians had more than $75 billion in money market ETFs and mutual funds as of the end of February 2024, more than double the amount two years earlier.

The strategy gives you some security over the uncertainty of rates in the months and years ahead, Boisvert said. “So if you locked in for something like a 3-year 4.75, that might be better than when your one year comes due” if rates have dropped, for example, to four percent.In most cases, for a shorter-duration, low-risk investment, Avigdor recommends treasury bills over GICs because of the liquidity advantage. “Treasury bills have a secondary market so you can sell them anytime.

“So if your bank is not offering that, take a look around at other options because it does make a big difference,” she said. “You want your money working for you and you want to get the most out of it.” Another key consideration in the high rate era is mortgage payments. People with a renewal on the horizon might consider some lump sum payments instead of investing cash elsewhere, if there’s cash available, Boisvert said.

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Markets today: Asian stocks to gain on Fed, gold at record highGlobal equities rallied to all-time highs, with tech stocks leading the charge in Europe, as traders grew more confident on the path for lower interest rates.
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