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GIC rates are loosely based on bond rates. If you do a historical comparison of 5 year rates, the gap is typically 50-100 bp and sometimes outside those endpoints. Mortgage demand (or lack thereof) influences that relationship considerably, as in now, demand has caused the spread to be150bp at the 5 year rate.
Interesting, so you think it's only loose based on bond rates? When I plot my own records of 5 year GIC rates against bond yields, it looks awfully similar. At least in shape.

That's a good point though about potentially a 1% divergence between bond yields and GICs. I was only looking at historical shapes/trends but there could be a rather large offset between those yields.
 

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Beware though, GIC rates are based on bond market rates (not BoC rate) and it's possible that the bond market has already priced in a lot of rate hikes. You are probably right that GIC rates will go higher, but there's the possibility they are close to topping out already -- we have no idea.
With the rate hikes being forecast, I can't see GIC rates not increasing again this year.

Are you currently holding any bond funds? I'm struggling with why I would continue myself.

For many years I held XBB currently yielding 2.81% and down 10.27% YTD.
And CBO yielding 2.55% and down 4.55% YTD.

I can build a GIC ladder that not only will outperform those but also protects my principal.

I've spoken to a few advisors lately who continue to use bonds in fixed part of portfolios but I guess I don't understand the intricacies of their bond investments. With raising rates I'll stick to the GIC ladder.
 

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Are you currently holding any bond funds? I'm struggling with why I would continue myself.
. . .
I can build a GIC ladder that not only will outperform those but also protects my principal.
I hold a mix of a few things in my fixed income allocation: a large amount of GICs, some individual bonds, and also XBB.

The GIC ladder is fine but I don't mind holding the bonds and XBB. They are liquid and the yields today (over 3%) are reasonably good too.

The reason I hold them is (1) I can't predict where interest rates are going to go, and (2) bond funds like XBB will still deliver good returns in the long term, even if rates go up. This is a long term holding in my RRSP, something I won't tap into for many decades from now.

On the other hand, if I needed the money in maybe 5 or 10 years, I would lean more heavily on GICs.

Remember though... rising interest rates are good for fixed income investors. Each dollar invested grows at a higher yield. That's the case whether you're holding GICs or bond funds, over a long enough time horizon.
 

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Yes cumulative performance of XBB over the long term has been good. It no doubt has a place as a core holding.

XBB YTD1m3m6m1y3y5y10yIncept.
Total Return (%) -10.31-3.53-7.10-8.03-8.05-2.412.3321.34144.58
Benchmark (%) -10.22-3.49-7.05-7.92-7.90-2.092.8923.94156.34

XBB is at lowest level since Jan 2019 which is reflected in the 3y performance.

I'm just wondering at this point in time if new money in GIC ladder or XBB will produce better results going forward. Hard to say and I haven't put together a new GIC ladder yet or done the cumulative math on it.
 

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I'm just wondering at this point in time if new money in GIC ladder or XBB will produce better results going forward
I think it fluctuates day to day with the relative yields on GICs versus bonds. Today I suspect GICs are a better deal with well over 4% yields. In comparison, investment grade bonds and government yields nearly a full percent lower.

But that relationship changes over time. There have also been times when investment grade bonds (the stuff in XBB) yielded the same as GICs. The bond funds also get an additional boost in performance by "rolling down the yield curve". So over time, the two kinds of fixed income can be pretty competitive with each other, though I suspect that GICs have higher performance due to the liquidity premium.

Today I am prioritizing buying 5 year GICs because I do think they will return more.
 

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They say cash loses money to inflation, but cash feels pretty good these days ;)
Don't forget GICs. You can now get 4.5%, guaranteed, completely safe.

Heck, you can make more money in a GIC than a rental property, for way less effort and risk! Wait until that dawns on the RE property investors.
 

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Don't forget GICs. You can now get 4.5%, guaranteed, completely safe.

Heck, you can make more money in a GIC than a rental property, for way less effort and risk! Wait until that dawns on the RE property investors.
GIC's are great but they're not a substitute for real property. You won't build wealth with GIC's while real property can be life changing. Building wealth takes effort, patience, some risk, etc. This is the Canadian Money Forum is it not!
 

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Here's something positive amid the stock market bloodbath... TDB8150 now pays 1.25%.
They say cash loses money to inflation, but cash feels pretty good these days ;)
Well at the moment, what is beating inflation - not much! The stock market is having a hissy fit! My savings accounts and GIC's keep growing and I can continue to renew at higher rates. I don't have a crystal ball so a balanced portfolio works for me.
 

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I use Purpose HISA ETF (PSA) a lot in Investor's Edge...currently 1.89%. Also have TFSA and RRSP cash on the way to Motive Financial to start laddering in on long term GICs. I'll try to be patient this year, but 5% compounding in a 10 year GIC is like getting a 6.28% dividend. I have another big GIC paying out in November, so if rates are higher then I won't feel too bad.
 

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I use Purpose HISA ETF (PSA) a lot in Investor's Edge...currently 1.89%. Also have TFSA and RRSP cash on the way to Motive Financial to start laddering in on long term GICs. I'll try to be patient this year, but 5% compounding in a 10 year GIC is like getting a 6.28% dividend. I have another big GIC paying out in November, so if rates are higher then I won't feel too bad.
I'm also trying to be patient. As rates rise I think we'll get even better opportunity in coming months for higher GIC rates. I'm going to wait for 2 or 3 months before locking in more GIC's.

I use Steinbach credit Union and Oaken who are very competitive. Right now I park my cash in Steinbach's regular savings account at 1.90% and their TFSA with floating rate at 2.10% .

Not questioning your math that the 5% compounding in a 10 year GIC is like getting a 6.28% dividend. But I guess it depends on what you do with the dividend. If re-invested it can potentially beat the 5% compounding GIC.
 

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Don't forget GICs. You can now get 4.5%, guaranteed, completely safe.

Heck, you can make more money in a GIC than a rental property, for way less effort and risk! Wait until that dawns on the RE property investors.
Not sure about that.. It's a negative real return before taxes. That's losing money

The RE property should at least appreciate with inflation. Mix of both would be better but GICs won't accumulate any wealth

Inflation is not good for GICs
 
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