Attention Zoomersâ„¢: Do you own GICs? Find out how other investors are boosting returns
Are you happy with a 1% return on your investment in GICs? When inflation is about 3% and you have money locked into GICs, you are poorer than you think.
Why? Because the inflation rate, the rate at which your money is losing value, exceeds the return your money is earning when it is sitting in a GIC with a 1% return. That means that even though your money is earning a small return, you are actually losing money!
There is a Better Way
What follows is a simple strategy you can follow when your GICs mature to boost returns and protect yourself from the ravages of inflation.
When your GICs mature move the money you had invested in GICs into quality, dividend (income) paying stocks.
By switching your money from a low yield product like a GIC to a higher yield product like dividend paying stocks you can supersize your returns.
(Note: if you’re ready to learn more about how you can implement this strategy, visit artofinvesting.com and download a copy of our free “How to Convert GICs to Dividend Paying Stocks” report to learn more.)
What’s Involved? Smart Planning, Good Advice.
GIC rates along with yields on high quality bonds are low due to the current low interest rate environment. If your GIC is maturing now or in the near future, you should consider searching for solid stocks that pay regular cash dividends. By making this switch you will stand a chance of increasing returns while potentially protecting yourself from the ravages of inflation.
This is where smart planning and professional advice come into play. You need to ensure you choose dividend paying stocks that compliment your other investments, your goals, your risk tolerance and other factors. Always make sure you follow a plan and speak with an advisor skilled in choosing these kinds of investments.
GICs vs Dividend Paying Stocks
Here is a classic example: An individual earns $60,000 in a year. An investment in a 5-year GIC at 3% will become close to 2% after taxes of approximately 33% are deducted. (Figures as at April 15, 2012, Financial Post.)
If you put your money in preferred shares of one of the largest Canadian banks that pays a 5.6% dividend, it will be taxed at just 10% to 13%. That will leave about 5% after tax, a difference of over 20% – this is a significant difference to your bottom line. (Figures as at April 15, 2012, Financial Post.)
There are many small companies that pay big dividends. Many of them are in real estate, investment trusts, pipelines, utilities, and others. A lot of these companies are quite stable, and have dividend yields in the 6.5% to 11% range, with regular cash payouts.
Some of these companies pose potentially good opportunities for investors looking to switch from GICs but others do not. Keep in mind that some stocks have high yields because they may be risky. The challenge is to get competent advice so that you add the right stocks to your portfolio and avoid companies who pose too much risk to your portfolio.
PS: When you visit our site and request your free report, you are under no obligation to speak with us or take any further action. Visit artofinvesting.com now.
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