GIC vs HISA | Page 3 | General financial discussion | Discussion forum

These are all sensible questions and concerns.
I am not necessarily the best person to respond to them. I know there are people on this forum who know more about particular aspects.
So, I'll just cover the parts I feel i can say something about, and you shouldn't take my remarks as being comprehensive.

A. USD. I don't do these conversions myself. i have some USD left from when I lived in the US, so I haven't done it. But there are people on this forum who do it regularly. Hopefully they can respond. I do know that Hubert posts its conversion rates on its site. I think Peter, our moderator, has some expertise on this. I think he posted something about this somewhere on this site a while back.

C. Stock markets. It's a crystal-ball question as to when to invest, as I think you realize. Depending on how much they are willing to put in, they might consider doing it in stages. This spreads out the risk a bit. Certainly a major "correction" is possible. Need to remember they are looking at the long term here. They MUST have nerves of steel to ride out a correction, keep their eyes on the longterm, or they will get scr*wed just like they did last time. If they can't do that, they simply shouldn't get into the markets. It's not enough that they are nervous because of what happened before; they must act on another strategy in order to avoid it happening again - assuming capitalism doesn't sink so far as to self-destruct.
They could add a couple of funds at a time if that makes them feel more comfortable. This is often recommended for people who are just starting out and don't have much money to put in. However, you don't know which ones are going to succeed first, so it may defeat the purpose. Need to keep an eye on any fees. There are others on this forum who are more knowledgeable about where best to set up an investment account.
In the interests of honesty, I should perhaps say that I am not a stock market investor. I believe strongly that it's a long term investment, as I said earlier, and I feel I'm too old for that. I don't expect to be here in 25 years, which I feel is the minimum, in order to be fairly safe. And longer is even better.
It's a bit of a finer point, but anyone who invests in dividend stocks outside of registered account should be made aware of the "gross-up" factor. This means that while income tax on said dividends is low to non-existent for low income earners, CRA inflates the income by an additional 38%, so that your marginal tax rate can go up. You can read about this elsewhere. May affect any benefit entitlements. Income in RSP/RIF/TFSA is not grossed-up.

F. Real estate. They have to be really careful about chasing yesterday's news. This may be what happened to them with their previous stock investments. Suggest they do some reading in the field of behavioural economics so that they don't repeat their mistakes. It's great that their friend has made money on real estate, but that is up til now; the issue for them is going forward.
Look at the Ottawa market. The major industries are government , NGOs, universities, and some technology - as far as I know. If we get another right wing government (and every one of them seems to be more draconian than the previous these days), jobs will disappear in Ottawa, and the real estate market will likely suffer. If you buy real estate somewhere else, you have the problem of servicing it from a distance. In addition, I don't think real estate as an investment is necessarily a good project for people who are aging, because of the issues of managing it.
These are people who appear to have never owned property of any kind, and I'm not sure they realize what they are getting into in terms of the responsibility and phone calls in the middle of the night, dealing with bad tenants, etc. They might get lucky, but they might not. Do they know anything about how to choose a property, construction, are they handy with tools, do they own tools?, do they want to deal with pest control, etc? Perhaps their daughter could take on some of this responsibility if this is the way they really want to go.

I see red flags, however. First is the fact that they seem to be basing this on what someone else achieved in the past. and on a fantasy of leaving it for their daughter, who may not want it anyway and would have to sell it. Second is the possibly unrealistic view of the responsibilities involved. Third, to me it doesn't make sense to buy a place and rent it out while you yourself are still paying rent in after-tax dollars (to the extent that they pay taxes). Some careful arithmetic is required here, and must include costs of maintenance and property taxes, income tax on rental income, future capital gains when and if the property becomes a burden to manage (since it's not their principal residence), outflow for their own rent, etc. Further, you should not base a decision to return to full time employment on the need to maintain a rental property. If you want to go back to work FT, great, but not just in order to support real estate investment. Again, really should look at behavioural economics research which explores, among other things, how people sabotage themselves.
If they're going to buy property, then, in my opinion, they should live in it to get the best bang for their buck - avoid capital gains, roof over heads, avoid tax on rental income, avoid personal rental increases). If they are determined to buy, they could perhaps take in a student to help pay for it, if convenient and feasible.
The other problem is that, given their overall situation, buying property would seriously affect their ability to diversify their investments. It's a lot of eggs to put in one basket, it can be volatile, and it will cost you money in terms of income tax. I'm not saying it's a terrible investment. It's ideal for people who are handy, have tools and know how to use them, enjoy this sort of thing, own their own home, are not worried about a real estate crash, etc. (The news these days is full of stories about possible real estate crashes.) It might still be good for them, but there are some very serious issues that need to be looked at. If they had twice as much money behind them, I would be more inclined to say "yes" because it wouldn't be such a large portion of their funds.

Personally, I think it works best for people who buy a home early, live in a location with a diversified economy, have the house paid off by 40 or earlier, then start buying additional property(ies) with the money they used to put into the mortgage. By then, they have developed some know-how as regards property. If you just want a cash cow, you might be better off with "eligible" Cdn dividend stocks, as others have suggested; they require no maintenance and they never get bedbugs! They do come with volatility, but, then, so does real estate. And that brings me back to the principle of buying an assortment of ETFs that are invested in different markets and rebalancing them periodically, to minimize volatility risk.

If what they are looking for is a stake in the real estate market, there are other vehicles they might also consider. These could include REITs, mortgage funds, second mortgages, becoming a realtor, etc. I am not advocating any of them, but there are others on this forum who know more about hem than I do.

If what this process is revealing for them is that they really really want to own property, then we should look at that separately perhaps. If it's one choice among several options, then I advise caution. I must say, they seem somewhat adrift. They only just retired, were happy with parttime jobs, volunteering, and simple living in rental accommodations; and now they want to buy a rental property and one wants to work fulltime again?

Whether or not they buy real estate, I think getting a fulltime job would be a great idea, though, given their fairly limited financial cushion.

I hope that's helpful, and that others offer their expertise.

To be quite honest, I have not read all of the contributions to this conversation, but I did note that one option offered regarding protection of resources is US currency. Here is a website ,(knightsbridgefx) in case it hasn't been mentioned here before, that apparently offers better exchange rates than your bank, but delivers the money directly to your US bank account in Canada or the USA. I have not as yet used this service, nor am I endorsing it. Do your due diligence prior to using them.

https://www.knightsbridgefx.com/how-it-works/

gicjunkie said
The Tangerine US dollar GIC rates are the best I have seen anywhere in Canada.

Do you know that foreign currency GICs are not CDIC insured? Maybe it doesn't matter to you.  

I think it's fair to say that gicjunkie is our resident expert on rates across the country, having discovered some obscure ones, so I would trust that.

Agreed that none of the financial institutions that are insured by CDIC will cover USD deposits - and that includes all the Big Banks. The only jurisdiction that I know of and that is accessible is the Manitoba credit unions. They are all covered by the Deposit Guarantee Corporation of Manitoba, Manitoba http://depositguarantee.mb.ca/home/ . Hubert would be an example.

I would look on buying USD, in this case, as currency hedging, not as an investment where you planned to gain a lot through interest. The main point of buying is that you think the Cdn dollar might do worse against the USD.

There is no problem with also getting the higher rate with Tangerine, as long as you understand that it will not be insured and are OK with that. This needs to be weighed against the reason for doing it in the first place. If your goal is to avoid big problems with the Cdn dollar, then why would you put it in a Cdn bank, uninsured? Said bank is more likely to tank when Cdn dollar tanks. You can answer this any way you wish. I'm just flagging it for consideration.

There are other ways of hedging, such as buying US-denominated stocks or funds. Perhaps others can comment on those if that is of interest as I don't know a lot about it. This strategy could possibly be combined with buying some ETFs, but you need some input from someone other than me on that option.

promise said

Yes I read that doing my research that foreign currency GIC aren't CDIC insured given these folks they won't have a lot of money in USD when the time comes to convert that won't be a huge concern but it's good you brought up as a heads up.
What I would like to pick your brain on what is best rates you seen out there when it comes to GIC laddering?  

I am a big fan of laddering. Depending on how much you have to invest and how much you want to have accessible, divide the funds into 5 parts, have something maturing annually and use the charts and promos sections on this site to determine where you want to invest. Even the accessible portion can be split up between a high interest savings account and places like Hubert Financial's 1 year cashable escalating GIC. A lot depends on where you are located. I don't know if you mentioned it here. Duca has a great 5 year rate @ 3.75%. Ganaraska's 4 year rate is 4% . These are Ontario CUs. Just check them out. Oaken has good rates also. Depends on your comfort zone, needs, etc.

So, just to clarify, their question now is...?

OK, I'll be quiet for now! lol