Income fund over GIC at 5% ? | Page 2 | GIC discussions | Discussion forum

Norman has looked it up for you. It's exactly the kind of fund I was describing earlier - to be avoided.

Thanks to Norman for digging into this one. It is to be avoided at all costs, at least for anyone under 85 or so who needs the income and doesn't care about fund degradation per my prior post.

There are far better income funds to consider but they won't (and shouldn't) pay out nearly as much yield percentage. Post #25 is the most efficient and effective way to to invest those funds but not everyone wants to be a DIYer at a discount brokerage. The OP relies on the CIBC investment advisor in the bank branch so will be limited to CIBC's mutual fund offerings unless the OP is willing to branch out to a DIY discount brokerage such as CIBC Investor's Edge, robo-advisor, or a full service brokerage with the 1-1.5% AUM costs.

All the discussion of which fund alternative options are best is secondary to the choice between a GIC's certainty and a fund's uncertainty.

If one wants regular payouts, one can ladder as well as select annual or even monthly interest payout options where available.

Of course one can also split one's cash between GIC and investment options, but that should really only be a consideration where the iffy investments promise more than 1% over the GICs!

(Downside: if laddering, one might not be able to put all the money into the highest-interest terms. Interest payouts can mitigate this to some extent.)

RetirEd

savemoresaveoften said

All these monthly income funds that uses a high guarantee income to attract unsuspecting investors is one step away from a Ponzi scheme almost !! Or I will tone it down and say they provide a ‘convenience’ at a hefty fee that makes zero economic sense…  

I was going to call it a "scam" earlier but figured all the bank lovers on this forum would object in unison and I couldn't be bothered. But it IS a scam nonetheless. I had an RBC rep try to foist one of these on me once. She seemed to think she could dazzle me with a promise of a high consistent return. But I already knew about these funds and could see through her BS immediately. Of course, she did not tell me about any of the less savory details. I hate to think how many people fall for this but I'm sure it's a lot. They prey on people who need and want a secure income stream.

Biggest of big banks RBC's Canadian Dividend Fund, one of if not the biggest fund in Canada, has been a solid performer for a long time, made a lot of ordinary Canadians a lot of dough with no fuss, no muss, just steady regular purchases over the decades.

RetirEd said
one can also split one's cash between GIC and investment options, but that should really only be a consideration where the iffy investments promise more than 1% over the GICs!

Bill said
"am I willing to risk my principal to any degree?" If the answer is "no" then you're done, GICs and HISAs it is, end of story.  

My thought process exactly. If I decide I'm willing to risk the principal with some of my money, I might consider adding something like HHL which yields 9%. With GICs at 5% I can barely justify that, let alone something that yields 6%.

I agree with others the first thing the OP has to do is decide whether to put invested capital (principal) at risk. If no, end of story. If yes, than almost anything is better than the managed payout income funds if one is under 80-85 years old. HHL is a terrible product if for no other reason than it is boutique ETF focused on one sector that can really go bad at any time in the business cycle. Only broad based products should be considered.

For someone who is willing to tolerate the market volatility of equity markets, RBC Dividend mutual fund has been a solid product for a very long time and it kicks off tax advantaged eligible dividend income. That was the equity component of my mother's portfolio and she still had a 15% allocation to it until she passed at age 96. It outperformed the other 85% of her portfolio that was in a 5 year GIC ladder. I forget what we started with when she was about 75, but I think it was about 50-50 RBC Dividend Fund and the rest GIC ladder.....lowering the allocation as she aged.

Most big banks have similar products, but they are not created equal. They need to be researched and compared using Morningstar. If it is less than a 4 star fund and if it cannot compete with its category, and it is not a 1st quartile or 2nd quartile offering over the past 5-10 years, then it.... in my opinion, should not be considered.

I disagree with Loonie about the relative certainty of the distribution (income) streams that come off Dividend Growth, or Dividend Income mutual funds. Very seldom does the distribution stream deteriorate for any length of time. There may have been minor dips in the late 2008/early 2009 period and perhaps 2nd/3rd quarters of 2020 on these funds, but the trend is to the northeast over almost all annual periods.

I highly recommend any potential investor look at the 10 year income distribution stream of any fund being considered. The investor has to be willing to do the research and legwork associated with potential investments. The OP did not appear to have done any of that when considering the CIBC fund initially posted. The bank financial advisors are not one's friend. They are sales folk first and foremost.

mordko said
Yes, with a GIC you know what you’ll get in nominal terms. What matters though is what you get in real terms. We don’t know how inflation is going to erode the value of your GIC over 5 years.  

Well a quick look at the SPY and ZAG charts over the past year during high inflation shows that many investors are down big. You may know exactly what to buy to keep pace with inflation but I don't. A friend of mine has a popular investment firm managing his money and judging from their performance, they don't know either.

highlyinterested said

Well a quick look at the SPY and ZAG charts over the past year during high inflation shows that many investors are down big. You may know exactly what to buy to keep pace with inflation but I don't. A friend of mine has a popular investment firm managing his money and judging from their performance, they don't know either.  

I don’t know “exactly what to buy”. Historically equities did well to mitigate the impact of inflation over significant periods of time. Historically the value of fixed income such as bonds or GICs was devastated by unexpected bouts of inflation.

Not knowing the future means that one should stay diversified rather than plonk everything into the same asset.