Redefining safe: Guarding your wealth without missing chances to grow

Every investment strategy comes with its own set of risks and rewards. Let’s start with GICs; they’re known as a safe investment because you’re guaranteed to get your original investment back and you know exactly how much you’ll earn. This may seem like an attractive approach because your money will always grow and never take a downturn, but historically, this won’t effectively grow your wealth over the long term. On the other hand, a balanced portfolio is typically made up of an investment mix of 60% stocks and 40% bonds, which is designed to offer growth opportunities in strong market environments and provide a safety net during market downturns. They carry more risk than a GIC but also hold the potential of greater long-term returns.

It’s helpful to look back at past performance to make an informed decision, and the numbers from the last decade and a half make a strong case for a diversified investment strategy. If you invested $100,000 in a CIBC Personal Portfolio Solutions Balanced Portfolio from 2008 - 2023, you would have achieved 2.25% more performance and grown your wealth by an extra $37,475 when compared with investing in a 5-year GIC for the same time frame. In fact, the GIC would have barely outpaced inflation during that time.

Interest rates play a big role in the attractiveness of GICs. When the Bank of Canada increases its policy rate, as it did in 2022 and 2023, GIC rates tend to rise, making them more appealing. However, this situation can reverse quickly, as seen during the 2008 financial crisis and the COVID-19 pandemic, when falling Bank of Canada rates led to less attractive GIC rates. So while GICs can be attractive when their interest rates are high, history shows that these rates won’t stay high forever and, therefore, GICs often are not the best vehicle to help you reach your long-term goals.

When developing your investment strategy, it’s important to consider both your short-term needs and long-term goals. GICs can be an excellent choice for short-term goals where you’re relying on a guaranteed return, such as savings for a vacation or a vehicle purchase. For long-term goals, a diversified and carefully constructed portfolio has been shown to outperform both 5-year GICs and inflation.

Investing wisely requires an understanding of the different investment options and how they align with your unique goals. By reviewing both the risks and rewards of each option and reviewing historical performance data, you can make informed decisions that bring you closer to reaching your objectives. A CIBC advisor can provide valuable insights and guidance to help tailor a strategy that fits your financial situation and what you want to achieve.