How to properly use GICs

Saving for your financial future is very important. When you are looking to save and invest for your future, there are many great investment options to consider. One investment that should be considered is a Guaranteed Investment Certificate, also known as GIC. This is a very unique investment option as it provides you with a safe and secure option that comes with no risk at all. When you are looking to incorporate GICs into your investment portfolio, there are a variety of tips that should be followed.

Consider Investment Allocation

When you are looking to invest in GICs, one factor to consider is the investment allocation. A GIC is a great investment option for someone that would like a low-risk investment with a guaranteed rate of return. For those that have a low risk tolerance, it can be an ideal place to put your money. Furthermore, it can be a great way to invest and save if you are approaching retirement or other long-term savings goals and do not have the time to withstand wild fluctuations in the stock and other investment markets.

Use the Ladder Method

As you are looking for GICs, you will notice that some options have longer terms and higher investment returns than others. While these may seem the most appealing, you need to realize that rates could increase and that you could miss out on the higher rates if all of your money is locked up in a long-term GIC. Because of this, you should start your investment approach by evenly allocating your GICs between short and long-term maturities. Then, as time goes by and each GIC matures, you should put the available money into long-term GICs. Eventually, you will have a portion of your investments mature each year, which will allow you to take advantage of increasing rates. This approach is referred to as the laddering method.

Pay Attention to Rates

Similar to any other type of investment option, you need to pay attention to the rates that are available. GICs are offered by banks and other financial institutions. Each place offering GICs may have a different investment return. By shopping around and looking for the best rates, you will be able to maximize your potential return on investment.

Know Penalties

While there are many advantages that come with putting your money into a GIC, there are drawbacks in some situations. Some GIC options today do have penalties applied if you end up withdrawing the funds too early. Because of this, it is important that you fully understand the requirements for holding your money in a GIC and whether the account you open will penalize your for withdrawing before a certain date.

No matter what your long or short-term investment goals are, finding ways to incorporate GICs into your investment strategy is always a good idea. There are many advantages that come with this low-risk investment option. By following these investment tips, you can maximize the value that GICs can add to your investment portfolio.