What is an index-linked GIC?


Financial institutions continue to create and market products like index-linked GICs that harvest many fees and commissions, but typically limit your returns.

An Index-linked GIC is marketed as a secure and profitable place to put your money by providing the buyer with a return that is “linked” to the direction of the stock market in a given period—but they’re usually a more secure source of income for the seller than the buyer.

Index-linked guaranteed income certificates (GICs) promise to safeguard a portion of investors’ portfolios, and in volatile markets like the ones we’ve been experiencing, these products may seem like an appealing place to put some of your money.

However, if you decide to invest in an index-linked GIC, you could be making one of the costliest mistakes that investors can make: That is to accept the advice of a securities or insurance salesperson without considering how conflicts of interest may have influenced that advice.

Securities and insurance salespeople sell a variety of financial and investment products that may be suitable for a particular investor. They earn a wide variety of commissions and fees, depending on the product. This arrangement introduces conflicts of interest. What’s best for the salesperson may not be best for the client.

Of course, some salespeople are scrupulous about settling these conflicts in favour of the client. Some go so far as to try to talk their clients out of making bad investment decisions, and thus talking themselves out of a commission. Others sell whatever is easiest and most profitable for them to sell.

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Investing tip: Use our three-part strategy

No matter what kind of stocks you invest in, you should take care to spread your money out across the five main economic sectors: Finance, Utilities, Consumer, Resources & Commodities, and Manufacturing & Industry.

By diversifying across most if not all of the five sectors, you avoid overloading yourself with stocks that are about to slump simply because of industry conditions or investor fashion.

You also increase your chances of stumbling upon a market superstar—a stock that does two to three or more times better than the market average.

Our three-part Successful Investor strategy:

  1. Invest mainly in well-established companies
  2. Spread your money out across most if not all of the five main economic sectors (Manufacturing & Industry; Resources & Commodities; Consumer; Finance; Utilities)
  3. Downplay or avoid stocks in the broker/media limelight.


Sound investor habits and attitudes will keep you from being talked into a bad investment

To succeed as an investor, you need to cultivate three personal mental strengths:

  1. A healthy sense of skepticism: If an investment sounds too good to be true, it probably is. Recognize too that some of your most promising investments will disappoint you, since no one can predict the future.

    Remember, the investment business deals in intangibles and relies on trust, so it attracts more than its share of crackpots, dreamers and crooks. They have an uncanny ability to identify trusting investors who accept dubious claims at face value. But if you stick with our investing strategy of diversifying and focusing your investments on well-established companies, your gains will overwhelm your losses.

  2. Persistent curiosity: Investment professionals know more about investing than you do, because they devote their lives to it. But you can get more knowledge than most investors if you simply read widely and ask lots of questions.

    Read books and visit investing web sites. It pays to read as widely as possible, especially when you’re just starting out and need good easy investing advice. Most local libraries have at least a six-foot shelf of investment books. Browse that shelf and borrow an investment book on each visit.

    You’ll also find a wide range of Canadian and international investing information online. You could start with our web site, TSI Network, which boasts thousands of articles on investment strategies and individual investments.

    Make it fun. Don’t feel obligated to study every web site you visit or finish every book you borrow. The easy investing knowledge you need appears in many places, but quality and readability vary widely. You might as well absorb the knowledge from sources that are pleasant to read.

  3. A realistic sense of optimism: To succeed as an investor, put matters in perspective. Despite wars, recessions and market setbacks, stock prices generally reach successively higher levels over long periods. You can’t foresee the next downturn. But you can buy high-quality investments gradually during your working years, sell them gradually in retirement, and reinvest your dividends along the way.

Have you used index-linked GICs to offset some of the inherent risk of investing? Has it been profitable? Please share your experience with us in the comments.


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