Topic: How To Invest

Hi Patrick. I am interested in your opinion of index-linked GICs. The returns are interest based, so I think they are best bought in your RRSP. The downfall of the stock market has us wanting to safeguard a portion of our portfolio. Thanks.

Article Excerpt

Index-linked GICs are just one of a variety of investment products that propose to provide the holder with guaranteed income plus capital gains linked to growth in one or more stock-market indexes, commodities or whatever. Index-linked GICs are marketed as offering all of the advantages of stock-market investing with none of the risk. But banks and trusts aren’t in the business of giving customers something for nothing. The capital gain that holders get depends on an ingenious formula, spelled out in the fine print, which is cleverly designed to sound generous while minimizing the potential payout. Returns on index-linked GICs or bonds are taxed as interest. That’s because you’re not actually investing in the stock indexes themselves; you’re just getting paid interest based on the change in the indexes. That’s a drawback, because interest is the highest taxed of all investment returns. Usually, stock-market investing yields capital gains and dividend income, both of which are taxed at a lower rate…