Benefits of Investing in Market-linked GICs
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As with any other investment choice, it’s crucial for you to make an informed choice. Some of the most important things you should be aware of include:
- When you invest in a market-linked GIC, understand that you won’t receive any distributions or dividends since it’s not the same as investing directly in the equity market of the S&P/TSX 60 Index. This GIC comes with opportunity, costs and potential risks, and the rate of return of your market-linked GIC won’t be the same as the return associated with the equity market.
- Past performance of the equity market doesn’t indicate anything about future performance or returns. The fact that financial institutions look at the past performance of the index to promote this GIC doesn’t mean it’s indicative of future returns. If you check the fine print, you’ll see that they are not predicting the future.
- The variable return is usually determined by the financial institution/bank, which may as well exercise judgment and discretion in calculating your potential return. In most cases, the calculations by the bank will be final. That means potential conflicts between your interests and the interests of the bank may arise.
- Be sure to carefully read through the fine print of this GICs and understand every detail contained in the document. You may find some clauses referring to “extraordinary events or circumstances” where the issuer may have the right to determine and modify how the variable return is calculated.
- What market is your market-linked GIC tied to? Which sectors make up the bulk of the equity market? These are important questions that you must ask yourself as you try to understand your market and see the level of risk it poses. Consider a diversified market.
Despite the fact that Canadian Market-Linked GIC gives you the opportunity to participate in the gains of the S&P/TSX 60 Index without risking your original investment, it’s important to find out if it’s the right investment option for you. You don’t want to invest in a GIC that doesn’t suit your financial situation. Furthermore, you must be willing and ready to earn a zero return if the equity market doesn’t go up. Probably you should try a more traditional GIC if you’re not sure about the possibility of the equity market going up and if your financial situation doesn’t suit a non-redeemable GIC.