Guaranteed Investment Certificates (GICs) are fantastic to own in the safe part of your portfolio, but rates have come down significantly of late. Indeed, every time it comes time to renew (or not), it feels like rates have fallen by some amount of basis points further. For many cautious investors, the low rates might be an incentive to get back into the stock market.
With the TSX Index gaining close to 30% last year, it’s been a far smarter idea to stick with stocks than to play it safe. Of course, nobody knows what the TSX Index will do in 2026. Certainly, a hot 2025 could be followed by an ice-cold 2026, one that might just entail a negative return — something that isn’t possible with a GIC.
If you’ve got an extremely long-term time horizon, the call of the equity markets is hard to ignore, especially in an environment where you’d be lucky to score a rate well north of 3% with a bank.
Of course, there are special GIC rates out there, and while a 3.0-3.5% term might make sense, especially if you’ve already got more than your fair share of equity exposure, I think that younger investors might wish to consider the full extent of the opportunity costs of playing it too safe in this lower-rate environment.
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Beyond GICs: Taking on more risk for more reward?
Undoubtedly, the stakes seem higher when GICs are yielding far less than 4% while the equity markets continue running hot. And while the TSX Index still looks like a fantastic place to invest, those 10% corrections (or worse) are going to happen.
As such, it’s important to know what one stands to lose on the way down when the tides do finally turn and the risks of losing money if one’s more inclined to panic when the going gets a whole lot tougher. Even when most feel good about markets after a strong 2025 of returns, it’s important to remember that corrections tend to happen close to every year on average.
And odds are you’re going to face one, perhaps at a time you wouldn’t expect, over a slate of concerns that might not yet even be on your radar! Playing it safe with a portion of your portfolio (whether it’s cash or GICs) is wise, even if you won’t get the best return in the world. If you take on no risk, you should expect rewards to be quite muted. In any case, inflation has come down quite a bit, and as it continues trending lower, perhaps GIC rates aren’t all too bad when you consider “real returns,” or returns adjusted for inflation.
At this juncture, such real returns might be between 0% and 1% if inflation stays tame. However, given food and shelter inflation has been running a bit hotter, the bite of inflation might be worse than the headline figure (the CPI number). Either way, this piece will look at a risky, but bountiful, monthly income exchange-traded fund (ETF) I’d be willing to hold alongside GICs.
A stellar bond ETF worth buying
Consider shares of iShares Core Canadian Government Bond Index ETF (TSX: XGB), which is a 3.1%-yielding bond fund that looks intriguing if you’re looking for relative stability (versus stocks) but are willing to handle risks in being invested in the bond market. The XGB stands out as a safer bond fund than most other aggregate bond funds that have a good chunk of corporate bond exposure.
Though even government bond funds aren’t free from risk (they can get choppy at times), I must say that the risk/reward is quite balanced and could help GIC-heavy investors do well, especially if rates continue to fall. If you foresee lower rates and want less credit risk than your average bond fund, the XGB ETF is tough to top. It’s cheap, lower in volatility, and could be a great middle ground for investors looking beyond GICs.
