Investing with GICs

Here are some tips and strategies for benefiting from investing with GICs.
Diversification is a key strategy for optimizing your portfolio. There are several strategies for diversification:

• Diversify your portfolio - Include both GICs and mutual funds
• Diversify by product – Choose a range of GICs to hold in your portfolio
• Diversify by maturity – Include GICs with different maturity dates
• Diversify internationally – Include GICs with exposure to international markets
• Diversify by allocation – Increase the percentage of your portfolio invested in GICs as you approach your investment goal

Diversify your portfolio
For security-conscious investors, there are benefits to holding both GICs and mutual funds in your investment portfolio. Research studies indicate that holding GICs in a diversified portfolio can reduce overall portfolio risk and potentially increase investment returns for security-conscious investors.

Source: Sigma Analysis & Management Ltd. (July 2005)
The blue line illustrates research findings that found, by including GICs in investment plans, conservative investors who prefer lower risk can potentially improve their overall returns and/or reduce risk. Example provided here is for illustrative purpose only and past performance is not necessarily indicative of future performance.

To help you diversify your investments, BMO Bank of Montreal offers portfolio programs that include just the right mix of GICs and mutual funds for security-conscious investors.

Diversify the GICs you hold in your portfolio. Take advantage of the benefits of diversification by investing in the various types of GICs available today.

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Diversify by product
Including a range of different types of GICs is a good way to diversify. You can choose from:

• Guaranteed interest rate GICs for predictability of returns so that your portfolio can withstand market downturns
• Rising rate GICs , guaranteed to rise over the term of the investment independent of interest rate changes
• Variable interest rate GICs to help you benefit from a rise in market interest rates over the term of the investment
• Redeemable GICs to give you access to your funds should you need them or wish to take advantage of rising interest rates
• Market-linked GICs so that the GIC portion of your portfolio will benefit from the higher return potential of the equity markets while continuing to protect your initial investment

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Diversify by maturity
By diversifying your GIC portfolio to include different maturity dates, you reduce your exposure to interest rate risk and reinvestment risk – the risk that the GIC portion of your portfolio will all mature when interest rates are low, resulting in reinvesting at lower rates. Examples include:

• GICs with shorter terms for immediate goals
• GICs with longer terms for more distant goals
• A "laddering strategy" with multiple terms or with rates that are automatically adjusted to benefit and/or protect from changes in market interest rates

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Diversify internationally
Diversify your GICs with an exposure to international markets. Investing internationally with GICs so that your principal is protected is also possible.

Examples include:

• Invest U.S. dollars in U.S. denominated GICs
• Invest in international market-linked GICs. BMO Progressive GICs offer some international options that tie return potential to the performance of international markets (including the stock market indices of the U.S. and the G7 economies). And unlike other investments, your funds are safe from exposure to foreign exchange movements.

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Diversify by allocation
Increase the weighting of GICs in your portfolio as you approach your investment goal.

A solid investment strategy reflects a balance between safety and growth. Depending on what stage of life you are at, this balance can shift – sometimes towards safety, sometimes towards growth. Reviewing your investment portfolio regularly and including GICs in your investment strategy can protect your accumulated savings and keep you heading towards your investment goals. Knowing that your principal is protected can give you the security to invest the remainder of your portfolio in a range of other options, including more aggressive, growth-oriented products.

For help planning your investments, have an investment professional planner contact you.

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