We have a bit of a conundrum on our fixed low-risk investments for our RRSP’s. We have laddered GIC’s (@5%-5.4%) that expire each year to cover costs + we sell some USD fixed income for vacations. We are running dry on GIC’s and our fixed income (BIL) may have rates reduced. We need to replenish Canadian and USD fixed income as those investments are our safety net in case everything goes for a crap for 1-2 years.
Our standard decision in a lower rate environment is to purchase stocks or ETF’s with decent yields but the market is very high, 5-10 year Treasuries seem to be risky now due to Trumponomics, and our time-line is always short for that strategy.
Our goal is to have a 5% increase per year (thru yield or ETF or stock increase). Do you have a few suggestions?
Thank you
D&J
Switching from fixed-income to equties of course comes with additional concerns, and should not be a decision made hastily. Markets are strong right now, but this will not always be the case. An easy solution may be to get a balanced ETF such as VBAL, with 40% bonds, and which has a 6.42% since-inception return (note it did lose 11% in 2022, however). We would be fine with a mix of dividend stocks but of course these could also decline and would be less diversified than an ETF. Many are going the covered call ETF route. These enhance income substantially, a provided a bit of a cushion in a market decline (but are still vulnerable in a market crash). One could also do a barbell strategy with GICs and equities. One year GICs can pay 3.80% at smaller trust companies. 50% Overlaid with some dividend stocks with 4% yield plus some upside potential could get returns desired (1.9% plus 2% plus XX% market returns). Assuming a 50/50 split, the market would only need to rise 1.1% (net) or 2.2% gross (since only 50% exposure) to hit 5% and we think this is certainly doable.