Laddering investmentsTuesday, April 8, 2014
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In most regions across Canada, you're guaranteed some bone-chilling cold in January and February. Another sure thing during these months, which coincide with RRSP campaigns, is that you'll be facing a sea of financial advice delivered on TV and the radio, in newspapers and magazines, and through e-mail messages. Your challenge will be to wade into these sometimes uncertain waters and make the right investment decisions to suit your specific financial needs.
Investing in guaranteed investment certificates (GICs) using the laddering strategy could be a comfortable choice in your overall financial strategy. You'll know that your investment is earning a secure rate of return. And by laddering your investments, you can put your money away for the short term to gain flexibility, as well as for the long term to get better interest rates.
Laddering investments
Laddering works like this: you choose the amount of money you want to invest. Divide this initial amount into five smaller guaranteed investments. Then pick different terms and maturity dates for each of these smaller investments.
Here's an example: Your initial investment is $10,000
Security in guaranteed investments: Minimize interest rate risk: By investing in regular intervals, you can reduce your investment risk. Only a portion of your portfolio comes due at any one time. This strategy can limit your exposure to possible fluctuating interest rates.
Ability to respond to interest rate changes: You'll have access to 20 per cent of your investments every year. If the interest rates are higher, you can invest in longer-term investments. If interest rates drop or temporarily flatten out, you can minimize your risk because only 20 per cent of your investments are maturing at any one time.
Deciding where to put your money each year is one of the most important financial decisions you make. Talk to your advisor about getting help to build your portfolio around a sound financial strategy that includes your personal investment style, objectives, and risk tolerance. You may even experience a warm and cozy feeling knowing that the storms of uncertainty won't affect your guaranteed investments. |
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Stephanie Catcher 43 September 9, 2020 |
Steve Catcher 6 June 9, 2014 |