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moneysense.ca, 2/03/07
This and That
- Rob Carrick reminds investors to rebalance their portfolios in the wake of the sharp market correction this week.
- Larry MacDonald points out two potential pitfalls to be aware of when getting exposure to foreign equities inside RRSPs.
- Paul Farrell writes in MarketWatch.com about an 8-year old’s lazy portfolio composed of just three broad-market index funds that handily beat the S&P 500 over the past 10 years.
- The Growth in Value blog just celebrated its first anniversary.
moneysense.ca, 2/03/07
Hi,
I have a questions for all the readers. I have a small portion of my RSP in a GIC and I need to renew it in few days. Since I don’t think the Bank of Canada will increase the interest rate this year (they may keep it neutral or decrease it of .25%) should I take a 2-year term at 3.85% or take a risk for a 1-year term at 4.00% (ING Direct)
Thank you
Mark – just flip a coin and move on.
Mark: I’ll agree with Mike. It is impossible to predict which one is the better option. Also, keep in mind that 1-year, 2-year GIC rates are based on corresponding bond yields which are market-driven, so who knows?
The yield curve is basically almost flat right now. A 1-yr T-Bill is at roughly 3.5% and a 30-yr government bond is just under 5%. So, there is absolutely no incentive to “lock in” to any terms longer than 1-yr, in my opinion.
For disclosure, I’ve only been buying 1-yr T-Bills and 30-day cashable GICs. With those highly liquid securities, I can move quickly if I feel that the stock market has hit “rock bottom” or if the government gets kicked out and a new one reinstates income trusts (wishful thinking) or whatever else might happen. If none of these scenarios happen, then I will collect about 3.8% interest over the next year. I am currently 40% cash & short term securities and 60% equity including some income trusts (which I’m watching get pounded right now). Ironically, the income trusts aren’t getting pounded nearly as hard as my ordinary equities. I guess the government already took all of the air out of that balloon and so it can’t fall any further.