You think you know what you are doing. You think you have a plan then you go to 2 of your favourite financial blogs on an icy Monday morning to get some information before work and they both have the same advice. They both say that maybe I don’t know what I am doing buying individual stocks and too many people lose money on stocks and maybe I should stick to GICs (guaranteed investment certificate similar to the American CD).
Echo says that a person can have a safe long term investment strategy holding only GICs with the added benefit of completely avoiding the fees incurred with mutual funds, ETFs (exchange traded funds) and the buying and selling of individual stocks. The argument against this investment method is the lower rates of return on GICs are often beaten by the potential rate of return when investing other ways. You can earn more with other investments but there is no guarantee that your investments won’t dip wildly in value just when you need them the most.
The GIC article at Boomer and Echo is an examination of the ideas of Canadian chartered accountant and personal finance writer David Trahair.
In Canada GICs from banks and credit unions are guaranteed by the CDIC (Canadian Deposit Insurance Corporation). As long as you don’t keep too much money in 1 financial institution the government will insure the deposit against bank failure. I don’t think I will ever have enough to hit the deposit insurance ceiling.
GICs can be protected from the tax man by sheltering them in RRSPs (registered retirement savings plan) or a TFSA (tax free savings account). Safe, secure and avoiding tax are 3 very big pluses for this GIC only plan.
Financial Samurai provides a lot of information in to where your money should be at different ages. High risk is for the young. I am in my late 40s and the Samurai thinks I am too old for the risks associated with dealing in individual stocks and I need to be more conservative. I read it twice. The Samurai says “stocks should be a minority portion of your net worth by the time you are middle age”. There is low risk, careful or you might break a hip, safe and sound investing for people of a certain age. Individual stocks are not in the safe category. GICs are. I think that seeing my age in the older part of the charts was the only bad part of this blog post.
Financial Samurai says “You are not smarter than the (stock) market” and I wonder if I should believe him.
Could these 2 blog posts be a game changer for my strategy of buying individual stocks? Am I too old to take chances with my money?
The flip side of this playing it safe argument is my hard truth. I am in my late 40s, I don’t make a lot of money and I don’t have much saved for retirement or much time to save. I need to maximize my investment returns or I will retire poor or I won’t be able to retire at all. I need each dollar invested to make the most money possible to help me retire. GICs and other safe investment will guarantee a return without risking the principle but it won’t make me wealthy at this late stage in the game.
Take a chance with stocks and potentially enjoy a big reward or play it safe with GICs and keep every penny that I work so hard to earn.
Take a chance and risk losing it all or play it safe and enjoy a very late, very modest retirement.
2 posts that made me think about my approach to investing. 2 posts that I thought about all day at work. 2 posts that may be game changers for my investment strategy.