# Performance of GICs versus Tangerine's balanced revenue fund during the 2008 crisis



## Michel (Mar 7, 2014)

(edit: oops, my post definitely doesn't belong in this forum, please move it to Investing or something. Thanks)

Tangerine's investment funds are well-known to investors as very easy solutions with relatively low fees (1,07%). For curiosity's sake I wanted to compare the performance of its most conservative fund, the "Balanced Income" (70% bonds 30% stocks) versus a GIC at today's rates, assuming you were as unlucky as possible and invested a lump sum right at the peak before the 2008 crash and nothing else after that. We have all the data here https://www.tangerine.ca/en/investing/performance/index.html. 

So let's pick the worst starting point available for this fund. On May 30, 2008, let's say I bought 1018$ at $10.18 a share, and you put 1018$ in a GIC instead. Now, interest in a GIC varies depending on the investment period, so assuming this was just for 1 year and today's rates, you would have had 1.35%. Let's compare the results 1 year after, on May 30, 2009:

Investment fund: 966$ (9.66$ a share)
GIC: 1032$ (using Tangerine's calculator)

In this absolute worst-case scenario, I end up with ~94% of the money you have now available.
But let's say you chose a 2-year GIC instead, which has a rate of 1,65%. So 2 years after, on May 30, 2010:

Investement fund: 998$ ($9.98 a share)
GIC: 1052$.

Still ending up with ~95% of the money. What about a 3-year GIC, with a rate of 1,90%? So 3 years after, on May 30, 2011:

Investment fund: 1066$
GIC: 1077$

Doing 99% of the GIC's performance, it's getting good! What about a 4-year GIC, with a rate of 2,20%?

Investment fund: 1079$
GIC: 1111$

Oops, down to 97%. Still comparable results though. What about a 5-year GIC, with a rate of 2,55%?

Investment fund: 1137$
GIC: 1155$

Still doing 98%. At this point the GIC can't do any better because there aren't longer-term GICs with more interest (at least as far as what Tangerine offers).

So what's the point I'm trying to make? Well I was trying to answer for myself the question of "is it ever worth putting money in a GIC vs a conservative bonds/stock funds like Tangerine's Balanced Income? Using the available data from the past 6 years and choosing the absolute most unlucky timing, we can see that yes the GIC did consistently better (and continues doing so well into 2013 and even 2014), but only slightly. Choosing almost any other point on the timeline, the GIC ends up worse or much worse. The Balanced Income fund has an average return rate of 4,50% since its creation before the 2008 crisis so that's more in line with what to expect generally speaking, and that's almost double of even the 5-year GIC. Also, the fund offers much more flexibility because money can be taken out at any time.

In conclusion, in this exercise it appears the GIC can be a safer alternative especially in the 1-3 year timeframe, but that in general a conservative investment fund does better, and even in times of dire financial crisis, it does not perform much worse than the GIC. This does not make GICs very attractive.

I'm a complete newb so feel free to destroy my reasoning as you see fit. :biggrin:


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## the-royal-mail (Dec 11, 2009)

Although the OP appears to be asking for advice, if you read carefully this actually comes across like a sales pitch and trying to get readers to research products from a specific company. As well, if you google some of the suspect phrases such as "Tangerine's investment funds are well-known to investors as very easy solutions with relatively..." (who would talk like that unless they were selling us something?) you find very similar wording on the company's own website as well as some other paid "blog" posts. The other phrase "Also, the fund offers much more flexibility because money can be taken out at any time." sure seems well written, almost like from a company website or report.

The thrust of the message above seems to lead the reader to conclude that the best choices are between GICs or specific mutual funds, from that specific company of course. It is not really posing a question but sure fills up the forum with a lot of unsolicited information.

With the high volume of spam in this forum lately, I am understandably suspicious. However, I'll give you the benefit of the doubt and see if others agree with me.


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## GoldStone (Mar 6, 2011)

TRM, this is a genuine post. You are too overzealous in your quest to squash spam. Take a deep breath and relax a bit. each:


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## Michel (Mar 7, 2014)

Lol I have no affiliation with Tangerine I just have some money there and they happen to have some detailed data of their index funds' performance going back to before the 2008 crisis so that's why I chose them. I suppose the analysis could arrive to different conclusions based on different funds or GIC rates but that's the sort of discussion I'm looking for.


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## the-royal-mail (Dec 11, 2009)

No problem, thanks for clarifying. It looks like you copied-pasted passages from their marketing materials.

So, why does the money have to be invested in one of their funds? Did you know you can get details on pretty well all of the funds on Morningstar? 

But for that matter, why even bother with funds? Most of the investors here in CMF are doing the DIY method with stocks and ETFs (in some cases) in brokerage accounts and the fees for bank brokerages have never been lower. I started investing that way last year and it has been such a positive experience giving me control over my money and where it is invested. Personally, I think you would be far better off to learn about that method of investing than to talk to any more advisors and waste time and money with mutual funds.

Just my opinion though.


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## Michel (Mar 7, 2014)

Basically my post aims to see when GICs might be a better option than a prudent bonds/stock mix. I mean surely the point of GICs is that they perform decently even in the worst of a financial crisis, but we see that even in these conditions the bonds/stock mix didn't perform that terribly either, while generally being a lot more profitable. Not only that but of course it provide a lot more flexibility. Someone who would have kept investing through 2008 and 2009 would have seen large gains as the markets recovered.

On the relevance of Tangerine's funds, see http://canadiancouchpotato.com/2013/09/12/the-one-fund-solution/


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## the-royal-mail (Dec 11, 2009)

OK but these are general concepts. Why do you keep trying to steer the conversation back to Tangerine funds? If you're asking questions on concepts, you need to listen to generalized answers and not keep trying to get us reading about one specific company's products. Do you see now why I thought you were spamming?

So...GICs are generally a more safe investment used by folks who want to park cash for perhaps a short time without taking equity risk. Seniors use them, people being cautions etc, but with my bank the GIC rates are not much better than HISA or TFSA cash balance rates. They have their place for cautious people with a bit of money to park for a while. Is this your profile? If so, then GICs, HISA or TFSA cash balance may be for you. 

If you are willing to put your money at risk and enjoy some possible investment gains, then certainly you should consider stocks as I recommend above.

Focus on the concepts, not on products from a specific company.


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## Michel (Mar 7, 2014)

Yes I'm aware that GICs are supposed to be good, safe, short-term investments, but I'm trying to see if real-world data can back that up. I'm challenging the general idea with a specific example. That example is based on Tangerine rates and funds because it's what I'm familiar with. Do you see my point now?

Based on the data above the GIC seems to me like a too restrictive option with the only benefit of doing marginally better in the absolute worst case scenario (while obviously making a lot less on average).


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## HaroldCrump (Jun 10, 2009)

You are using _current _GIC rates and comparing vis-à-vis past investment fund returns.
Interest rates were lower in the late 2008 - 2009 period.
You should go back and use historical rates (assuming Tangerine posts historical rates).

Secondly, your conclusions are perfectly reasonable and logical...I see no "challenge" there.
Assuming I understand your analysis correctly, your data concludes that in the short run, during a severe bear market, GICs will beat equity based mutual funds.
Longer term, equity begins to outperform GICs.
The further out you go, the better the equity performance is, and the worse the GIC appears to be.
Yeah?

That is a pretty generally accepted conclusion.
What's the scoop?


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## Michel (Mar 7, 2014)

I'm not sure where to find the historical rates. In any case if they were lower then it only strengthens my point; the GIC would have performed even closer to the bonds/stocks fund. Basically my point is that while GICs can do better it's really a worst-case scenario, and even then the fund didn't perform that badly either. Realistically 1-2 years seems to be the time frame where a GIC _might_ do _slightly_ better (and probably will do significantly worse). So it seems that unless you really are risk-adverse and cannot accept even minimal losses it's not an optimal choice.

If this is common knowledge then all the better, but I was under the impression that GICs were supposed to be good options for a 3-5 year time frame.


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## HaroldCrump (Jun 10, 2009)

Michel said:


> Realistically 1-2 years seems to be the time frame where a GIC _might_ do _slightly_ better (and probably will do significantly worse). So it seems that unless you really are risk-adverse and cannot accept even minimal losses it's not an optimal choice.


GICs simply preserve the nominal value of your capital.
I don't think anyone invests in GICs for growth.
It is a capital preservation technique, and basically the nominal value only.

There are other reasons to invest in GICs as well (mostly derived from its capital preservation properties), such as:
- Saving for a large, predictable expense, such as a down payment on a house, car, or children's education, etc.
- Ensuring a certain inheritance amount
- Prepare for a bear market or market crash
etc.



> If this is common knowledge then all the better, but I was under the impression that GICs were supposed to be good options for a 3-5 year time frame.


As a capital preservation technique, yeah, they are suitable.
Not for growth.


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## Michel (Mar 7, 2014)

Thanks for the examples. I guess in all these cases you'd have to have this 1-2 year timeframe for the GIC to make sense, otherwise why not benefit from some additional growth? I mean if you really only want to preserve the nominal value you might as well use a HISA, at least it's not locked away for a long time (which may have an opportunity cost - that's a risk in itself).


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## HaroldCrump (Jun 10, 2009)

If your time frame is known/fixed, GIC rates are often higher than HISA.
HISA rates are money market rates, while GIC rates are 5 yr. mortgage rates, less bank spread & insurance costs.


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## Woz (Sep 5, 2013)

That tangerine mutual fund is pretty conservative (70% bonds) but if we focus solely on the US equity part, May 2008 is not really the worst case scenario for your analysis. If you look at 5 year returns, fixed income has outperformed equities 29% of the time. If you invested $1000 in stocks in 1929 it would’ve been worth $399 is 1934 whereas if you bought GICs/bonds it would’ve been worth $1181. If you want something more modern, if you invested $1000 in stocks in 2004 it would’ve been worth $780 in 2009 whereas if you bought GICs/bonds it would’ve been worth $1206.

GICs are still appropriate for some people even with a 5 year time horizon depending on their level of risk and needs.

*I used the rate for US 10 year bonds as a proxy for 5 year GIC rates and S&P500 for the comparison as that’s the data I had readily available.


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## james4beach (Nov 15, 2012)

My parents opened their first discount brokerage account exactly 7 years ago and bought a variety of index ETFs. It's a reasonable portfolio, globally diversified, and every position except Europe and emerging markets is currently is positive.

They bought in near the peak of the market in late 2007 and haven't sold anything to date. No panic selling; just buy-and-hold. Their annualized total return to date is 3.6%.

My point: in the 7 years of their portfolio, they would have made more money in GICs -- ignoring taxes. *Just putting the money into XSB would have returned 3.8% annualized, exceeding the stock portfolio.*

You might say, they just made bad investments. Not the case. XIU is the core of their portfolio and XIU's annualized return in the same period is 3.8% -- identical to XSB.

Yes, I know it's all timing and perhaps they got unlucky with their "start date". Still, 7 years is a pretty long period and what I'm showing here is that in this case, the stock performance is inferior to fixed income / GIC performance. Also add in risk of these two options and GICs blow away the stock portfolio.

Of course, I'm ignoring tax effects in these comparisons and the stock portfolio incurs less taxes.


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## coptzr (Jan 18, 2013)

This thread is messed up in my mind and solely based on some random numbers and not a view of many options available at the time.

Here's my example which I think will very much surpass the rates originally posted. I bought these online through a major bank doing a simple 10 minute transfer one night to try a new online account I had.

Spring of 2008
GIC - 5 year accelerated rate
year 1 - 3%
year 2 - 3.25%
year 3 - 4%
year 4 - 4.5%
year 5 - 7.75%

I didn't drink near enough or maybe too much, because my other "professional advice" investments crashed and burned shortly after. I should have clicked the online buy button a few more times.

In 2013 I renewed this purchase into another GIC at 2.6% over 5 years.


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## OhGreatGuru (May 24, 2009)

Given the makeup of the referenced balanced income fund, this is no surprise.


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## fatcat (Nov 11, 2009)

i would echo what harold has said earlier
comparing gic returns to other investments misses the point of the gic investor profile
gic investors are overwhelming choosing gic's based on guaranteed return of capital
gic buyers are savers, not investors


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## james4beach (Nov 15, 2012)

GICs are indeed meant for preservation of capital, but as an additional benefit _you may_ outperform the stock market.

As demonstrated by my parents' 7 year stock return that was lower than a GIC ladder.


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