# Any actual experience with Market-Linked GICs?



## jargey3000 (Jan 25, 2011)

haha...Ok ---I'll start again. I'd like to hear from anyone who has actually bought into this type of vehicle (through a bank, or whatever) and what your returns were like, or if you were satisfied.or whatever. I'm NOT looking for all the comments from all the nay-sayers who say you can do better yourself, read the fine print, the banks are ripping you off etc. etc. etc. I've heard/read all that! I'd just like to hear from anyone who has ACTUALLY participated in one of these, & how you made out. OK? Anyone?


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## jargey3000 (Jan 25, 2011)

oops


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## tygrus (Mar 13, 2012)

Yeah I bashed them because I got talked into buying one back in the late 1990s. It was linked to the TSX index which didn't do much back then. So it was not very impressive and they locked my money for 3 years. Once it came due, I took it all out and bought Nasdaq index in 1999 and we all know how that turned out. After that I cashed it out and bought farmland.

Now if I have any money invested at all, I go for real yield with liquidity. I won't invest in anything under 5%. I hold some REITs, and income fund and some covered calls ETFs all paying well north of 6%.


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## jargey3000 (Jan 25, 2011)

ok, so things were different on the late 90's. My question is: did you make ANYTHING on the one you held?


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## RBull (Jan 20, 2013)

There is a lot of good information market linked GIC's available already on here, including the link in my post that you deleted. 

I believe you were asking what the 25% participation rate was, which is the cap return rate on your 5 year GIC, which for many is an important part of a decision to purchase one. It's much more likely you're going to hear negative things on market linked GIC's on this board since generally you're dealing with informed investors, and people seeking lower cost better return investment options. YMMV


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## cainvest (May 1, 2013)

I had a couple of US market linked GICs in the 90's as well. I got a much better return that a regular locked in GIC as they both maxed out to their limits.


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## BrentPv2 (Feb 9, 2015)

It really depends with Where, When and which you buy.
I have one that guarantees the principle but over the 4yrs only will be 16% max return. I only got one as I am saving for a condo. I know another person who had one that had a min of like 0.5% and max 25% over 5yrs, but that was bought in 2009.


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## jargey3000 (Jan 25, 2011)

thanks for replies. RBull- good point re this site. Also, could you pls. re-post that link you mention. I'm kinda looking at these ML-GICs more as a an alternative to buying conventional GICs, and possible opprtunity to get a better return than on conventional GICs; not so much as an alternative to buying stocks/etfs. Does that make any sense?


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## fatcat (Nov 11, 2009)

jargey3000 said:


> thanks for replies. RBull- good point re this site. Also, could you pls. re-post that link you mention. I'm kinda looking at these ML-GICs more as a an alternative to buying conventional GICs, and possible opprtunity to get a better return than on conventional GICs; not so much as an alternative to buying stocks/etfs. Does that make any sense?


but you ARE buying stocks if you buy a market linked gic ...

you always (there has to be a tradeoff otherwise banks wouldn't make any money nor offer these products in the first place) give up points versus a regular gic so if the market doesn't perform then you will receive less than if you just bought a standard non-market linked gic

you are buying a mixed and very poor version of both asset categories: gic's and equities

market gic's are not an alternative to buying equities or gic's ... does that make sense ?


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## jargey3000 (Jan 25, 2011)

dog, dogs
cat, cats
equity, equities
GIC, GICs (NOT GIC's)....does that make any sense? 
Sorry, pet peeve of mine.... it's how I always try to explain proper grammar to my....kid's.
What I'm trying to wrestle with is: if a GIC is offering me say 2% over 3 years, and the MLGIC is offering a CHANCE to make 4 or 8 TIMES that, is it worth considering???
Now, before we get too far into why one should not buy ML-GIC....s again, is there anyone out there who has actually bought any?


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## cainvest (May 1, 2013)

jargey3000 said:


> is there anyone out there who has actually bought any?


Just curious, why do you want to know what people got in the past on these investments?
I mean, its not like it'll have any impact on what you'll potentially get if you buy one now.


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## andrewf (Mar 1, 2010)

With market linked GIC, you will earn something between zero percent and say five percent per year, depending on how the market does. With a traditional GIC, you will make an amount known in advance, currently around two percent. On average, I expect the market linked GIC would do about the same. So no one had lost money with them, but people have and regularly do underperform what they would have gotten from a regular GIC. Hope that helps.


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## fatcat (Nov 11, 2009)

jargey3000 said:


> dog, dogs
> cat, cats
> equity, equities
> GIC, GICs (NOT GIC's)....does that make any sense?
> ...


are you clear that the hypothetical market linked gic you cite (4 or 8 times the 2%) will return between 0 and 4 to 8 times ?

in other words, when you buy in to a chance to make 4 to 8 times because of market performance you are risking getting absolute 0 if the market doesn't perform ?

you get a guaranteed 2% with a regular gic and a chance at market returns with a market linked gic but also a possibility that you will get absolute zero in returns (other than the return of your capital) ?

is that much clear ?

to answer your question: is it worth considering ? ... no it isn't

market linked gic's are poor investment because they don't give the guaranteed / predictable return of a gic which leaves you perilously exposed to inflation if the return is zero not too mention the lack of certainty (amounts and dates of the gic maturity) that is a really important part of fixed income

nor do they return the full possibility of equities if the market goes higher

they are ******* products only designed to enrich banks ... which is why i recommend bank stocks :biggrin:


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## humble_pie (Jun 7, 2009)

most of the threads say Don't touch those things, but some people have been lucky.

the product vendors stand to make more $$ than you could, though, due to the cap limit.

why not DIY & make your own market linked GIC? thus bypassing the product engineers & capturing 100% of any profits from equity participation. Here's how:

divide the funds into 2 uneven bundles, one including roughly 94% of the funds, the other including the remaining 6% of funds.

with portion (1), buy a 3-year GIC yielding 3% or better. MoneyToo has already found one issuer, it`s the korean IQ bank, online subsidiary of korea's Hana Bank Group. I believe i glimpsed that IQ products have CDIC insurance.

at 3%, 94k in a 100k example should generate roughly $2,850 in compounded interest per annum. Investor should end the 3 years with 102,550 as principal plus interest, so he's already slightly ahead, with full CDIC insurance.

with portion (2), buy 50 XIU march 2018 LEAPs $21 call options. The market at friday`s close was 1.02-1.26, so i`d be aiming to pay 1.18, or $5,900.00 for the lot.

the reason we want to deploy the $5,900 to buy call options rather than plain shares of XIU is the huge leverage. 

at friday's XIU close of $21 per share, $5900 will buy only 280 shares. That's ridiculously puny compared to the 5000 shares that will be controlled by the 50 LEAPs call contracts.

another advantage with a DIY market-linked structure is that there is no upside cap. There is no product engineer or product manager who has to be paid first. If XIU thrives at any time during the next 3 years, the investor is the one who will benefit to the max.

even better, the DIY investor is not restricted to market circumstances upon the maturity date of his market GIC strategy. If XIU moves sharply up at any time during the life of the above strategy - ie any time prior to march 2018 - the investor can sell his XIU calls & cash out the profits.


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## Rysto (Nov 22, 2010)

fatcat said:


> you get a guaranteed 2% with a regular gic and a chance at market returns with a market linked gic


You don't even get market returns. First, you lose out on dividends. Second, the maximum performance in a given year is capped on the upside.


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## fatcat (Nov 11, 2009)

there are enough replies now so the op can realize that he can ask for apples all day long but we only sell oranges at this stand ...


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## jargey3000 (Jan 25, 2011)

ok... i think i get the message(s) (humble-pie:after reading your post 3 or 4 times, I can see why SOME novice investors would jump at a market-linked GIC...watchootalkinbout? :distress I'm goin' to my bank come Monday mornin'& puttin' all my cash into a 3-yr global market GIC!
Thanks all!


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## humble_pie (Jun 7, 2009)

jargey3000 said:


> ok... i think i get the message(s) (humble-pie:after reading your post 3 or 4 times, I can see why SOME novice investors would jump at a market-linked GIC...watchootalkinbout? :distress



i am so sorry! you see, from my perspective, the GIC-plus-calls strategy is a gleaming geometry of euclidean perfection!


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## RBull (Jan 20, 2013)

jargey3000 said:


> thanks for replies. RBull- good point re this site. Also, could you pls. re-post that link you mention. I'm kinda looking at these ML-GICs more as a an alternative to buying conventional GICs, and possible opprtunity to get a better return than on conventional GICs; not so much as an alternative to buying stocks/etfs. Does that make any sense?



http://canadianmoneyforum.com/showthread.php/18505-Market-Linked-GICs


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## Eclectic12 (Oct 20, 2010)

jargey3000 said:


> haha...Ok ---I'll start again. I'd like to hear from anyone who has actually bought into this type of vehicle (through a bank, or whatever) and what your returns were like, or if you were satisfied.or whatever...


Bought a three year one around 1998 (I'd have to find the paperwork to be sure) ... back then, the participation rate was 98% with the participation rate being the cap. With the tech crash of 2000, I wasn't expecting much but it ended up paying something like 13% compound interest.


These days, there's lots more caps & complicated formulas.


That said, my brother-in-law and I were able to get my mom who is risk adverse to put some into a financial index linked one in late 2008. I'm sure she would have done better doing her own (i.e. combo of GIC and index MF/ETF) but she wasn't up to it and this was all she was willing to do. It paid the max the cap allowed.


Cheers


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## Eclectic12 (Oct 20, 2010)

fatcat said:


> jargey3000 said:
> 
> 
> > ... I'm kinda looking at these ML-GICs more as a an alternative to buying conventional GICs, and possible opprtunity to get a better return than on conventional GICs; not so much as an alternative to buying stocks/etfs. Does that make any sense?
> ...


+1 ... in order to get equity returns, there has to be at least an equity proxy, if not outright equities.




fatcat said:


> ... you always (there has to be a tradeoff otherwise banks wouldn't make any money nor offer these products in the first place) give up points versus a regular gic so if the market doesn't perform then you will receive less than if you just bought a standard non-market linked gic ...


The financial institution has the spread as well as the ability to manipulate the time frames to increase the chances they make money.

However, the "give up points versus a regular GIC" is only true when the market over the subscribed time period under performs the GIC rates available. Certainly when I bought my index linked GIC in 1998, there were no three year GICs paying anything over four percent or so ( I recall it being a lot less) versus the 13% I was paid out. I know that straight equities may have paid more but the statement was for a regular GIC.




fatcat said:


> ... you are buying a mixed and very poor version of both asset categories: gic's and equities
> market gic's are not an alternative to buying equities or gic's ... does that make sense ?


In a technical sense ... sure. 

In a practical sense, when dear old mom in her 80's couldn't be convinced that equities would be good to buy in late 2008 but the no capital loss protection made her comfortable doing so - it paid off nicely for her.

For others that are comfortable rolling their own or going directly with equities, it's a crappy choice.




jargey3000 said:


> ... is there anyone out there who has actually bought any?


cainvest in post #6 is one, I'm another ... though at this stage, I'd setup my own instead of going the capped bank route.


Cheers


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## Potato (Apr 3, 2009)

jargey3000 said:


> What I'm trying to wrestle with is: if a GIC is offering me say 2% over 3 years, and the MLGIC is offering a CHANCE to make 4 or 8 TIMES that, is it worth considering?


I'm late here and I think you've already made your decision, but an important point is also that market-linked GICs generally do _not _offer so much potential upside. Their marketing is exceptionally sleazy, often the only product at the bank that uses a total cumulative return in their advertising instead of an annualized one.

I just checked a few:
RBC has a participation factor of just 35%, so even if you had bought in early 2009, held to late 2013 (representing pretty good market timing), you would get 22% of the index's 63.5% return (excluding dividends), or 4.1% per year -- just over double a straight 5-year GIC, in about as good a scenario as you could come up with. I should also note in the sleazy advertising department that RBC uses a participation rate of 60% in their big-print sample calculations in the marketing material, then notes that the participation rate will vary and is set upon purchase -- currently 35%.

CIBC is a bit better on marketing, with a bar graph showing a return between zero and double that of a traditional GIC. Their maximum is a hard 15% on a 5-year index-linked GIC (2.83% per year max).

TD's is capped at 14% for a 5-year, or 2.66% per year. 

Humble_pie went through how to re-create these with options. I also have a post in the archives on how to _approximate _them with mutual funds -- IMHO there's no need to exactly re-create a product like this (with absolute nominal principal protection), and typically the person looking at this sort of thing does not trade options, so a GIC + mutual fund approximation should work well enough. (though you can, as the comments note, adjust the formula a bit and get absolute principal protection)


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## humble_pie (Jun 7, 2009)

Potato said:


> ... Humble_pie went through how to re-create these with options. I also have a post in the archives on how to _approximate _them with mutual funds -- IMHO there's no need to exactly re-create a product like this (with absolute nominal principal protection), and typically the person looking at this sort of thing does not trade options, so a GIC + mutual fund approximation should work well enough



Potato your website is excellent & i always like your posts, but on this topic i must strongly disagree.

there is no way any fund or ETF combo can provide the leverage that long-term call options will bring to the table. Even the triple value equity ETFs cannot do this, since they reset daily so gains are not cumulative, whereas a call option will continue to fluctuate.

the killer problem with any fund/GIC combo is that the proportion of fund or ETF has to be so very high, in order to benefit from any uptick in share prices, that the smaller proportion of GIC is never going to make it back up to par at today's interest rates.

yet the goal, we are to believe, is guaranteed protection of the principal.

you yourself, Potato, are using a 633/367 ratio. This means only $63,300 gets invested in the GIC portion of a $100k setup. At today's low interest rates, this small amount of principal is never going to make it to par, certainly not in 5 years.

now please consider the option ratios in my example! this is where options shine! the grand sum of $94k gets invested in an insured GIC. At today's interest rates of 3%, this amount can easily run higher than par in only 3 years, accumulating $102,800 or higher from interest alone.

meanwhile, only $6000 gets invested in call options, not the $36,700 earmarked for funds in Potato's fund/GIC combo.

yet the leverage with options is huge. The 50 call contracts purchased with $6,000 govern no less than 5000 shares of XIU. The same funds would have purchased only a paltry 280 shares of the same ETF.

inside every single one of those commercial equity-linked GIC products are calls & a few puts. IMHO it's easily worth the small trouble for even a new investor to learn what a call option is & why it's safer & certainly more profitable to buy one's own long-term call, rather than hand over big fees to bank product engineers & salesmen.

buying one class of call options once every 3 years is easy, it's no different from buying a stock or even buying the GIC itself. It's level 1 on a broker's ranking, ie the easiest & most secure option trade of all.

(aside to jargey3000) province for province, the newfoundlanders on here are the best investors in cmf forum. Don't let your mates down, you can learn to DIY a market link. You're already buying the GIC part. Now just go learn how to buy a call. You will be forgiven, of course, if you feint the first time & end up buying a few plain old XIU shares instead (that verb was indeed feint, not faint.)


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## Retired Peasant (Apr 22, 2013)

You want actual examples? All figures are total return:
2012 - 3 yr linked to Bank Index guaranteed min 3.65% max 24%
Actual result 11.8%
2012 - 3 yr linked to mix of Bank and Utilities, min 1%, max 10%
Actual result 10% (index actually returned 21.5%)
2012 - 3 yr linked to mix of Bank and Utilities, min 1%, max 10%
Actual result 10% (index returned 21.8%)
2013 - 3 yr linked to mix of Bank and Utilities, min .662%, max 9%
Actual result 9% (index returned 20.7%)
2013 - 3 yr linked to Bank index, min 0%, max 12%
Actual result 11.1%
2013 - 3 yr linked to Bank, min 0%, max 12%
Actual result 8.4%
2013 - 3 yr linked to TSX 60, min 0%, max 10%
Actual result 7.9%
2013 - 3 yr lnked to Bank, min 0%, max 12%
Actual result 12% (index returned 20.1%)
2015 - 5 yr linked to Bank/Util, min 1.3%, max 20%
Actual result 20% (index returned 32.5%)

Don’t know how that helps, but there you go. There was a big tax hit for 2013. Unlike conventional GICs, where you report interest earned in each tax year, you don’t report interest until the year of maturity (because you won’t know the return until it matures) – except for the minimum. In addition, all the return is interest income.


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## cainvest (May 1, 2013)

Nice results RP, at a glance it looks like you beat the normal GICs return rates on every return.


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## jargey3000 (Jan 25, 2011)

Retired Peasant: finally, the type of info I was looking for - thanks very much!
cainvest: that's what I was trying to get at. yes, looks like they beat regular GIC returns ...soooo, why not consider them - as a simple alternative to conventional GICs, like I said before! 
humble pie: I'm glad you added that last comment in (parentheses). I nearly fainted. heh-heh BTW-what leads you to that comment about NL-ers being the best investors.....?


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## RBull (Jan 20, 2013)

These were "good results" if one compares them to regular GIC's only. 

These GIC's were bought during a significant bull market. They exceeded GIC's but were inferior to equities. In poor markets they will be inferior to regular GIC's but may be superior to equities. 

You should consider them. But not just by looking at the isolated case of the last 3 years when anything attached to equities did nicely, and also consider the tax consequences retired peasant mentioned.


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## OnlyMyOpinion (Sep 1, 2013)

RP, thanks for some details. 
If I read correctly, on an annual basis, the 2012 maturing 3 yr products returned 3.0 to 3.9%, and the 2013 maturing 3 yr products returned 2.6 to 4% as interest income. Think I'll stick with strips for FI and equities for dividends/cg.


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## andrewf (Mar 1, 2010)

Obviously they don't always beat vanilla GICs, otherwise no one would buy vanilla. You didn't need any actual examples to know that 3 year equity-linked GICs bought 3 years ago paid out well. You can just look at 3 year equity returns.

You should compare to some 3 year market-linked GICs bought in 2006.


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## andrewf (Mar 1, 2010)

Obviously they don't always beat vanilla GICs, otherwise no one would buy vanilla. You didn't need any actual examples to know that 3 year equity-linked GICs bought 3 years ago paid out well. You can just look at 3 year equity returns.

You should compare to some 3 year market-linked GICs bought in 2006.


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## cainvest (May 1, 2013)

jargey3000 said:


> cainvest: that's what I was trying to get at. yes, looks like they beat regular GIC returns ...soooo, why not consider them - as a simple alternative to conventional GICs, like I said before!


If *you* think the index the GIC is linked with will be higher in three years then go for it.


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## Eclectic12 (Oct 20, 2010)

Retired Peasant said:


> You want actual examples?
> 
> All figures are total return ...


Cool to know ...




Retired Peasant said:


> ... There was a big tax hit for 2013.
> 
> Unlike conventional GICs, where you report interest earned in each tax year, you don’t report interest until the year of maturity (because you won’t know the return until it matures) – except for the minimum. In addition, all the return is interest income.


Interesting ... mine was bought in an RRSP so there were no taxes to worry about at that time.

What's puzzling is the my brother-in-law said that for the one my mom bought - the lump sum at maturity was reported as a capital gain. This might be another tweak as these have changed over the years and/or different financial institution reporting.


Cheers


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## Retired Peasant (Apr 22, 2013)

andrewf said:


> You didn't need any actual examples to know that 3 year equity-linked GICs bought 3 years ago paid out well. You can just look at 3 year equity returns.


Indeed, actually missed out on equity returns due the maximums.



Eclectic12 said:


> What's puzzling is the my brother-in-law said that for the one my mom bought - the lump sum at maturity was reported as a capital gain. This might be another tweak as these have changed over the years and/or different financial institution reporting.


These were all from TD; all earnings are 'interest'.


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## Eclectic12 (Oct 20, 2010)

^^^

Interesting ... the market GIC mom had was from BMO.

In my case, it was in an RRSP so there was nothing to report from a tax perspective when it was paid out.


Cheers


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## OnlyMyOpinion (Sep 1, 2013)

> ... the lump sum at maturity was reported as a capital gain...


From what I see, unless you are talking about a different product, this would be wrong - for a market linked GIC in an unregistered account, it should have been treated as interest income. Additionally, if there is a guaranteed minimum, that amount needs to be reported each year (even if it is being accrued).


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## Eclectic12 (Oct 20, 2010)

I was expecting it would be interest ... so technically, it would be my brother-in-law who was either wrong or careless in his speech (plus possibly the accountant). :biggrin:

As for the guaranteed minimum - when I scanned the high level details of the ones mom/my brother-in-law were looking at, I don't recall there being a minimum. It's when looking for CMF threads that I started to see this minimum bit.


Cheers


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## Retired Peasant (Apr 22, 2013)

One other detail that you might not realize, is that the link to the index is based on the index value the day you buy, and the index value on the maturity date - the difference as a percentage is what you get. One or two days earlier/later in maturity can make a big difference.


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## Eclectic12 (Oct 20, 2010)

The one I bought around 1998 or so used was something like:
[(End Date Index Value - Start Date Index Value)/ SDIV ] x participation rate achieved on Start Day.

I called back a couple days later to find out that participation rate was 0.98 for the day I bought. These new ones have a far more complicated formula, never mind the caps.


Yes the days can swing things more than one expects. 

OTOH, with the general pessimism due to the tech crash - I was thinking I'd have a much lower payout that what happened.


Cheers


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## jargey3000 (Jan 25, 2011)

*Market-Linked GICs?*

I know they're dissed in here all the time. I'll get the "you can do better yourself", "the bank makes more than you will" etc. arguments. But, in today's falling markets, dont they offer a kind of "set it, and forget it" option to throw some money into the (low) market now, and see what happens 3, 5 years out? and, have your principal protected? If anyone agrees - what would be the better ones to consider?


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## OnlyMyOpinion (Sep 1, 2013)

You could have bumped your old thread rather than start a new one which discusses the very same subject. Its kind of like forum littering http://canadianmoneyforum.com/showthread.php/48954-Any-actual-experience-with-Market-Linked-GICs/page4?highlight=market-link
Perhaps it would be best to just go ahead and buy one. As they say, experience is the best teacher.


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## uptoolate (Oct 9, 2011)

And so the answer is still 'NO' but feel free.


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## lonewolf (Jun 12, 2012)

It is better to make no money then lose 90%. I think the linked GICs are better then buying into the market in this part of the cycle. I do not have much faith in the Canadian banks paying back all their IOUs though. Most do not have a clue how dangerous this market is.


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## tkirk62 (Jul 1, 2015)

All talk no walk. Just buy one and learn for yourself. You already got everybody's opinion in the last thread.


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## cashinstinct (Apr 4, 2009)

I find interesting that Épargne Placement Québec has a 10 year market linked bond with 100% participation rate to 30 Stocks with headquarters in Quebec, no cap.
(they have a 60% total cap on their 5 year product, no cap on 10 years).
http://www.epq.gouv.qc.ca/A/Info/produits_offerts/obli_boursiere.aspx

The catch? They exclude dividend payments, the return is linked to the stock prices only....

They have an historic of past bonds and their results
http://www.epq.gouv.qc.ca/A/Info/taux_en_vigueur/indices_obq/OBQ_Indices_Emissions_Echues.aspx

Many bonds starting end of 2008 have had example 100-120% result capped to 60% for their 5 year issue, while many bonds starting in 1998 (before tech crisis explosion) or ending in 2008-2009 have 0% result.

You can also see current issues results:
http://www.epq.gouv.qc.ca/A/Info/taux_en_vigueur/indices_obq/OBQ_Indices_Emissions_En_Cours.aspx

They are not updated for the last week or so however.


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## Robillard (Apr 11, 2009)

You can engineer your own market-linked GIC by combining an investment in zero-coupon bonds or strips with an index investment. This has the advantage of marketability: you can unwind both positions by selling the securities. To my knowledge, you can't unwind an investment in market-linked GICs until maturity.


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## humble_pie (Jun 7, 2009)

jargey there is an identical existing thread right next door that was started by yourself one month ago.

wondering why are you starting another same-same? please don't do this

PS a DIY market linked GIC is best done with an XIU or SPY LEAPs call option plus a GIC. One cannot do strips in non-registered, the tax consequences are too brutal.

combining a core equity ETF plus GIC will never provide the leverage an investor needs to succeed on this DIY concept. The dollar value of the GIC portion needs to remain high - north of 90% - in order to be able to mature at par including interes, no matter what happens to the stock portion. This was the original idea, no? a guaranteed principal?

therefore the equity portion needs to remain small, something like 6-8%. Only a leveraged option or a future can offer enough gain potential. Folks on here don't do futures while quite a few do calls, is why i suggested XIU LEAPs calls of 2018.


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## jargey3000 (Jan 25, 2011)

sounds a little too complicated for me. I've never done "futures" "calls" or "LEAPS" & wouldn't know how...
(ps - sorry for starting somewhat duplicate threads; the first was more of a general generic question, in the second i was trying to be more specific to looking at these in a "low market" situation)


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## Robillard (Apr 11, 2009)

Oops, yeah, I think humble_pie has it right. The right combination should be a zero coupon bond / strip and a call option on the index. It has been a while since I gave this much thought.


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## jargey3000 (Jan 25, 2011)

how are things in Doha? (do they have a stock market there?)
oh - and what is proper way to pronounce Qatar - "kattar" (like fatter),or "kah-tar" (like guitar)?


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## fatcat (Nov 11, 2009)

jargey3000 said:


> how are things in Doha? (do they have a stock market there?)
> oh - and what is proper way to pronounce Qatar - "kattar" (like fatter),or "kah-tar" (like guitar)?


i thought it was like got-er


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## uptoolate (Oct 9, 2011)

It was 'cutter' when we were there.


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## fatcat (Nov 11, 2009)

uptoolate said:


> It was 'cutter' when we were there.


right, that's it


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## Robillard (Apr 11, 2009)

jargey3000 said:


> how are things in Doha? (do they have a stock market there?)
> oh - and what is proper way to pronounce Qatar - "kattar" (like fatter),or "kah-tar" (like guitar)?


I think it is pronounced more like "cutter" or "katter", not "kah-tar." 
They do have a stock market here, but non-GCC (Gulf Cooperation Council) nationals are not allowed to invest without permission. So I really don't pay attention to it. While I still maintain brokerage accounts in Canada, these days I do my investing through a discount brokerage in Luxembourg.

Qatar seems to be doing relatively fine since liquefied natural gas are its most significant export, not crude oil. In addition, GDP growth is being pushed up by consumption growth (driven by the growth of the expatriate and foreign worker population) and investment in infrastructure in advance of the 2022 World Cup. That being said, things are not going as well in other GCC countries. I think I have heard that Saudi Arabia's budget deficit is something like 20% of GDP. Also, the United Arab Emirates is hunting for new revenue sources. And the tax auditors are getting more aggressive because they increasingly have a mandate to collect more revenue. The GCC member states have been talking about introducing a VAT for years, and now it seems highly likely to get imposed. Despite the fall in oil prices, I don't think any of the GCC countries will be pushed into recession. Demographic factors (expatriate immigration) and investment will probably keep the GCC economies growing. The bigger problem is oil, since taxes on hydrocarbon production account for such large proportions of the government budgets. Also, the GCC countries are involved in a budget-busting power struggle against Iran for influence in the region, which involves a hot war in Yemen, and proxy wars in Libya, Syria and Iraq. Despite parts of the region being hotbeds of conflict, and the lurking presence of the Islamic State, life in the GCC countries is pretty peaceful.


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## getliquid (Mar 2, 2014)

lonewolf said:


> It is better to make no money then lose 90%. I think the linked GICs are better then buying into the market in this part of the cycle. I do not have much faith in the Canadian banks paying back all their IOUs though. Most do not have a clue how dangerous this market is.


have you done any research on which bank sells the best market GIC?


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## getliquid (Mar 2, 2014)

My current situation is I have all my registered/TFSA/RESP limits maxed out and have rest of the assets in Mawer 104 in non-registered account.

However I also have some money that won't be needed for at least 5 years, and the amount must be CDIC/provincial insured and principal protected, currently it's in a big 5 savings account earning .8%, I know there are Credit unions like Hubert that offers 2%/year, however in my situation would I be better off buying a market GIC that guarantees say .8% like the Alterna Canadian Index guarantee with max of 30% in 5 years. Worst case I still get .8% like a savings account with potential of earning 6%/year.

https://www.alternabank.ca/Personal/Investments/MarketTracer/CanadianIndexGuaranteedReturn/ 

vs

https://www.alternabank.ca/Personal/Investments/MarketTracer/CanadianIndex/

For anyone done research which market linked GIC provider is the best? 

Yes I have read in previous posts that I can have similar setup using options or these market GIC's have a bad way of calculating returns, however I'm looking to deposit and forget for this particular amount since I'm already active with equity investments.


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## jargey3000 (Jan 25, 2011)

getliquid - this is the type of scenario I was trying to get at in my opening post. I know ML-GICs are not the be-all, end-all...but is there a time & place for them?


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## getliquid (Mar 2, 2014)

jargey3000 said:


> getliquid - this is the type of scenario I was trying to get at in my opening post. I know ML-GICs are not the be-all, end-all...but is there a time & place for them?


I think for what I'm looking for it is the best option without complicated options involved, now the question is which product from which bank offers the best value.

before buying the individual must fit the conditions 
- knowing the return calculation is average vs annualized 
- funds must be CDIC/provincial insured
- other alternative than buying market GIC is regular GIC

In my case I either put the fund in a regular saving account of .8% vs 5 year GIC deposit from Hubert Credit Union for 2.5% vs market GIC guaranteeing .8% and chance of up to 10% a year. Yes I realize balanced funds like Mawer averaged 8% in the past 10 years, however than its about point of entry as well putting it in all at once vs spreading it out.


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## fatcat (Nov 11, 2009)

getliquid said:


> My current situation is I have all my registered/TFSA/RESP limits maxed out and have rest of the assets in Mawer 104 in non-registered account.
> 
> However I also have some money that won't be needed for at least 5 years, and the amount must be CDIC/provincial insured and principal protected, currently it's in a big 5 savings account earning .8%, I know there are Credit unions like Hubert that offers 2%/year, however in my situation would I be better off buying a market GIC that guarantees say .8% like the Alterna Canadian Index guarantee with max of 30% in 5 years. Worst case I still get .8% like a savings account with potential of earning 6%/year.
> 
> ...


it can be a lot simpler than options:

1) take your investment amount, say 10K
2) get your best 5 year GIC rate, say 2.5 at hubert
3) calculate what amount of gic you need to buy to return 10K in 5 years at 2.5%, this would be $8839.00
4) buy a 5 year GIC for $8839.00 which pay you $10,000.00 in 5 years.
5) you now have $1161.00 to invest
6) invest the $1161.00 in a low cost broad index fund like XIC
7) forget about them until 5 years has gone by
8) remember them and hopefully congratulate yourself for being wise


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## OnlyMyOpinion (Sep 1, 2013)

fatcat - that is a novel and great suggestion!


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## jargey3000 (Jan 25, 2011)

sounds good, & simple - except for one thing. what guarantee is there that XIC will be worth more in 5 years than it is when you invest? ("hopefully congratulate yourself")


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## tkirk62 (Jul 1, 2015)

jargey3000 said:


> sounds good, & simple - except for one thing. what guarantee is there that XIC will be worth more in 5 years than it is when you invest? ("hopefully congratulate yourself")


There is no guarantee. There's no guarantee with the market linked GIC either. You will have your $10,000 back from the GIC portion. There is a chance that it goes up, in which case you're laughing. There's a chance it stays about the same (including dividends) and you end up with $11,161, which means you got about a 1.6% return which is probably better than the GIC would do if the market stays the same. Or it could go down by let's say 50% which means you will end up with $10,580 which means you got a 0.5% return, which is definitely better than you would have gotten with the GIC if the market went down 50%.


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## fatcat (Nov 11, 2009)

jargey3000 said:


> sounds good, & simple - except for one thing. what guarantee is there that XIC will be worth more in 5 years than it is when you invest? ("hopefully congratulate yourself")


none except that the same thing holds true with bank GIC's ... they are based on the market and if XIC doesn't go up then neither will your bank market-linked GIC and you will be left with your original investment only which is what my example gives you 

can we see that a market linked gic is the worst of both worlds ?
it doesn't give the guaranteed return and predictable safety that a regular gic does 
nor does it give the full exposure to the market and full profit of equities

these are lousy confused products that mix asset classes in a stupid and un-useful manner

doing your own at least gives you more control and clarity about the language


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## OnlyMyOpinion (Sep 1, 2013)

To illustrate fatcat's example with $10,000 divided into $8,861 5yr GIC earning 2.5% and $1,161 into XIC:
Worst case: broker steals your XIC, so its value is $0, offsetting the $1,161 your GIC earned, final balance is $10,000, ror over 5 yrs ~0%/yr
XIC loses 66% of its value plummeting to be worth $400, that plus the $1,161 from GIC, final balance is $10,400, ... ror ~0.8%/yr
XIC earns nothing, so its value remains $1,161, your only earning is the $1,161 from your GIC, final balance is $11,161, ... ror ~2.3%/yr
XIC rises by 5%/yr to add $320 (similar to the last 5, incl the past year's -9.7%), final balance is $11,481, ... ror ~3.0%/yr


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## fatcat (Nov 11, 2009)

OnlyMyOpinion said:


> To illustrate fatcat's example with $10,000 divided into $8,861 5yr GIC earning 2.5% and $1,161 into XIC:
> Worst case: broker steals your XIC, so its value is $0, offsetting the $1,161 your GIC earned, final balance is $10,000, ror over 5 yrs ~0%/yr
> XIC loses 66% of its value plummeting to be worth $400, that plus the $1,161 from GIC, final balance is $10,400, ... ror ~0.8%/yr
> XIC earns nothing, so its value remains $1,161, your only earning is the $1,161 from your GIC, final balance is $11,161, ... ror ~2.3%/yr
> XIC rises by 5%/yr to add $320 (similar to the last 5, incl the past year's -9.7%), final balance is $11,481, ... ror ~3.0%/yr


exactly ...


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## jargey3000 (Jan 25, 2011)

but.... if XIC rises over the term, then aren't the chances good that the ML-GIC will have also risen? Ok, so maybe you won't get as good a return as if you had put the money into xic, BUT with the ML-GIC you also eliminate the risk of possibly LOSING a big chunk of your initial investment. Isn't that worth consideration? what am i missing?


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## GreatLaker (Mar 23, 2014)

jargey3000 said:


> but.... if XIC rises over the term, then aren't the chances good that the ML-GIC will have also risen? Ok, so maybe you won't get as good a return as if you had put the money into xic, BUT with the ML-GIC you also eliminate the risk of possibly LOSING a big chunk of your initial investment. Isn't that worth consideration? what am i missing?


In the scenario explained by Fatcat there is NO chance of losing any of the initial investment. (Well unless the bank becomes insolvent AND the bank insurer - CDIC, DICO, DGCM etc - also cannot pay.)

You invest $10,000, $8830 of which goes into a 5 year GIC at 2.5%. After 5 years the GIC is worth $10,000. Guaranteed to get the $10,000 principal back.

You invest the balance of the $10,000 ($1161) in XIC. Even if XIC goes to $0 after 5 years, you still have the original $10k back. Anything that XIC is worth after 5 years is in addition to the $10,000 that the GIC pays back.


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## tkirk62 (Jul 1, 2015)

Your initial investment is $10,000 ($8,839 in GIc + $1,161 in XIC).

The GIC guarantees that at the end of 5 years you will have $10,000. *GUARANTEED*. 

You will also have whatever the value of XIC is at the end of the 5 years. Whatever XIC ends up as is the whole profit. If XIC is worth $2,000 at the end of the 5 years your profit is $2,000 and you earned 20% in 5 years. If XIC is worth $1,000 in 5 years (which means your market linked GIC will only return your principal and will be worth $10,000) then your profit is $1,000 and you made 10% on your money.

Either way I think the GIC+XIC strategy will put you farther ahead and is exactly as safe, if not more so. There is no reason to have a market l;inked GIC when you can do the GIC+XIC. Period.

Jargey read what fatcat, OnlyMyOpinion and myself have written carefully. It's basic math.


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## Moneytoo (Mar 26, 2014)

tkirk62 said:


> Jargey read what fatcat, OnlyMyOpinion and myself have written carefully. It's basic math.


Just let him buy ML-GICs. Or day-trade stocks. Or options or whatever his next "low risk - high reward" idea might be


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## cainvest (May 1, 2013)

OnlyMyOpinion said:


> To illustrate fatcat's example with $10,000 divided into $8,861 5yr GIC earning 2.5% and $1,161 into XIC:
> Worst case: broker steals your XIC, so its value is $0, offsetting the $1,161 your GIC earned, final balance is $10,000, ror over 5 yrs ~0%/yr
> XIC loses 66% of its value plummeting to be worth $400, that plus the $1,161 from GIC, final balance is $10,400, ... ror ~0.8%/yr
> XIC earns nothing, so its value remains $1,161, your only earning is the $1,161 from your GIC, final balance is $11,161, ... ror ~2.3%/yr
> XIC rises by 5%/yr to add $320 (similar to the last 5, incl the past year's -9.7%), final balance is $11,481, ... ror ~3.0%/yr


Maybe do a direct comparison using the three examples above would help, what would those ror's be for a typical Market GIC?


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## james4beach (Nov 15, 2012)

fatcat said:


> can we see that a market linked gic is the worst of both worlds ?
> it doesn't give the guaranteed return and predictable safety that a regular gic does
> nor does it give the full exposure to the market and full profit of equities
> 
> these are lousy confused products that mix asset classes in a stupid and un-useful manner


Well said, fatcat. I agree entirely.

fatcat (and others) have explained well in this thread how to accomplish such things using a GIC plus XIU (or XIU call, or XIC). The math is pretty simple on these. This is the right way to get a 'market-linked GIC' and many of us have done this.

I see that some of the posts about the bank products mention that the bank market linked GICs are "simple". I can't see how they are any simpler than the methods described in this thread.



> doing your own at least gives you more control and clarity about the language


This is a very important point too. Instead of deciphering the bank's terms & conditions & caveats, you define it yourself. The plain GIC component is ridiculously simple to comprehend, as is the long position in XIU or XIC. It really cannot get easier than this. XIU calls are a bit trickier but are probably the _best _way to do this.


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## jargey3000 (Jan 25, 2011)

A-HA! The light-bulb just went off!! I get fatcat's approach now! Little slow on the weekend I guess (hic!). !!!
Great idea!


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## humble_pie (Jun 7, 2009)

OnlyMyOpinion said:


> fatcat - that is a novel and great suggestion!




actually neither a novel nor a great suggestion.

it's a silly suggestion that has been proposed umpteen times over the years by the naif in cmf forum.

the problem is that the piddling amount of equity ETF that can be purchased under this formula isn't going to return a tinker's tit. It's not worth bothering with.

take that $1161 in XIC or XIU. It's enough to buy 57 units. Who cares if these have a total return of 50% over 5 years? such an increase amounts to $580 over 5 years, or the awesome, gigantic, freak-me-silly amount of $116 per annum.

an investor would be much farther ahead if he stopped smoking, or walked around the neighbourhood doing errands instead of taking the car, or dialed the thermostat down at night & when out of the house, or modified his grocery bill, etc.

long-term options will work in this scenario, though. That same $1161 that will only buy 57 pitiful units of XIU will easily buy 5 longterm call contracts that will govern 500 underlying units of this same equity ETF. 

if XIU increases by 35% in the above scenario (estimated gain in unit price not including distribution payouts), its price would hover around $27-28, for a gain of $400-450.

meanwhile the $20 call options that were purchased for $2 would sell for $7-8. The original $1161 would be worth $3500-4000, for a gain of roughly $2400-2900.

all commercial market-linked GIC products contain a welter of puts, calls & possibly other kinds of derivatives concealed inside. They are arranged to favour the issuing bank in all scenarios. An investor buying the product is buying this unknown mishmash, whether he understands or not.

the above, focusing on long-term call options in XIU only, is a highy simplified version, suitable for a conservative retail investor who feels tempted to keep a toe dipped in the stock market.


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## fatcat (Nov 11, 2009)

humble_pie said:


> actually neither a novel nor a great suggestion.
> 
> it's a silly suggestion that has been proposed umpteen times over the years by the naif in cmf forum.
> 
> ...


pie, can you see that the kind of person who is attracted to market-linked gic's is about a thousand light years from your suggestion to use options (and your option wizardry is dazzling as per usual) ? ... my god, the personalities aren't in the same universe

if they are capable of using options they wouldn't give the slightest moments thought to a market linked gic ?

even my suggestion is out of the ballpark

market linked gic's are sold to savers who love them even if they don't understand them


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## OnlyMyOpinion (Sep 1, 2013)

Those were my thoughts as well - a solution for an otherwise very conservative "GIC" investor, ~90% goes into a GIC (rather than a less transparent market-linked product) while the small remainder goes into an easily understood etf. (Kind of looks like a conservative FI/Equity portfolio?). 
Very likely to do better than the base guarantee of the m-l product (0.8%/yr), with the incremental upside remaining in your pocket and out of the issuer's.
I've been around a while but I've not used options. Too thick I guess. Instead, saving and investing incrementally has led us to a comfortable retirement.


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## humble_pie (Jun 7, 2009)

OnlyMyOpinion said:


> ... saving and investing incrementally has led us to a comfortable retirement.



my point exactly! to be comfortable in retirement, i'm sure you were *not* investing in stocks all your pre-retirement life with only 11% of your savings, meanwhile the other 89% trapped in molasses-slow 2% GICs?

the return from 11% in equities is piffle, an investor might as well go to the commercial products & save the bother. 

but i'm sticking to my knitting. The commercial products are built out of derivatives. A true comparable DIY product has to be built from at least one derivative. Everything else - owning 57 itty bitty units of XIC - is a pacifier.


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## tkirk62 (Jul 1, 2015)

That's all the guy wants is a pacifier. He said he doesn't want equities but wants the upside, so he thinks ML-GIC. 

Gets your suggestion of GIC+XIU Calls. He doesn't understand calls/thinks they're too risky/whatever.

Gets a different compromise suggestion of GIC+XIC. Acknowledged to have much less upside but he gets to control his exposures, understands (or at least a knowledgeable investor would understand) where his return comes from, is not subject to the banks' complicated products. 

humble_pie your solution is better, it offers more upside with less downside. Jargey, the only person who is considering a ML-GIC, thinks it's too complicated or something. He's not willing to see that equities should be equities and fixed income should be fixed income. He has now received your suggestion, which in post 47 he says is too complicated. fatcat has offered him a pacifier as you say, which is still better than the ML-GIC if only for transparency's sake.


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## humble_pie (Jun 7, 2009)

kirk u are right.

but it's not just jargey we are writing for. There's at least another in this thread who affirms that he's deeply involved with other equity investments, but still he wants a commercial market-linked GIC.

actually i'm writing for readers in general. The better DIY version of a derivative structured product is a simpler derivative structured product that will have better leverage, like the one i've outlined in this & other threads.

so far, a few have spoken up that they "got" it. More will follow, i'm sure.

please don't complain, it's neat & it's a freebie.


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## tkirk62 (Jul 1, 2015)

I gotcha. 

While I would prefer people have no need for it, it may be worth starting a new thread clearly outlining the steps to replicate ML-GICs, thereby giving newcomers a one stop shop to learn the product is dumb and can be better created on their own


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## cainvest (May 1, 2013)

If you really want people to understand create a simple comparison table using $10k. Compare a Market GIC, GIC+equity ETF, and options route for negative, flat and positive TSX returns.


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## fatcat (Nov 11, 2009)

cainvest said:


> If you really want people to understand create a simple comparison table using $10k. Compare a Market GIC, GIC+equity ETF, and options route for negative, flat and positive TSX returns.


the problem is that there is so much razzle-dazzle with market linked gic's ... part of their value to the sellers is that they are hard to understand ...each one being different

i do think we should have a sticky that says: Market Linked GIC ? Bad Idea ! ... but if you insist on buying one here are some ways to do it on your own ... this thread with its length and so many different ideas is not going to help any noobs


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## janus10 (Nov 7, 2013)

humble_pie said:


> meanwhile the $20 call options that were purchased for $2 would sell for $7-8.


The market is closed so I can't look this up, but I assume if you can buy $20 call options for $2 they must be close to expiry. So, wouldn't the accurate scenario be to buy calls with expires 5 years from now? I'd imagine that would have a huge bid ask spread with low volume naturally.

So, what is the exact methodology to simulate a market linked GIC using options? Only invest one fifth of the equity linked money in an index ETF call with expiry in one year and roll it over if it expires ITM or take the next fifth of the equity linked money and try it again? That takes s little bit more work but would seem to be more achievable especially with low volumes in options in Canada.


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## humble_pie (Jun 7, 2009)

XIU options have low TV, ie fairly low premiums, are relatively cheap to buy. Recently i bought a few 20 LEAPS calls of march 2018 for $2, i believe they might be slightly cheaper today.

there are no 5 year exchange traded options, neither in canada nor in the US. They go no further out than 2018 in canada. In the US, the 2018 series will open on US exchanges during the next 3 months.

if i were doing something along the lines of a market linked GIC, i'd first determine the GIC portion that would mature at par in 2 or 3 years. Then with the remaining funds i'd search for the farthest-out-in-time call that i could find. These rarely trade, so one has to hunt them very patiently, often sitting in wait for a few days until someone decides to sell to one's bid.

but first, one should realize that the term "market-linked GIC" is only a twist of language. The way i see it, it's meaningless semantics that has been cobbled together to suit the fancy of conservative investors who like to look over their shoulders.

basically the market-linked GIC is 2 separate securities. I don't believe that, in reality, these are linked. On the one hand it's a GIC. On the other hand, it's also an option or a future representing an interest in a core group of stocks on some future date.


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## james4beach (Nov 15, 2012)

I think what's nice about linking them (at least abstractly) is that it forces a weighting between stocks and fixed income that considers risk of loss. If you were just to stick to regular stock or options trades, that kind of modeling can be done, and should be done, but many investors ignore it or don't properly consider downside risk. As a result (in my opinion) many retail investors end up taking on too much exposure for their own taste.

For example. Many novices make the _huge_ mistake of taking a large, naked option position as a speculatively play. For example "I'm going to buy $5,000 in XIU calls". That would actually be an incredibly large position, due to the leverage... and a really big risk of loss. By anchoring it to a fixed income component, it helps frame how much risk you really want to take on. Once you phrase it as "what is the worst case total return in 3 years" then you realize that 1k of calls is more than enough.

In other words, I suspect the reason that "stock indexed GICs" work so well as a product is that they do a good job of framing important risk considerations, such as worst case return. This helps the investor stick to their comfort point, such as that they want a positive nominal return in 5 years.

Compare that to an investor who runs out and buys a variety of all kinds of securities, with no fixed income anchor. Then when the market declines and certain indices are down 30% (or even 50%), they see thousands $ in losses and think ... I didn't know this could happen! I didn't know it could turn out this badly!

Of course they could have balanced the equity exposure with fixed income exposure and modeled potential returns, but few people actually do that. The market-linked GIC just makes it happen... so it's easier, and I can see the appeal.


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## OnlyMyOpinion (Sep 1, 2013)

Plain and simple - these products are aggressively promoted by banks et al to GIC owners who come in and bemoan the low rate their renewal is going to get. 
_"Oh I know GIC rates are so low. But I can help, you should really consider our market-linked GIC instead of a plain GIC. It guarantees you a rate of return just like your GIC, but you also have the potential to earn more based on how well the stock market does. But you do not have to take any market risk, you only have exposure to the upside. Just sign here and please don't ask how much we make selling these_


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