# Is there a safe way to invest $50,000 and get a ROI close to 5%?



## Jay3 (Jul 16, 2013)

Hey guys, I'm 24 and pretty new to the whole investing scene.

My goal is to not be greedy when it comes to this $50,000 as it's close to 90 percent of what I have saved up. 

Right now I do like the idea of a TFSA & GIC combo, it's basically no risk and I can count on a certain amount being made every year, however the returns are not great.

Is their something out there that would return a 4% to 5% ROI with very, very minimal risk?


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## CanadianCapitalist (Mar 31, 2009)

Jay3 said:


> Is their something out there that would return a 4% to 5% ROI with very, very minimal risk?


Nope.


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## MoneyGal (Apr 24, 2009)

There are guaranteed products that produce 4-5% with very minimal risk but you don't get your capital back...


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## Feruk (Aug 15, 2012)

Very minimal risk? Nope.

Also note that you should take inflation into account. Lots of times the return you'll get from a GIC, inflation adjusted, is -ve even if it looks like you made 1.5% or whatever.


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## james4beach (Nov 15, 2012)

Jay, as others have said: no.

The best returns you're going to get with minimal/no risk are in the 2.6% range. Of course that number can change any time, e.g. if bond market interest rates go up.

I applaud you for seeking low-risk investment with your hard earned savings. I'm a young guy too, and I think it's a good idea to be conservative with your savings because at our age, we don't have much money let alone money to lose.


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## Eclectic12 (Oct 20, 2010)

The main idea that comes to mind is to setup a GIC that will mean you get $50K at the end of the GIC and then use whatever is not invested in the GIC to take some risk with it. Sort of a poor man's index linked GIC (or whatever investment you choose for the risk portion).

A lot depends on what your investing knowledge is and how much you value getting at least your capital back.

There won't be a set return but there is a possibility of more (or less).


Cheers


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## liquidfinance (Jan 28, 2011)

It also comes down to what level of risk is minimal risk?

But, as you put very very minimal risk the best you could do would be 3% up to your TFSA limit with peoples trust and the remainder in laddered GICS. 

Caution with GICS if you think rates are likely to rise soon. James4beach wrote a post on this a not too long ago. There is no easy return without taking some risk. Is there any amount of this money which you could afford to lose?


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## Jay3 (Jul 16, 2013)

I really wouldn't be happy at all losing any money, or even breaking even over a 10 year period. I'm not investing for quick money.

Right now I'm thinking putting 25,500 into Peoples Trust at 3 percent, then the remaining 24,500 into a 1 and 1/2 year GIC at 2.3 percent...yielding about a 2.6 percent return overall if Peoples Trust rate stays the same.


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## favelle75 (Feb 6, 2013)

james4beach said:


> I applaud you for seeking low-risk investment with your hard earned savings. I'm a young guy too, and I think it's a good idea to be conservative with your savings because at our age, we don't have much money let alone money to lose.


Most other people on the planet think the opposite of this. If you are EVER going to take on risk for investment gains, the time to do it is when you are young. NO ONE suggests taking on risk when you are older and your earning years are done with. I have never heard anyone say "I'm young, therefore I am going risk-free". Go risk-free, for sure, if that's what you want, but don't do it behind the guise of being young.


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## cainvest (May 1, 2013)

Jay3 said:


> Is their something out there that would return a 4% to 5% ROI with very, very minimal risk?


Possibly, what is this investment for ... 
Early start on saving for retirement?
Maybe for future purchase, house?
Something else ... as in just having the money make something for you and maybe use it within a few years?


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## Eclectic12 (Oct 20, 2010)

favelle75 said:


> Most other people on the planet think the opposite of this.
> 
> If you are EVER going to take on risk for investment gains, the time to do it is when you are young. NO ONE suggests taking on risk when you are older and your earning years are done with. I have never heard anyone say "I'm young, therefore I am going risk-free" ...


Maybe not ... but I have heard "I'm too young to invest compared to the enjoyment I'd get out of a kick-*** stereo system" ... :biggrin:


Cheers


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## MoneyGal (Apr 24, 2009)

favelle75 said:


> Most other people on the planet think the opposite of this. If you are EVER going to take on risk for investment gains, the time to do it is when you are young. *NO ONE suggests taking on risk when you are older and your earning years are done with.* I have never heard anyone say "I'm young, therefore I am going risk-free". Go risk-free, for sure, if that's what you want, but don't do it behind the guise of being young.


Sure they do, if the conditions are right. 

The reason that people are encouraged to take investment risk when they are young is that most of their wealth is tied up in their future earnings, which function like a bond (depending on the person's career path. But generally, future earnings pay a slow dividend which is distributed over time). When most of your holistic wealth is bond-like, you can take investment risk with your financial wealth. 

Same thing on the other end. If you have a DB pension or a life annuity which provides bond-like income after your earning years are done, you are free to take investment risk with your remaining financial capital, if you choose. In fact "pensionizing" a larger fraction of your financial wealth in retirement means you can take greater and greater risk with your remaining financial capital (the "non-pensionized" portion) - because the pension/annuity is like a bond. Same argument as in the earlier years of life.


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## Cal (Jun 17, 2009)

Jay3 said:


> I really wouldn't be happy at all losing any money, or even breaking even over a 10 year period. I'm not investing for quick money.
> 
> Right now I'm thinking putting 25,500 into Peoples Trust at 3 percent, then the remaining 24,500 into a 1 and 1/2 year GIC at 2.3 percent...yielding about a 2.6 percent return overall if Peoples Trust rate stays the same.


Given your risk tolerance that would be the way to go.


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## favelle75 (Feb 6, 2013)

Jay3 said:


> I really wouldn't be happy at all losing any money, or even breaking even over a 10 year period. I'm not investing for quick money.
> 
> Right now I'm thinking putting 25,500 into Peoples Trust at 3 percent, then the remaining 24,500 into a 1 and 1/2 year GIC at 2.3 percent...yielding about a 2.6 percent return overall if Peoples Trust rate stays the same.


So breaking even then? Cause inflation will chew up that 2.6% and spit it out.


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## liquidfinance (Jan 28, 2011)

favelle75 said:


> So breaking even then? Cause inflation will chew up that 2.6% and spit it out.


Not forgetting the taxes payable on the interest as well.


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## fatcat (Nov 11, 2009)

i think you are nuts at age 24 putting your money into savings at those rates ... nuts
but i guess you are what they call a "saver"
savers are getting screwed at the moment

keep your money in savings and watch inflation take hold
you will be _losing_ money at those rates over the time you will be living and working

50K @ 3% in 10 years will give you $67467.68
not bad

except in ten years a loaf of bread will cost $4 instead of $3
and your heating bill will be $200 instead of $125

put your money in a low cost indexed portfolio and just don't look at it except once every year
you will come out way ahead versus your current plan

good luck


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## james4beach (Nov 15, 2012)

I've been one of those lunatic "savers" since 2000. People keep telling me that I'm insane to stay in fixed income, and that I'm going to get ruined by inflation, but what I've seen instead is my cash growing without the huge stress and disasters that hurt other investors.

People lost 40% or more after 2000, causing intense stress.
Then they lost 50% again in 2008, and some people (in financial stocks) lost as much as 90%.

Yes, many stocks (but not all) have recovered back, but it's been a very stressful ride and that's unpleasant. It really wears out people. In the mean time my cash has been steadily growing at around 5% annualized ... steadily ... no 50% drops, no stress, no insane volatility.


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## james4beach (Nov 15, 2012)

fatcat said:


> _[talking about 10 years]_ put your money in a low cost indexed portfolio and just don't look at it except once every year
> you will come out way ahead versus your current plan


This is factually incorrect, on the 10 year time scale.

Stock markets are very volatile and can go very long stretches (decades) without tracking corporate earnings, GDP, inflation. Look at the historical data, there are two interesting charts there.

If you hold stocks for 40 years, then yes, it seems they will track what fatcat claims (keep up with economic growth, inflation, etc)

Hold it less than 40 years, and the bets are off. You can't just buy stocks and expect that stocks will give you reliable growth ... that's not how stocks work. Not even with 10 year investment.


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## Toronto.gal (Jan 8, 2010)

Those that lost '90% since 2000', should not have been in the stock markets in the first place. Sorry, but you can't blame the markets for that.


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## snowbeavers (Mar 19, 2013)

You can't have reward without risk. Low risk, low reward. 

At your age, put 70% in broad ranged index funds and 30% in fixed income (bonds, GICs, etc) and leave it for 20-30 years. You'll likely average 7%.

Assuming you don't add anything to it, you would have almost 400K after 30 years. You could have a lot more if you add some each year (edit- if you add just 5k a year, you would have double that).


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## james4beach (Nov 15, 2012)

I said that some stocks fell as much as 90%. I'm talking about periods of high volatility and very sharp losses, not performance-to-date.

Even if markets regained value by today, those are still some very rough patches to go through. It's stressful. It affects your life -- it makes you wonder if you will ever retire, it makes you question (rightfully so) whether there is a systemic problem that the country will never bounce back from.


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## GoldStone (Mar 6, 2011)

james4beach said:


> I've been one of those lunatic "savers" since 2000. People keep telling me that I'm insane to stay in fixed income, and that I'm going to get ruined by inflation, but what I've seen instead is my cash growing without the huge stress and disasters that hurt other investors.


The nominal amount is growing. You are ignoring inflation. Do an IRR and subtract inflation (and, if applicable) taxes. Your purchasing power is eroding.



james4beach said:


> People lost 40% or more after 2000, causing intense stress.
> Then they lost 50% again in 2008, and some people (in financial stocks) lost as much as 90%.


Those are paper losses. The key is to not sell near the bottom. Better yet, rebalance near the bottom, i.e. buy MORE equities when they go on sale. A balanced 60/40 portfolio did just fine in the last decade. It had a positive real rate of return.



james4beach said:


> Yes, many stocks (but not all) have recovered back, but it's been a very stressful ride and that's unpleasant. It really wears out people. In the mean time my cash has been steadily growing at around 5% annualized ... steadily ... no 50% drops, no stress, no insane volatility.


Please pray tell how you get a risk free 5% on cash?? Year 2000 was the last time you could buy a 5 year GIC yielding more than 5%.

http://www.slideshare.net/LColePEI/looking-back-at-historical-returns


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## james4beach (Nov 15, 2012)

snowbeavers said:


> You can't have reward without risk. Low risk, low reward.
> 
> At your age, put 70% in broad ranged index funds and 30% in fixed income (bonds, GICs, etc) and leave it for 20-30 years. You'll likely average 7%.


Some of you guys talk as if, as long as you go into the market and wait a little bit, you're guaranteed to get some excellent return. I know that's not exactly what you wrote snowbeavers, but fatcat said that and many others in the forums say it as well.

10 years is the absolute minimum time you have to wait to have any hope of a decent return. 20 years increases the likelihood of a good return, but it's still not good enough. Look at the data. It's around the 40 year mark that stocks actually track economic fundamentals and you can reliably get out at the right price.

I'm vocal on this point because I don't want novice investors to buy stocks because they think that in 10 or 20 years they will be rewarded with historical average long-term growth. That's not how the stock market works.

The way stocks work is that you buy in, probably either in an under-valued or over-valued condition (currently it's over-valued). Then stocks dance around randomly for the next few decades, and by the time you need to exit (*you're retiring or need the money for something else*) you pray to god that stocks have randomly found their way back to a point that gives you a good long term return.

Again, look at this 1871-2010 stock chart closely.

snowbeavers says 30 years, and that's getting closer to reality. But even then, look at the history. Say you bought into the stock market in 1955 (around fair value). You get close to retirement in the 1980s but these are depressed times for stocks, so you wait a little longer. By the time you can sell out at the historical average point -- that is, achieve the expected return -- it's 1990.

That's 35 years required to get the good return. And if you had to sell earlier -- due to retirement, illness, financial difficulty, etc -- you had horrible returns.


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## none (Jan 15, 2013)

Counterpoint:


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## andrewf (Mar 1, 2010)

That's really deceptive. Lying with statistics, and all that. Yes, you will have a higher return if you save your money rather than spending it.


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## none (Jan 15, 2013)

@andrewf

Which post are you responding to? This flat view can be confusing when not used correctly.


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## fatcat (Nov 11, 2009)

james, the op is 24 years old ... 24
his retirement age will probably be raised to 70 at least and maybe more
he has a 50 year time horizon
and you don't think companies will grow and prosper and provide useful goods and services over the next 50 years ??


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## mind_business (Sep 24, 2011)

Darn ... I keep checking this thread hoping that someone comes up with a sure-fire way of getting 5% returns without risk. I'm ready to jump all in


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## Mall Guy (Sep 14, 2011)

Well Sobeys found a Safeway to visit $5.8 B, but I am not sure it isn't without some risk. But, hey, we all gotta eat !!!


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## favelle75 (Feb 6, 2013)

james4beach said:


> Even if markets regained value by today, those are still some very rough patches to go through. It's stressful. It affects your life -- it makes you wonder if you will ever retire, it makes you question (rightfully so) whether there is a systemic problem that the country will never bounce back from.


If there is a systemic problem that our country will "never bounce back from", I would say my stock values are the least of my worries.


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## cainvest (May 1, 2013)

none said:


> Counterpoint:


Is that fair to use a colorful chart? 

That was the point I was going towards but the OP didn't respond to their timeframe or purpose of investment.


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## Jay3 (Jul 16, 2013)

One thing I would like to clear up is that the 2.6 percent I will be getting annually isn't just keeping up with inflation - it's probably going to net close to 1.5 percent minus tax on the 24,500. 

Inflation rate has been 1.5 percent last year, and on track to be around 1 this year. 

If inflation goes up, I expect the returns of GIC's will go up as well. When those times happen, I will have liquid funds to purchase those GIC's.


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## TIP (Jul 16, 2013)

If you are saving for retirement there are investments options available that would give you 5% minimum with almost NO risk. 
If your intentions are not long term, less than 10 years. In that case, there are real estate investments (not REITs) that gives better than 5% BUT there is Real Estate Risk. Meaning if the Canadian Real Estate Market gets hit than your investments is going to stay in their for bid longer. 
I am new here so I haven't had a chance to read all the replies. If you can give me a brief background information I can provide you with more details recommendation. For instance; 
How long r u planning to invested for? 
Are you going to add to this later on?


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## MoreMiles (Apr 20, 2011)

Jay3 said:


> One thing I would like to clear up is that the 2.6 percent I will be getting annually isn't just keeping up with inflation - it's probably going to net close to 1.5 percent minus tax on the 24,500.
> 
> Inflation rate has been 1.5 percent last year, and on track to be around 1 this year.
> 
> If inflation goes up, I expect the returns of GIC's will go up as well. When those times happen, I will have liquid funds to purchase those GIC's.


Inflation has been 1.5 percent last year? Do you really believe in some unrealistic government figure?

Here is the price of gas:








Here is the price of domestic postage stamp:








Do you want me to post the price of house in Toronto? I guess you get the point.

So I do not believe the 1-3% inflation figure.

By the way, they are talking about raising minimum wage to $14 in Ontario... businesses will have to increase the prices to pay for their staff salary increase soon. You just wait and see.


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## lonewolf (Jun 12, 2012)

Why wont the goverment let people work if they want to work ? If the minimum wage is $14 & the worker is not worth $ 14 dollars who is going to hire them. I say let the people work & get paid the salt they are worth instead of not letting workers work.

If interest & principal are paid on GICs during a period of deflation. Other then shorting the market GICs can be an excellent speculative investment.


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## Jay3 (Jul 16, 2013)

I believe gas prices are not an accurate gauge of inflation.


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## MoreMiles (Apr 20, 2011)

Jay3 said:


> I believe gas prices are not an accurate gauge of inflation.


However, my view is more simplistic... I look at my wallet and bank account. I have had to spend a lot more on car insurance and gas in the last few years. It was way beyond 1.5% "inflation rate". Tim Hortons used to cost less than $1... now it's $1.35 on average, you may argue it's only 35 cents more... but don't forget it's 35 *percent* more!


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## thompsg4416 (Aug 18, 2010)

Well I believe someone already mentioned this but it depends on what you consider minimal risk.

If it were me and I wanted to be conservative with my money I'd invest in a mix of some historically safe equities and some GIC's. 

Equities - think of Cdn Banks all paying 4-5% div plus capital gains. I'd also consider BCE pretty safe as well. Also in the 4-5% div plus capital gains. You're not guaranteed to get any capital gains with these stocks but you're not likely to lose much especially considering their dividends. A bit riskier (but in the name of diversification) you could also get into some pipelines PMB/TRP/IPL all pay in the 4-5% div range. 

None of those companies I've mentioned are going to get you big gains, but they are fairly diversified(if you don't count they are all Cdn), pay a good dividend historically and are relatively safe from large capital loss. 

IMHO of course.

Good luck.


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## Jay3 (Jul 16, 2013)

My grocery bill has been steady for the past 10 years. Buy on sale when possible, inflation effect greatly reduced. 

Cars - There have been steady increases in new prices, but there are examples of cars really not going up either, though these are less profound - example....2007 Prius cost 22,175.....2013 cost 23,215....inflation of roughly 1 thousand over six years. Or buy used and greatly reduce effect of inflation. 

Gas in my area - 1.30ish in middle of 2008 (1.46 at beginning of 2008) and now it's 1.30ish in middle of 2013. 

I think there are ways to greatly reduce the effect inflation has on your wallet. Just have to be smart about your purchases. But that's just my opinion


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## james4beach (Nov 15, 2012)

fatcat said:


> james, the op is 24 years old ... 24
> his retirement age will probably be raised to 70 at least and maybe more
> he has a 50 year time horizon
> and you don't think companies will grow and prosper and provide useful goods and services over the next 50 years ??


I'm OK with the 50 year time horizon for buying & holding the stock index ... I think 50 years is enough time. When eyeballing the charts, I agreed with the article that suggested 40 years ... at this point it appears that stocks do track fundamental economic growth.

So sure, the OP can buy & hold the stock index and with high confidence will have good returns in 50 years.


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## Eclectic12 (Oct 20, 2010)

GoldStone said:


> ,,, Those are paper losses. The key is to not sell near the bottom.
> 
> Better yet, rebalance near the bottom, i.e. buy MORE equities when they go on sale.
> A balanced 60/40 portfolio did just fine in the last decade. It had a positive real rate of return ...


Doesn't re-balancing imply that there is not net new money? 
For example, sell stock A and buy stock B. Of course there are risks in that stock A could be down and if it's not - stock B might not fare well.

I suspect you mean put fresh money into the market. 
I know I did in Mar 2008 and was pleased with the 80% to 240% capital gains in two years, ignoring dividends & cash distributions.


Cheers


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## Eclectic12 (Oct 20, 2010)

james4beach said:


> Some of you guys talk as if, as long as you go into the market and wait a little bit, you're guaranteed to get some excellent return ...
> 
> 10 years is the absolute minimum time you have to wait to have any hope of a decent return ...


There are now guarantees but it depends on the situation, one's investing knowledge and availability to implement the strategy. 

The fresh money I put into the market in 2001 and 2009 make good money (ignoring dividends and cash distributions) far less than ten years.




james4beach said:


> I'm vocal on this point because I don't want novice investors to buy stocks because they think that in 10 or 20 years they will be rewarded with historical average long-term growth. That's not how the stock market works.
> 
> The way stocks work is that you buy in, probably either in an under-valued or over-valued condition (currently it's over-valued). Then stocks dance around randomly for the next few decades, and by the time you need to exit (*you're retiring or need the money for something else*) you pray to god that stocks have randomly found their way back to a point that gives you a good long term return ...


That's an important point for someone using a "buy once and let it ride" strategy. The question is whether the OP is going to use that method and only that method.


Cheers


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## CanadianCapitalist (Mar 31, 2009)

Eclectic12 said:


> That's an important point for someone using a "buy once and let it ride" strategy. The question is whether the OP is going to use that method and only that method.


Most people don't fall in the "buy once" category but save and invest slowly over time. For them, it makes no sense to only look at returns between points A and B in time. Rather, they save and accumulate slowly over time and then spend and decumulate over time. Example: I have a Group RRSP at work. I contribute a certain percentage, the employer does a partial match and both get invested in a Canadian Equity fund. The purchases are made twice a month, rain or shine (in the stock market). The rate of return of the fund from start to end (7.5 years) is 3.9 percent but my personal rate of return is an annualized 5.8 percent. The point is looking just at stock market returns in one time period does not capture the returns investors earned during that time frame.


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## Jay3 (Jul 16, 2013)

Someone mentioned this to me today:

CI Investments G5/20 Series:

http://www.ci.com/cashflowseries/img/q3_fundprofile_e.html

Any thoughts?


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## My Own Advisor (Sep 24, 2012)

Interesting product.

Do you have to invest in it?


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## MoreMiles (Apr 20, 2011)

Jay3 said:


> Someone mentioned this to me today:
> 
> CI Investments G5/20 Series:
> 
> ...


I tried to read it a few times but still could not fully understand it.

So this investment returns back 5% x 20 years = 100% guaranteed, after the initial 5 years. There is also a chance that the underlying equity portion can lead to capital appreciation. So is it like 25 years market-linked GIC? The very worst case scenario is that you get back exactly what you put it 25 years later?

GIC at current 3% will give 75% if simple, non-reinvested interest or 100% if compound interests, after the same 25 year period. However, it is fully taxable, instead of capital gain / ROC distribution in that fund.

How about if you take that GIC interest income to invest in Call options, but keep the principal intact? That would lead to the same result too, right?


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## My Own Advisor (Sep 24, 2012)

MoreMiles said:


> The very worst case scenario is that you get back exactly what you put it 25 years later?


Any investment that gives you that, you never want to own it. Run away, fast.


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## TIP (Jul 16, 2013)

As far as I know the CI G20/5 it's not really good strategy for you. I might be wrong but I believe there is a minimum age to be able to receive the cash flow, hence, RETIREMENT INCOME. Secondly, the so called 5% guarantee start from the 5th. That is another disadvantage for you. These plans are more for people that are close to retirement.


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## james4beach (Nov 15, 2012)

Any time you get something like this CI fund that makes a 'guarantee' you also have to weigh in the possibility the investment company will default on its obligation to you to fulfill that guarantee.

This could happen if the company goes out of business, or if they nearly collapse, are acquired by someone (including the government), but in that acquisition their promises to you -- i.e. their liabilities -- are dropped.

So I don't care even if it's BMO behind the promise, same criticism. Even if BMO is acquired by another bank or taken over by the government, their unsecured promises such as this one may be worth zilch.

Buying an investment like this is like buying stocks plus a debt note (promise) that comes due in 20 years. That's like a 20 year corporate bond. That is VERY risky in itself but this is essentially what you're doing, because the promise is just a promise. You have to be careful whenever promises show up in investments.

Due to the risk of that 20 year 'bond' (promise) you actually need a greater return to compenate you for the risk they will default on the promise. In that case, it could make sense.


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## doctrine (Sep 30, 2011)

Sheesh. Okay, <insert multiple caveats here about diversifying, risk etc etc etc>, I'd trust CIBC's dividend more than this CI fund; CIBC stock has a yield as of Friday of 5%. And you can sell your stock within seconds on the open market if you want your money back. And, I would bet money that you would be getting more than 5% a year in 20 years from CIBC; probably double or triple that plus capital gains. Actually, I am betting money on this because I do own CIBC stock and would certainly not sell it for a guaranteed product.


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## MoreMiles (Apr 20, 2011)

doctrine said:


> Sheesh. Okay, <insert multiple caveats here about diversifying, risk etc etc etc>, I'd trust CIBC's dividend more than this CI fund; CIBC stock has a yield as of Friday of 5%. And you can sell your stock within seconds on the open market if you want your money back. And, I would bet money that you would be getting more than 5% a year in 20 years from CIBC; probably double or triple that plus capital gains. Actually, I am betting money on this because I do own CIBC stock and would certainly not sell it for a guaranteed product.


I disagree. I know you are saying that CIBC is one of the largest banks in Canada. So were Lehman Brothers and Bear Stearns in the States, right?. Is that an absolute guarantee that any bank will be around in 20 years? Nope.

Is there any guarantee that our government will bailout any failed bank? Nope either... in fact, the recent budget has insisted the bank shareholders to "bail-in" by using people's deposit and asset, in the event of a catastrophic failure.


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## blin10 (Jun 27, 2011)

i'm sorry but it seems like you don't know much in this area... Lehman Brothers and Bear Stearns went under because they were giving out bad loans left and right, not the case with CAD banks... 

_"Is that an absolute guarantee that any bank will be around in 20 years?"_ yes, there is pretty much 99.99% guarantee CAD banks will be around in 20 years, I'm not going to waist time explaining why.

_"Is there any guarantee that our government will bailout any failed bank?" _ yes, there's 99.99% guarantee government will bail out biggest banks because it's the core of Canada.




MoreMiles said:


> I disagree. I know you are saying that CIBC is one of the largest banks in Canada. So were Lehman Brothers and Bear Stearns in the States, right?. Is that an absolute guarantee that any bank will be around in 20 years? Nope.
> 
> Is there any guarantee that our government will bailout any failed bank? Nope either... in fact, the recent budget has insisted the bank shareholders to "bail-in" by using people's deposit and asset, in the event of a catastrophic failure.


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## doctrine (Sep 30, 2011)

> I disagree. I know you are saying that CIBC is one of the largest banks in Canada. So were Lehman Brothers and Bear Stearns in the States, right?. Is that an absolute guarantee that any bank will be around in 20 years? Nope.
> 
> Is there any guarantee that our government will bailout any failed bank? Nope either... in fact, the recent budget has insisted the bank shareholders to "bail-in" by using people's deposit and asset, in the event of a catastrophic failure.


No, there is no guarantee when investing, but there's more reward by being a stockholder rather than an owner of a product. Any company can go bankrupt and get re-capitalized; this happens all the time. But, I like my chances with CIBC and other companies. CIBC is not only a large bank but it is also amongst the best capitalized of any bank in Canada. This doesn't make the risk zero, but when you're getting an earnings yield in excess of 10% then you are getting a good risk premium and lots of cash return as well with the 5% yield.


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## james4beach (Nov 15, 2012)

blin10 said:


> _"Is that an absolute guarantee that any bank will be around in 20 years?"_ yes, there is pretty much 99.99% guarantee CAD banks will be around in 20 years, I'm not going to waist time explaining why.


Yes, the banks are virtually guaranteed to be around (or acquired by one another).

But the equity? NO... there is no guarantee the equity of the bank will remain. Bailing out a bank nearly always means that equity gets diluted or wiped out. Raising capital basically means issuing new equity.

So yes the banks will remain and yes they will be bailed out, but NO there is no reason to think that equity (stock) will survive throughout that whole process. An investor who is buying bank stocks "because they will get bailed out anyway" is using flawed logic.


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## MoreMiles (Apr 20, 2011)

blin10 said:


> i'm sorry but it seems like you don't know much in this area... Lehman Brothers and Bear Stearns went under because they were giving out bad loans left and right, not the case with CAD banks...
> 
> _"Is that an absolute guarantee that any bank will be around in 20 years?"_ yes, there is pretty much 99.99% guarantee CAD banks will be around in 20 years, I'm not going to waist time explaining why.
> 
> _"Is there any guarantee that our government will bailout any failed bank?" _ yes, there's 99.99% guarantee government will bail out biggest banks because it's the core of Canada.


Do you really think you know about a bank's complex derivatives and books? It is not hard to make your books look nice, while the truth is a different story. You can live in your fantasy world on how "Canadians are different and immune"... that is your opinion.

I just want to point out 2 things.

1. Canadian real estate markets are extremely unaffordable with potential crash. Who is going to be affected when mortgages cannot be repaid?

2. Canadian government is drawing a line / firewall with their announcement just 4 months ago. The same thing in Cyprus can happen here! You don't think there will ever ever be the possibility of a bank run in Canada?
http://canadiantimes.ca/ct2/index.p...allow-banks-to-confiscate-customer-s-deposits

Well... believe what you want then.


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## MoreMiles (Apr 20, 2011)

james4beach said:


> Yes, the banks are virtually guaranteed to be around (or acquired by one another).
> 
> But the equity? NO... there is no guarantee the equity of the bank will remain. Bailing out a bank nearly always means that equity gets diluted or wiped out. Raising capital basically means issuing new equity.
> 
> So yes the banks will remain and yes they will be bailed out, but NO there is no reason to think that equity (stock) will survive throughout that whole process. An investor who is buying bank stocks "because they will get bailed out anyway" is using flawed logic.


Yup... GM is still around... except the GM stock from 1990's is not the same as 2013 :neglected: 
This is a good point. It's the same company but different stock.... try to explain this to your average investors.


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## Eder (Feb 16, 2011)

There is more risk to a 5 year GIC than owning CIBC common stock. I wont elaborate as it would just be a regurgitation that all have heard many times and then I would have to delete this reply so as not to appear an idiot to most (all)

Perhaps others can explain...I have another Honey Brown that requires consumption and therefore must go.


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## blin10 (Jun 27, 2011)

do I know about banks complex derivatives and books? nope I don't and neither do you, but i do know the 3 times I got mortgage before, they asked for so many things and prove, I think by the end of it all they knew what i eat for breakfast... that's the difference right there 

_"1. Canadian real estate markets are extremely unaffordable with potential crash."_ right, people like you been saying this for past 15 years, it's so unaffordable yet houses trippled in that time.... maybe right now they a bit high but if they this high, people are buying them, supply and demand... 

_The same thing in Cyprus can happen here!_ did you just compare Cyprus to Canada ? i'll stop replying to you this is useless, have fun wearing tin can hat





MoreMiles said:


> Do you really think you know about a bank's complex derivatives and books? It is not hard to make your books look nice, while the truth is a different story. You can live in your fantasy world on how "Canadians are different and immune"... that is your opinion.
> 
> I just want to point out 2 things.
> 
> ...


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## MoreMiles (Apr 20, 2011)

Detached houses are approaching or already over $1 million in Toronto. People are forced to move away to Ajax, Newmarket, or Milton because of the ridiculous prices. Is it from supply and demand? To qualify for a $1 million mortgage, you need to have an annual income of $250,000. Don't tell me that is the average household income in Toronto. Also, don't tell me all those upcoming North York and downtown condo units will be filled with actual users in the next couple of years! With interest rate going up, Canadian banks will be at a very difficult situation. 

About our Canadian bank health, if our government was not worried, why would they pass the law, in their 2013 budget, to set up that firewall for bailout? Why would they only provide $100,000 deposit guarantee, and not $1 million? The writings are on the wall. Yes, we may not be Cyprus... but we are not INVINCIBLE either.

Regarding my point about this thread... CIBC common share stock should not be considered as the answer to "Is there a safe way to invest $50,000 and get a ROI close to 5%?"

In fact, many "experts" do not like CIBC either, just see it for yourself... http://www.stockchase.com/company/view/278


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## doctrine (Sep 30, 2011)

Did you read that link closely? There are two sells on CIBC this year and both of them recommend other Canadian banks, that's hardly a consensus of "many experts do not like CIBC". Some people have target prices close to $100. There is only one person in 2012 that didn't like the sector nor CIBC as well; every other 'sell' still recommended at least one Canadian bank. At worst, the average consensus is a 'hold' but many of the 'hold' comments are quite positive when you read them. 

Some people are quite out there. Here's one person's comments from 2011:

_This bank is not doing well. It broke down through the up trend line and is now struggling to hold at around $68_

Sell at $68, that would have worked out well.


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## MoreMiles (Apr 20, 2011)

doctrine said:


> Did you read that link closely? There are two sells on CIBC this year and both of them recommend other Canadian banks, that's hardly a consensus of "many experts do not like CIBC". Some people have target prices close to $100. There is only one person in 2012 that didn't like the sector nor CIBC as well; every other 'sell' still recommended at least one Canadian bank. At worst, the average consensus is a 'hold' but many of the 'hold' comments are quite positive when you read them.
> 
> Some people are quite out there. Here's one person's comments from 2011:
> 
> ...


I believe there is another thread for this issue exactly, actively going on right now. 
http://canadianmoneyforum.com/showthread.php/15917-CIBC-low


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