# Market Secure GICs



## leoc2 (Dec 28, 2010)

With a Canadian Market Secure GIC your return is based on the performance of the S&P/TSX 60®, Canada’s leading stock market index. This provides you with the opportunity to earn more money while at the same time, preserving your investment and minimizing risk.

Here is link;
http://www.meridiancu.ca/personal-banking/investments/products/market-secure-gic/Pages/default.aspx

If the market drops your principal will not decline in value which will protect your investment so you can ride out the market, worry-free. 

Features
5-year non redeemable GIC
Rate of return based on the average month-end closing value of the S&P/TSX 60® over a 5-year investment period
Members participate in100% of return
Principal is guaranteed
Eligible in TFSA, RIF and RSP plans
$500 minimum investment required for RSP, RIF and TFSA; $1,000 for non-registered

The Deposit Corporation of Ontario insures unregistered deposits up to $100,000 and registered deposits are fully insured with no limit on the maximum amount.

The interest earned will be based on the average return of the index for the five years of the investment period. The average is calculated by adding the month-end closing values of the index and dividing the sum by the total number of months. It is then compared to the opening value of the index to determine the percentage change.



Is this a safer way to go if you are considering index investing?

I hope Belguy replies to this post


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## sensfan15 (Jul 13, 2011)

What have historical returns been like?


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## leoc2 (Dec 28, 2010)

HISTORICAL PERFORMANCE
OF THE S&P/TSX 60 INDEX
_________________2006_____ 2007_____ 2008 _____ 2009 _____ 2010
Yearly Growth ____ 17.2% ____10.4% ____-33.8% ____ 4.5% ____ 9.7%
Average Five-Year _11.9% ____16.8% ____ 6.26% ____ 8.9% ____ 5.6%
Growth*
*Average Five-Year growth is based on a simple interest calculation representing the average of the five-year annual returns. Historical returns are not indicative of future performance.


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## sensfan15 (Jul 13, 2011)

Is this too good to be true? Of course the 5 year avg. has gone down b/c of 2008, but still. Even if the index loses 10% this year you would still get a return that is greater than a 10 year U.S T-Bill...


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## Potato (Apr 3, 2009)

These are usually sneaky products (only including partial performance, caps, etc) so it usually ends up being the case that if you need downside protection to just get a regular GIC (where you're guaranteed some return too) and a regular low-cost market index fund for the bit of exposure you can tolerate (or to buy call options with the interest from your regular GIC).

The sneak on this one comes in the way they calculate the return:



> The interest earned will be based on the average return of the index for the five years of the investment period. The average is calculated by
> adding the month-end closing values of the index and dividing the sum by the total number of months.


So if the index is at say 100 now and closes at 134 after 5 years (a total 34% return or 6% compounded annually), you'd only get ~20% return (or about 3.7% compounded). 

It also makes the return path-dependent: if the market goes down for the next 4 years, then rallies hard in the last year to finish up, you'll get far less out of a product like this than if you had just invested in the market. For example, if the market goes down 10% and stays down that much for 4 years, then rallies in the final year to finish at 134 (the same ending value as the previous example), you'd get nothing.

Though to be fair, this method would still give you some return if the market tanked just before redemption.


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## humble_pie (Jun 7, 2009)

oh, dear, is this possibly an advertising thread.

guaranted indexed GICs are easy for a DIYer to construct. The home product will always yield better than the commercially engineered indexed offering, imho.

here's how: out of a basic $100,000, buy a 3-year GIC with 97,000. With the remaining $3000, buy 2014 LEAPs calls in XIU. Right now i'd be looking to buy mar 2014 $20 calls. These will control 2000 shares of toronto's top 60 companies. I'd be looking to pay 1.40-1.50 for them.

unlike the tricky little potion being sold upthread, this approach will at least yield the 3-year interest return on the 97k.

parties willing to take more risk could allocate less to the GIC & more to XIU calls. For example with a 93,500/6,500 split, the investor will guaranteed get back slightly more than his original 100k in 3 years at today's rates, while more than doubling his leverage to the TSX top index.


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## Argonaut (Dec 7, 2010)

These products are ripoffs and I wouldn't recommend them to anyone. You can't have your cake and eat it too. I've seen some customers with some of these that returned 0% over their term. Really sad to have your money locked up and not gain a cent.


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## leoc2 (Dec 28, 2010)

I'm not marketing anything. I am older investor that has been swing trading gold for the last 7 years with smaller pots of money. Before that I traded technology. I have luckily escaped the 2000/2008 market crashes with decent profits and amassed a larger pot of money. At my age it is time to put my lager pot in a less exciting and stable investments. While waiting to dollar average into index funds in September, I am sole searching and I thank all here for their contributions.


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## webber22 (Mar 6, 2011)

Wow what a lead in for Belguy to step up ......... I'm starting to think that *leoc2* is really *Belguy*


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## leoc2 (Dec 28, 2010)

Belguy and I are brothers from a different mother. 

I am probably the younger bro looking up to big bro.


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## humble_pie (Jun 7, 2009)

you are inspecting the sole of your shoe ? congratulations that you are so limber (assuming the shoe is still upon your foot.)

won't you tell us please why your shoe is recommending meridiancu. Since competing engineered index products are available everywhere, even at your neighbourhood bank.

and how does the poor shoe feel about being locked up for 5 years when you yourself are waiting to buy index funds in september.


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## fatcat (Nov 11, 2009)

> oh, dear, is this possibly an advertising thread.
> 
> guaranted indexed GICs are easy for a DIYer to construct. The home product will always yield better than the commercially engineered indexed offering, imho.
> 
> ...


 what he said ... this is the better way to go ... the market gic's are all weighed down with enough fine print to sink a legal convention ... pie's method does exactly the same thing only you control it


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## leoc2 (Dec 28, 2010)

Humble ... The reason that I used the merid reference is because it is the entry at the top of google search ... no other reason. I have re-inseted the link on my previous posts. I really like your leap strategy with a separate GIC purchase. Thanks for that. Having a nimble shoe is the truth ... on an internet forum nothing can be proved.

ps...I have not purchased this product.


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## marina628 (Dec 14, 2010)

I have held Scotia Stock Indexed GIC for too many years to remember and my parents have had them longer than that.Actually my actual eXperience is they pay better than the normal GIC and I added them to my ladder GIC portfolio about 5 years ago.Before i would just buy a small one under $5000 infrequently.
I also have financial GIC Plus from TD since 2008 and Utilities GIC plus since 2009.I will be happy to update the thread in 2013 to let you know my ROI


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## humble_pie (Jun 7, 2009)

these engineered products are always so controversial. On the one hand a satisfied owner says she believes those she has held in the past paid better than a normal GIC. On the other hand a representative of a leading bank, itself a notable purveyor of index-linked products, says these investments are ripoffs & he wouldn't sell them to anyone.

i've never seen any comparative studies. Yet these would be easy to carry out, so some must exist. Has anyone got a reference. It would be a good idea to go beyond anecdotes.

one advantage of the DIY index-linked deposit is that the investor can sell his XIU call at any moment during the 3-year period that he has a good profit. Even better, if the index then declines he can re-buy his call & start the process all over again. Whereas the commercially engineered index product locks the investor in, usually for 5 years, with no possibility of any adjustment whatsoever as time passes.


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## Dibs (May 26, 2011)

I have some market-linked GICs from TD and I would not buy them again. Over the last few years TD has scaled back the max return that you can get on most of these types of products. 

2008: 5 year Financial GIC Plus - Minimum 0%, Maximum 70% return 
Now: 5 year Financial GIC Plus - Minimum 0%, Maximum 40% return

http://www.tdcanadatrust.com/GICs/GICTable.jsp
The 2008 data is from the GIC I currently have. I wonder if you can get historical data on the rates that they give..


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## HaroldCrump (Jun 10, 2009)

+1 to the above.
I bought this product twice - in 2005 and 2006.
Both had the participation rate capped at 60%.
The guaranteed interest rates on them were 2.5% and 2.4% respectively.
Both have severly underperformed any other balanced fund type approach, including the call option strategy humble_pie described above.
The 2005 one expired last year and did not give me anything more than the basic guaranteed rate (2.5%).
The 2006 one is expiring this year and from the statements I can tell that it will earn me nothing over and above the base rate of 2.4%.

I will of course never go near them again now that I have a better understanding of how these work and how to do better on your own.

The only consolation is that they were small amounts and were inside an RRSP so no tax consequence.
Also, 2.5% doesn't sound so bad considering that if I hadn't chosen these GICs, I would probably have ended up investing in their high fee mutual fund, which has done much worse than the GIC during the same period.


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## humble_pie (Jun 7, 2009)

harold my daughter once won a pink ribbon in a gymkhana at horse riding camp like that. She was 7 years old. It was a consolation prize. The truth was she was too terrified to get up on the beast.

the index-linked product mentioned - or rather mentioned-then-deleted - upthread didn't even have a pink ribbon. If the averages don't work out for the investor, the poor sod will receive nothing, after 5 long years.


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## Homerhomer (Oct 18, 2010)

Index linked GIC are terrible option for an investor who wants to be in charge and wants to have some decent understanding of what is going on with their money, it's not a bad option for anyone who:

1) wants to preserve the principal
2) wants to have the possibiliity of returns exceeding GIC
3) doesn't want to bother or learn much about investments

I have personally held stock linked GIC in the past (3 year terms) on few occassions, worked great for me, I didn't pay any attention to them until they renewed (which suited me just fine at the time), on some occasions made slightly more than what regular GIC would offer, and on one occasion I didn't loose the money like the stock marked did.

Humble's suggestion is obviously better, but it does involve a bit of knowledge and effort.


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## HaroldCrump (Jun 10, 2009)

humble_pie said:


> the index-linked product mentioned - or rather mentioned-then-deleted - upthread didn't even have a pink ribbon. If the averages don't work out for the investor, the poor sod will receive nothing, after 5 long years.


100% agreed, these products are indeed very inferior and deceptive.
The typical profile of who would buy these products are uninformed, novice investors trusting their financial advisor/broker or the local bank rep.

There used to be another dude here on this forum - Buick-something - always pumping and touting stock index linked GICs (from BMO or TD I think).
He hasn't been back here for over a year - I wonder if he was a GIC broker or a bank rep.

*@HomerHomer:* I don't see how this index linked GIC can do better than a regular, fixed term, GIC given the upside caps.
The guaranteed rate is quite a bit lower than non redeemable GICs.
Back in 2005 when I bought this crap, a 5 year term deposit was paying 5% at least and this crap was exactly half that.
These days a regular 5 year is paying about 2.3% at a bank and the index GIC is at 1.2%, so still 50% lower than the regular.
The stock market will have to have an incredible bull run to overcome this rate cap fetter.

My index GIC has come through the greatest bull run on the TSX in the last 10 years, yet it has not managed to overcome the base rate.


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## Belguy (May 24, 2010)

Just for the record, I have looked into, and would definitely not invest in these products. Never underestimate the ability of the financial services industry to come up with new and different products that almost always sound better than they are and whose main objective is to make money for the issuer.

I have always preferred the 'Couch Potato' approach although, of late, with so much uncertainty in the world, my confidence in that method has become a little shaky because I am getting a tad sick and tired of these market crashes every few months just because there is some far off problem anywhere in the world. Why should an uprising in Swaziland cause North American stocks to tank etc.!!

The other approach, that I believe in, is to hold dividend paying stocks of large corporations that you believe will stay in business for the long term and which have a history of increasing those dividends over time. At least you get paid to wait out the never ending stream of market drops!! For better or worse, I do not invest this way because I have never aspired to be a picker of individual stocks. 

Other than that, stay away from financial services salespersons whose prime incentive is to make money for the firm that they work for and to pay their own bills and be in line for a raise or perhaps a promotion.

When it comes to the financial services industry, I have precious little faith and trust that they have our best interests at heart.


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## Homerhomer (Oct 18, 2010)

HaroldCrump said:


> *@HomerHomer:* I don't see how this index linked GIC can do better than a regular, fixed term, GIC given the upside caps.
> The guaranteed rate is quite a bit lower than non redeemable GICs.
> Back in 2005 when I bought this crap, a 5 year term deposit was paying 5% at least and this crap was exactly half that.
> These days a regular 5 year is paying about 2.3% at a bank and the index GIC is at 1.2%, so still 50% lower than the regular.
> ...


It's been quite a few years since I had it so my memory may be foggy, however the only restrictions I remember on the products I have purchased was the profit allocation between me and the bank ( % split between the cost and index gain for the period), at the same time there was no minimum guaranteed income, just guaranteed principal.

If as you say the products have attached max income cap which is no different or lower than regular GIC then it really doesn't make any sense.

Segregated funds may be an option then ( not that I am promoting mutual funds with additional insurance cost for guaranteeing principle).


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