# TD market growth GIC's



## ontario99 (Apr 13, 2016)

I was googling for GIC's and found a thing called market growth GIC's. What are they??
I am a US citizen and moved to Canada about 2 years ago, and I am familiar with regular GIC's (like CD's in the US), but I am not familiar with this market growth GIC thingies.

I have a couple of CD's maturing in the next two years in the US, so I was thinking of transferring the money here and buy some GIC's, but I wanted to know more about these market growth GIC's... Oaken's 5 year GIC rate is 2.25% and with TD Utilities GIC, the rate is minimum of 2% guaranteed, up to 20%??

https://www.tdcanadatrust.com/products-services/investing/gics-term-deposits/mkt-growth-gics.jsp

Do you have any? What's the catch?


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## Spudd (Oct 11, 2011)

They're crappy. The 20% they advertise is over the 5-year term so that's 4% per year. The minimum is 0.3979%. It's linked to stock market returns, and does not include dividends. So basically, you give them your money, they invest it in stocks and they collect the dividends from those stocks. At the end of the period they figure out if the stocks went up more than 0.3979% per year, if so, then they pay you "bonus" interest based on the percentage the stocks went up. But only to a maximum of 4% per year.


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## mordko (Jan 23, 2016)

The catch is that it's a marketing gimmick. The whole thing is extremely misleading:

1. You are not comparing like with like. 2.25% from Oakden is annual rate which will be compounded. 2% from TD is over 5 years, which is less than 0.4% annualized. 20% is also over 5 years, so 3.5% annually. 3.5% is tiny for a ceiling which is supposed to be linked to "market".

2. The way these are typically designed, you won't get your 3.5% annually. Probability is skewed to ensure you will lose most of the time. 

3. Note that they are not taking dividends into account when comparing returns. Dividends form a very important component of any actual return from utilities. 

If you want to protect your capital at all costs + some benefit from the market, you should do the following:

1. Put 90% of your fund into Oakden GIC. After 5 years you will get 100% of your original capital from this investment alone.

2. Put 10% into an ETF, e.g. XIC or VTI. 

After 5 years total return will give you a better likelihood of getting the 20% return on your market-linked GIC. And the probability of getting the low limit of 2% is far lower than with TD market-linked GIC. Most likely you will get ~15% total; again the chances are better than from the market-linked GIC.


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## jargey3000 (Jan 25, 2011)

ontario; you wont get very good reactions to these GICs on this forum. Most here are DIY-ers.
But I maintain, for someone who has no interest, knowledge, access or desire to D-I-Y ( I know most in here cant comprehend that attitude - but there ARE people like that!), they MAY represent an option for the 'fixed-income' portion of your investments.
you COULD gain a few more points than a conventional GIC, over 3 or 5 years, AND your principle is protected.
Bit of a gamble ...but (almost) what isn't?


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## marina628 (Dec 14, 2010)

The last batch I renewed had face value of $2000 each and I got paid $2711 after a 3 year term .I have owned them on and off for 15 years or so depending on the GIC rates if I am buying them.


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## OnlyMyOpinion (Sep 1, 2013)

jargey3000 said:


> ontario; you wont get very good reactions to these GICs on this forum. Most here are DIY-ers.
> But I maintain, for someone who has no interest, knowledge, access or desire to D-I-Y ( I know most in here cant comprehend that attitude - but there ARE people like that!), they MAY represent an option for the 'fixed-income' portion of your investments.
> you COULD gain a few more points than a conventional GIC, over 3 or 5 years, AND your principle is protected.
> Bit of a gamble ...but (almost) what isn't?


Oh jargey. Not CPG and a market-linked GIC I hope.:sour:


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## humble_pie (Jun 7, 2009)

Spudd said:


> So basically, you give them your money, they invest it in stocks and they collect the dividends from those stocks. At the end of the period they figure out if the stocks went up more than 0.3979% per year, if so, then they pay you "bonus" interest based on the percentage the stocks went up. But only to a maximum of 4% per year.




except they don't really invest your money in stocks, they invest it in derivatives.

deep inside those engineered products are mostly packs of puts, calls & other derivatives.

see, the vendors have to insure against a market collapse. After all, they've committed to giving clients 100% of their capital back, so they can't be caught shorthanded. This is why they need to be long puts. These provide the insurance.

but owning the puts means selling other puts. It also means buying & selling calls to complete the risk profile within the designated time frame. Plus a little gravy for themselves.

i know i know. Cmffers still waaaant to believe that fundco products actually do own real stocks. When it's so much easier & more profitable for the vendors to set up assemblies of derivatives.

you guys don't remember moneyGal? she had good actuarial training, she was an experienced market professional, she was not naiive. But even moneyGal said she was surprised, when she unbundled a market-linked GIC, to discover the puts at the bottom of the structure ..each:

PS options can easily be arranged to replicate dividend income from a stock index, or from any list of stocks

.


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## humble_pie (Jun 7, 2009)

building your own market linked GIC product has been exhaustively written up in cmf forum.

as has often been discussed, it won't work to invest 90% in a GIC plus 10% in an equity ETF like XIU. That equity portion is too ridiculously small. It won't earn zip over the planned life of a homemade product.

even a $100K DIY market linked product will have only $10,000 in XIU. That might return what, over 3 years? jas4 says XIU is returning 6-7% per annum, all in, including distributions & notional capital gain. So $10k might fetch the mind-boggling amount of $650 per annum, or a total of $1950 across 3 years if all goes well, yawn. Meanwhile the DIYer also runs the risk that the stock exposure could pulverize to zero.

to obtain leverage & actually earn something significant from stock exposure, the DIY market linked GIC builder needs to own LEAPs call options in XIU. These are long life call options. With a $100K DIY market-linked GIC that uses options for the stock portion, a DIYer could gain exposure to $30,000-40,000 in the XIU top 60 stocks on the toronto stock exchange, for a three-year home product lifetime.

with this kind of leverage, he might see some good gains across 3 years. In addition, he won't have to wait until maturity of the product to realize gains in the equity portion. Unlike commercial market linked GICs, he would be able to sell his equity calls at any time, in order to crystallize a gain.

.


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## ontario99 (Apr 13, 2016)

Thank you all for your responses.

I am a DIYer also - The CD's are a part of my cash position in my asset allocation, so I need to invest this money in safe vehicles and GIC's of all kinds (and even high rated savings accounts) would fit this bill. Anyway, I am just considering moving the CD money to Canada once they mature (only if I can find something better in Canada over the US.) I knew there was a catch somewhere with these market growth GIC's, but I didn't know what the catch was, so thank you all for explaining to me the true meaning of 2% minimum returns. I do understand that the market growth GIC's are a gamble - you will most likely get a smaller return than regular GIC's if the market tanks, but if the market is up, you will most likely get a little more than the regular GIC's. Either way, you will get your money back plus some (which might beat the inflation, but still, something to ponder...) I have another year before my first CD matures so I have time.


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## humble_pie (Jun 7, 2009)

in recent weeks there has been a tiny tick up in US rates, along with a tiny tick down in CAD rates. These have resulted in some US money market funds perking up (TD's have perked for example,) while most canadian HISA rates have drooped a little.

surely it would be worth keeping an eye. You might find, at the end of your year to come, that leaving your funds in their US deposit channels will be an appealing idea.

.


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## Eclectic12 (Oct 20, 2010)

jargey3000 said:


> ontario; you wont get very good reactions to these GICs on this forum. Most here are DIY-ers.


True ... though in my case it is less about DIY and more about the steady rise in caps and what see to be increasingly complicated formulas. It is a far cry from the days when one's index linked GIC paid 98% of the rise in the index out.




jargey3000 said:


> ... But I maintain, for someone who has no interest, knowledge, access or desire to D-I-Y ( I know most in here cant comprehend that attitude - but there ARE people like that!), they MAY represent an option for the 'fixed-income' portion of your investments.


For me the issue is sorting out how much risk the investor is taking and what the cap on the reward is. Back in the simple formula day, my room mate was disappointed that I was paid 30+% simple interest where his "identical" one tracking the same index paid him 10% (his had an explicit cap of 10%).

Throw in that DIY along the lines of post #3 will require figuring out where/how to buy the ETF but beyond that, it can be treated as set and review in five years.

It seems far more simple to me to figure out how to buy the ETF versus reviewing the contracts to find the one that rewards the investor the most.


Where one is willing to risk giving the lion's share of the return to the bank while assuming a good chunk of the risk - sure, it is easier.


Cheers


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## Eclectic12 (Oct 20, 2010)

marina628 said:


> The last batch I renewed had face value of $2000 each and I got paid $2711 after a 3 year term .I have owned them on and off for 15 years or so depending on the GIC rates if I am buying them.


You did well then as several I read the fine print for relatively recently capped the return to 3%, no matter how well the index did.


Cheers


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## jargey3000 (Jan 25, 2011)

humble_pie said:


> in recent weeks there has been a tiny tick up in US rates, along with a tiny tick down in CAD rates. These have resulted in some US money market funds perking up (TD's have perked for example,) while most canadian HISA rates have drooped a little.
> 
> surely it would be worth keeping an eye. You might find, at the end of your year to come, that leaving your funds in their US deposit channels will be an appealing idea.
> 
> .


I LOVE this forum ...for tidbits & nuggets like this....


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## jargey3000 (Jan 25, 2011)

"_It seems far more simple to me to figure out how to buy the ETF versus reviewing the contracts to find the one that rewards the investor the most.
Where one is willing to risk giving the lion's share of the return to the bank while assuming a good chunk of the risk - sure, it is easier."_

Agreed...but A LOT of people dont have access to ETFs - they dont use or want to use DI account. so they are basically limited to buying GICs or MFs - No?
Also agree ML-GICs were much simpler to figure out years ago! (even *I* could understand them back then!!)


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## jargey3000 (Jan 25, 2011)

OnlyMyOpinion said:


> Oh jargey. Not CPG and a market-linked GIC I hope.:sour:


oh dear... in the process of 'averaging down' my CPG cost, OMO .......


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## ontario99 (Apr 13, 2016)

humble_pie said:


> in recent weeks there has been a tiny tick up in US rates, along with a tiny tick down in CAD rates. These have resulted in some US money market funds perking up (TD's have perked for example,) while most canadian HISA rates have drooped a little.
> 
> surely it would be worth keeping an eye. You might find, at the end of your year to come, that leaving your funds in their US deposit channels will be an appealing idea.
> 
> .


Yep, I have to watch how the interest rates are on both countries. I have noticed the same thing you have, but I need to add another variable - the exchange rate and where it may be headed - to the mix, which makes things a bit more complicated and interesting. I was hurting in 2013 (all my funds were USD then) and it can happen again, so if I am OK with $1.30 CAD to $1 USD, I may just move the money over even if the rate in Canada has dwindled a bit.


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## mordko (Jan 23, 2016)

The exchange rate can move either way but if you live and spend in Canada then having most of your fixed income in CAD makes a lot of sense. Agree that a small difference in the interest rate is immaterial.


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