Laddering: A GIC Investment Strategy

How does one maximize the rate of return on their GIC portfolio?

1. Potential for Higher Yields

Laddering is an investment strategy that refers to the structure of a GIC portfolio in such a way that an equal portion of the portfolio matures on an annual basis. Once in place, a laddered portfolio can provide the potential for higher yields by purchasing five year GIC’s and still have GIC’s maturing every year.

2. Reduced Risk

The secondary benefit to a laddered portfolio is the reduced risk of having the bulk of your GIC portfolio maturing at a time when interest rates are low, and thus dramatically reducing the overall yield.

3. Increased Liquidity

The third, and sometimes overlooked advantage, is increased liquidity. By having a portion of the GIC portfolio maturing every year, one has more flexibility to address unexpected emergencies or opportunities that may come up.

How to build your Ladder

Example: If you have $100,000, divide the investment into equal amounts of $20,000. Invest $20,000 for 1 year, $20,000 for 2 years, $20,000 for 3 years, $20,000 for 4 years, and $20,000 for 5 years. As your GIC’s mature each year, a 5 year term is then purchased. By the end of the first five years, all your GIC’s will be 5 year terms with a GIC maturing every year.

Since five year GIC’s historically offer higher interest rates than shorter term GIC’s, the rate of return on the total portfolio will be higher.

Maximize the rate of return on your GIC portfolio!