Bonds, GICs, and Guaranteed Investments

Your ScotiaMcLeod account can hold a wide variety of Guaranteed investments.  The table below describes some of their attributes, or contact us for specific recommendations or to add these investments to your account.

As a rough rule of thumb, you should hold your age as a % of your overall asset allocation in guaranteed investments, but that will vary with your own risk tolerance.

  Bonds Strip Bonds GICs Bond ETFs Bond Funds
Guaranteed Maturity Amount and Date Yes Yes Yes No, Bond ETF values and returns fluctuate and are not guaranteed No, Bond fund values and returns fluctuate and are not guaranteed
Ability To Sell Yes, at market value Yes, at market value (see example .pdf 6k) No Yes, at daily Net Asset Value Yes, at daily Net Asset Value
Guaranteed By Issuer, generally Canada or the Major Provinces, unlimited guarantee (corporate bonds not generally recommended due to lack of diversification) Issuer, generally Canada or the Major Provinces, unlimited guarantee (corporate bonds not generally recommended due to lack of diversification) CDIC To $100,000 Per Issuer (can be up to $600,000 in Self-directed RSP) Not guaranteed Not guaranteed

Corporate (High Yield) Bond funds at least have benefit of diversification

Minimum Investment Generally  $10,000 $5,000 of Maturity Value, can be as little as $2,000 of initial investment value $500 Roughly $5,000 to be cost effective $50 in payroll plans
RSP Eligible Yes Yes, Highly recommended - ladder maturities for best results Yes Yes Yes
Tax Comments (Non RSP) Interest paid semi-annually, and taxable each year, try to buy at a discount, to enhance after tax yield (need to reinvest if not using interest paid out) Interest paid all at maturity, but taxable each year.  Not recommended for taxable accounts due to unfunded tax liability Annual interest GICs recommended in taxable accounts Complicated Interest calculated by fund manager and taxable each year
Transferable? Yes to another self-directed RSP or investment account Yes to another self-directed RSP or investment account No, only upon maturity Yes to another self-directed RSP or investment account Yes to another self-directed RSP or investment account
Fees (Commission) Built into yield (very cost effective) Built into yield (very cost effective) Built into yield (very cost effective) Same commission as buying a stock (expensive) MERs generally 1% to 2% a year (expensive)*

*While we generally don't like the management fees on bond funds, there are some reasons to consider funds over direct bond ownership under certain circumstances, and AIC has consolidated those reasons into one document (see "Bonds vs. bond funds").

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E. carl.spiess@scotiawealth.com
    allan.mcglade@scotiawealth.com

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