The Globe and Mail reports in its Saturday edition that guaranteed investment certificates yield 4 to 4.5 per cent and have their place in a well-balanced portfolio. The Globe's John Heinzl writes that because their principal value does not fluctuate and their returns are guaranteed, they provide stability and peace of mind during periods of market volatility. That stability comes at a cost. First, GICs do not offer any growth potential. If you invest in a five-year GIC that yields 4 per cent, that is all you will get. You will feel like a genius if the stock market treads water or falls over that period, but if the market rises substantially, that GIC will not look nearly so appealing. History has clearly favoured stocks over GICs. Over the past decade, the S&P/TSX Composite Index has posted an annualized total return of about 9 per cent, including dividends. No GIC can keep up with that. True, the stock market had plenty of ups and downs over that period, but volatility is the price investors pay for the superior returns that stocks deliver. Another drawback is that GICs lock up your money for a fixed period. If you need the cash to buy a new car or replace your furnace, you will not easily access your funds.
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