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My advice • May 09, 2024

Laddering your investments is a winning strategy

Discover the many benefits of laddering

The yellow piggy bank placed on stairs represents the concept of investment laddering strategy.

When it comes to investing, the idea of tying up money for a long period of time can deter many people. That’s where a laddering strategy becomes very useful. But what exactly is laddering, and more importantly, does this strategy work with your financial goals? Here’s everything you need to know about it.

What’s involved with laddering your investments?

When you decide to invest in financial products like Guaranteed Investment Certificates (GICs), you’re committing your money for a fixed term. That means you won’t be able to access your funds until they mature.

Let’s say you want to invest $12,000. Instead of putting all your savings into a single investment, you could spread $4,000 across 3 different investments, each with different maturity dates—all in line with your investor profile and goals. This strategy ensures that you’ll have access to some of your money at each maturity date.

Why ladder your investments?

Laddering not only gives you access to your money at different maturity dates, but it has a number of other advantages, too.

Diversify your investments

It’s always a good idea to diversify, regardless of your risk tolerance level. In addition to laddering the maturity dates of your investments, you can also diversify the types of financial products you’re investing in.

Let’s go back to the example where you want to invest $12,000. You could still split this amount equally across 3 different investments, each with a distinct maturity date. Additionally, you can diversify the financial products by investing a portion of your money in a fixed-rate GIC1 and some in an indexed GIC2.

The table demonstrates the benefits of putting money into investments with different terms to maximize long-term returns.

Reduce risk

Investing in products such as indexed GICs means your funds are susceptible to market fluctuations.

By laddering your investments across different maturity dates, you can minimize the impact of these fluctuations. This strategy will also ensure you have regular access to your funds.

For example, if the stock market underperforms just before one of your indexed GICs matures, you may earn a smaller return at the end of the term. On the other hand, if you have diversified your investments across various maturity dates, your other investments could potentially yield higher returns, offsetting the weaker performing investment.

Lower your tax bill

Interest generated by investment products in non-registered accounts is considered interest income. Staggering returns over several years will prevent your taxable income from increasing drastically in one year.

The benefit of investing in registered plans: If you have unused contribution room in a registered plan like a Tax-Free Savings Account (TFSA) or a Registered Retirement Savings Plan, it may be a good idea to invest your money there. This would let your interest income grow tax-sheltered.
Bring a project to life

As your funds are locked in until maturity, laddering can be a great way to access the money you need to complete those important projects, whether you want to spruce up your yard when summer arrives or make a prepayment on your mortgage to pay down your house faster.

About indexed GICs

ActionGICs, more commonly known as indexed GICs, are designed for investors who want the potential for high returns as well as security. With an indexed GIC, you generate market-linked returns while your principal is guaranteed. Some ActionGICs even offer a minimum guaranteed return.

Even though GICs are rarely impacted, you should still be prepared to assume the risks of the stock market. It’s possible that the final return on your indexed GIC will be nothing more than the guaranteed minimum return—or no return at all if you chose an indexed GIC that doesn’t offer a guaranteed minimum return.

Still unsure about investing in an ActionGIC? Nothing’s stopping you from investing a small amount and watching it grow! Past returns can also give you an idea how GICs evolved over time, but keep in mind that past performance doesn’t guarantee future returns. Review ActionGIC performance, current issues on sale and past issues.

It’s also good to know that market-linked GICs are eligible for deposit insurance from the Canada Deposit Insurance Corporation (CDIC).2 For details, read the CDIC abbreviated brochure available in branches or visit cdic.ca.

Learn more about ActionGICs

Ready to take the next step?

Book a meeting with a Laurentian Bank advisor. No matter what you’re saving for, you’ll benefit from customized advice. And together, you’ll build a personalized investment strategy that fits your profile and goals.

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