Yahoo Finance 3 Safe Investments (That Aren’t Stocks) to Protect Your Wealth
Written by Amy Legate-Wolfe at The Motley Fool Canada
The TSX today continues to trade near all-time highs, but that doesn’t mean we’re out of the woods. Inflation rose between February and March, leading some analysts to believe that perhaps we won’t see an interest rate cut in June after all.
This has led to further volatility in the markets and for some investors to seek safer options. But what are those options? Today, we’re going to look at three safe investments for investors to consider — ones that aren’t stocks, along with one stock that can help protect your wealth.
T-bills
Short-term treasury bills, also known as T-bills, are considered some of the safest investments around. These are short-term debt securities that are issued by the Canadian government. They are considered so safe because they are backed by the full faith and credit of the Canadian government.
T-bills are issued with maturities ranging from just a few days up to a year through regular auctions. When an investor “bids” on T-bills, they get a discount on their face value. The difference between the purchase price and face value represents the interest earned on the investment. The treasury then accepts these bids starting from the lowest yield, or highest discount, to the highest yield, or lowest discount.
They do this auction process until the total value of the bid meets the offered amount. When T-bills mature to their face value, the investor will receive the face value at its maturity date. So, let’s say you purchased a $1,000 T-bill at a 90-day maturity at $990. You would then receive $1,000 after 90 days. Put in a large amount of cash, and this can seriously add up, all at virtually zero risk since these are backed by the government.
GICs
Another safe investment to protect your wealth is through investments in Guaranteed Investment Certificates (GIC). As with T-bills, these are guaranteed, low-risk investment products. In this case, however, these are offered by banks and other financial institutions.
Rather than a short-term option, GICs will have fixed investment terms, which can range from a few moths to several years. These terms allow investors to lend a sum of money to a financial institution, with the guarantee of being paid back with interest.
That interest will usually come in fixed or variable rates. Fixed-rate GICs provide a predetermined interest rate for the entire term, offering stability and predictability. Variable-rate GICs may adjust the interest rate periodically based on market conditions or a specified benchmark. Payments then come out at various intervals, providing even compound interest on the principal amount as your fixed income comes in.
While there are restrictions on early withdrawals, usually Canadians can take out the GIC by the maturity date or when the term expires. Meanwhile, you’ll be receiving secure income. And that income is protected by the Canada Deposit Insurance Corporation for additional security.
Bonds
Another way to get in on safe investments is through bonds. There are two types: government bonds and corporate bonds. Government bonds are issued and backed by the government and are used to finance spending needs such as debt refinancing. These are low risk, providing interest payments to bondholders at regular intervals. And they can be incredibly long term — between one and even 30 years.
Corporate bonds are similar, raising capital for debt payments and other means as well. There is higher risk since they are dependent on the financial health of the company. This is why it’s important to see out credit ratings on the companies. Financial institutions in Canada can be one way to get in on these safe bonds.
There is also the option to invest directly into banks themselves, which tend to have safe, long-term security along with divided payments. These are also more liquid, allowing you to take them out whenever you need.
Investing in a dividend stock like Canadian Imperial Bank of Commerce (TSX:CM), for example, allows you to see growth in your investments while adding a 5.54% dividend as well. No matter what you choose however, these are all safe investments for Canadians to consider.
The post 3 Safe Investments (That Aren’t Stocks) to Protect Your Wealth appeared first on The Motley Fool Canada.
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Fool contributor Amy Legate-Wolfe has positions in Canadian Imperial Bank Of Commerce. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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