There are a thousand and one financial products that you can invest your savings in, be it the stock market, stock funds, diversified funds, bond funds, exchange traded funds (ETFs), Guaranteed Investment Certificates (GICs), stock market GICs, cryptocurrencies, gold, silver etc.
After a really difficult 2022, in which the stock markets as well as the bond and bond markets literally collapsed, many savers were burned by the size of their losses on paper.
If you are one of those savers who are fed up with stock market turbulence and also have a low level of financial risk tolerance, I can offer you an interesting investment solution.
Before I reveal it, allow me a little reminder of the circumstances.
Note for latecomers
If you want to contribute to your RRSP and benefit from the deduction for your 2022 taxes, know that you only have five days to put your words into action, next Wednesday, March 1st, which is the last day.
But before you do your bit, I have two tips for you.
First, verify your 2022 RRSP Contribution Margin amount: This information is listed on the tax assessment notice that Revenue Canada sent you after filing your 2021 income tax return.
Second, will you report 2022 taxable income high enough to benefit from tax deductions allowed by the Quebec and Ottawa governments for RRSP contributions?
If your taxable income is too low, don’t freeze your RRSP savings. It would be best at this point to use your savings to pay off a personal loan, credit card, mortgage, etc.
Another solution if you save little or no tax with RRSP contributions: invest your savings in a TFSA (Tax Free Savings Account) instead. Investing in the TFSA does not provide a tax deduction, but it does allow you to accumulate tax-free income. And this while allowing savers to withdraw money when they need money and then replenish their TFSA when they are able to reinvest savings.
The investment solution?
The investment solution that I offer you is very conservative and above all absolutely risk-free.
I invite you to invest your money in 10-year progressive rate bonds offered by Épargne Placements Québec, a financial institution under the jurisdiction of the Québec government.
Yield starts at 4.25% in year 1 and increases each year thereafter. Going back to year 5, the bond yields 4.75%. In the 7th year, the return is 5.25%. And in the 10th year even a whopping 6%. Long story short, the average 10-year return is 4.95%.
Why are these progressive bonds beneficial?
First, these bonds pay a very competitive interest rate compared to the yield offered by the Desjardins-Caisses and the major Canadian banks on their GICs.
Second, although these bonds have staggered 10-year periods, they offer the option of annual repayment. In particular, this flexibility allows the holder of these bonds to withdraw their marbles at any time if they wish to reinvest their money in an investment that they consider more profitable.
The stock market with it!
I also have an alternative (or complementary) solution that I can offer you. To give you the opportunity to get a better return, you can combine the purchase of these 10-year progressive bonds with the purchase of the new vintage of “stock market bonds” offered by Épargne Placements Québec.
The performance of these equity market bonds is based on that of the Québec 30 Index, which is composed of the 30 major companies listed on the Toronto Stock Exchange and headquartered in Quebec, including BCE, Couche-Tard, CGI. Royal Bank, National Bank, Bank of Montreal, Bombardier, Metro, Quebecor, Power Corp, Dollarama, CAE, WSP Group, BRP, Air Canada, Saputo, IA Financial Corporation, etc.
Two Big Benefits of Investing in These Stock Market Bonds?
- First, it is a completely risk-free investment as we get our entire initial investment back even if the stock market crashes.
- Second, this investment gives us an opportunity to take full advantage of the stock market, or nearly so, if the markets appear to be continuing their historical uptrend.
Market bonds are currently offered in two maturities: 5 years and 10 years.
I particularly like the 5-year maturity, which caps the potential maximum return at 100%, which translates to a potential annualized return of 14.87%.
For your information, as of Feb. 17, the Québec 30 Index had reported annualized returns of 6.90% over 5 years and 9.51% over 10 years.
The current exchange bond is for sale until March 15th.
