In this column, which appears every two weeks, we give you concrete ideas for investing.
Want to contribute to your RRSP by February 29th and don't have a brokerage account? Wondering what to think about the products at your Desjardins credit union or national bank branch?
• Also read: In the eyes of Quebec Inc.: A hospital giant is about to get even bigger
• Also read: The Smart Investor: How to get started with crypto?
Your credit union or bank can sell you three main types of investment products: guaranteed investment certificates (GICs), guaranteed market-linked investments, and mutual funds. Usually it is possible to buy them online.
Let's quickly talk about the good old GIC: it is an extremely safe investment, but “frozen” for a period from a few months to several years. In principle, a fixed interest rate is paid. Desjardins and National Bank currently offer interest rates between 4% and 4.65% per year depending on the term. You can find better prices elsewhere, particularly at Tangerine.
Guaranteed market-linked investments are similar to GICs, but their returns vary. When investing, you don't know: it depends on the performance of a basket of listed stocks. In the best case scenario, you get the maximum return that the investment offers (for example: 30% over five years, or about 6% per year). In the worst case, your return will be zero, but at least you will get your starting capital back.
It is a calming, safe and very popular way to profit from rising markets. Of course, as you can imagine, financial institutions are paid to offer you such an attractive product. Limiting returns can cost you dearly in times of strong stock market growth.
The National Bank publishes a document on its website documenting its recent issuances of market-linked GICs. It allows you to compare the actual returns on these products with those a saver would receive by investing directly in the stock market.
Also note that guaranteed investments linked to the markets may be subject to various fees, which are not always detailed, warns the Financial Markets Authority (AMF).
And the winner is…
Mutual funds are a convenient way to invest in a diverse mix of stocks and bonds. Unlike guaranteed market-linked investments, their return is not limited. However, selling at credit unions and banks comes with high fees, on the order of 2% per year.
Please note that your credit union only offers Desjardins funds and the National Bank only offers funds from its investment subsidiary.
Each of the institutions offers dozens of funds, making it impossible to examine them all in one column.
I still wanted to know how some of Desjardins and National Bank's most popular funds have performed in recent years. I focused on asset allocation funds, all-in-one products that pool stocks and bonds from issuers around the world.
I'll tell you straight to the point: Banque Nationale Investissements (BNI) portfolios have delivered better overall returns than Desjardins' Diapason portfolios (see table below).
According to specialist firm Fundata, BNI portfolios have risen to the 1st, 2nd or 3rd quartile of their category over five years, while Diapason portfolios rank in the 3rd or 4th quartile.
Note, however, that other Desjardins funds performed better than their National Bank counterparts. And we must never forget that past returns are never a guarantee for the future!
Do you have suggestions for topics for this column? Write to me: [email protected].