Beyond stocks: Additional investment options from Qtrade

With the volatility we’ve seen in the market in recent quarters, it’s understandable that some investors may feel nervous about their investments. After all, seeing your portfolio in the red can be a jarring experience. While market fluctuations are a natural part of how investing works, it’s still nice to know that there are some lower risk investment options to consider that still offer a return.

At Qtrade Direct Investing®, our broad range of products gives investors the options they need to help achieve their goals, no matter your risk tolerance. This article will explore the pros and cons of a few different options to determine which might fit your investing needs. 

1.       Guaranteed Investment Certificates

Guaranteed Investment Certificates, or GICs as they are more commonly known, are short-term (up to five years) savings products issued by banks, trust companies, and credit unions that offer a guaranteed rate of return over a fixed period.

One reason that GICs are considered to be a safer investment is that they are insured up to $100,000 by the Canada Deposit Insurance Corporation (CDIC) or similar Credit Union coverage (e.g. CUDIC). They offer guaranteed returns, not only on your original capital but also the interest or income earned on the GIC. And unlike stocks, which can be volatile and rise and fall in value, GICs do not change in value and are insulated from market ups and downs. Qtrade offers a variety of GICs with terms from one to five years for a minimum investment of $5,000.  However, it’s important to know that GICs must be held until maturity and cannot be sold or redeemed early.

GIC returns are also considered interest income and must be claimed accordingly on your taxes. And while the returns are guaranteed, the earnings are typically lower after accounting for taxes and inflation, which can erode your purchasing power. 

2.       High-Interest Savings Account via mutual funds or ETFs

A high-interest savings account (HISA) is a secure place to store your money while earning more interest over time. Unlike a standard savings account with interest rates as low as 0.05%, mutual fund or ETF HISAs typically offer higher interest rates (currently upwards of 4.5%). Both HISA mutual funds and ETFs are available through Qtrade.

Like GICs, HISAs are insured up to $100,000 by the Canada Deposit Insurance Corporation (CDIC). But unlike GICs, HISAs can be sold/redeemed upon request without penalty (loss of interest) – funds are generally available within one business day after being sold, making them an attractive option if you need your funds quickly , like if you are waiting to invest in a stock that has hit the specific price you’d like to pay. Interest on HISA investments is calculated daily based on an annual rate and paid out monthly, but don’t forget that it is considered interest income and needs to be claimed accordingly on your taxes.

Mutual fund HISAs do not charge management fees; you receive your investments’ total stated interest rate. ETF HISAs generally charge a small fee of 0.10%.

3.       Money Market Funds

A money market fund is a kind of mutual fund or ETF that invests in highly liquid, near-term instruments, like cash, cash equivalent securities, and high-credit-rating debt securities with a short-term maturity (such as Government of Canada Treasury Bills). Qtrade offers access to all available proprietary (NEI) and third-party mutual funds.

Unlike GICs, money market funds can be sold/redeemed upon request without penalty (loss of interest). Funds are generally available within one business day after being sold. Interest on money market investments is calculated daily and paid monthly, similar to HISAs. The interest earned is considered income and is taxed as such. 

Like other mutual funds, money market funds are subject to a Management Expense Ratio (or MER) – fees generally around 0.25%. And while money market funds invest in high-credit-quality investments, they are not insured and can fall in value.

4.       Bonds

Bonds are debt instruments issued by governments and corporations, usually for a specific time period. They have a par (or face) value, which is repaid to the holder upon maturity of the bond. They also pay interest, which is the buyer’s return (or yield) on the bond.

Typically, the rate at which interest is paid and the amount of each payment is fixed when the bond is issued. That’s why bonds are known as “fixed-income securities” and one reason that a bond may seem less risky than an investment (such as a stock) where the return can change dramatically in the short term. Interest earned on bonds is considered income and, like GICs and HISAs, should be claimed accordingly on your income taxes.

Many bonds are backed by the creditworthiness of the issuing company or government, and if it defaults (if it cannot pay back the loan), you can lose all or a portion of your investment. Bondholders also face risk from inflation. Since the dollar amount earned on a bond investment doesn’t change, the value of that money can be eroded.

Qtrade Direct Investing cash options overview

No matter what your investment goals are, Qtrade is here for you. We offer an extensive variety of products to build your wealth and help you write your own future.