Guaranteed Investments

Guaranteed Investment Certificates (GICs) are offered by a variety of financial institutions. There are really two guarantees.  The first guarantee is that you will not lose your money (capital) if you hold the investment until maturity. The second guarantee is a stated return on the investment over a stated period of time. You should feel comfortable with the institution's ability to deliver on both of these promises.   

Traditionally, the popular investments are GIC's offered by banks and trust companies and Guaranteed Investment Accounts (GIAs) offered by insurance companies. Some of these may be cashable early subject to a market value adjustment.

Bank and trust company GICs and deposits may be guaranteed for up to $100,000 by the Canada Deposit & Insurance Corporation (CDIC), which is a Federal government agency.

Insurance investments may be guaranteed for up to $100,000 by ComCorp.  An additional benefit with insurance company investments in that, for non-registered investments, there is the ability to name a beneficiary, which keeps the asset out of your estate for probate purposes.  Also,insurance investments can provide creditor protection.

Bonds

A bond or debenture is an investment where you loan your money to an institution and in exchange you may receive regular interest payments and at the then of the term, your capital (the money you loaned to the institution) is returned. There are a few risks with this. Firstly, the ability of the institution to make the interest payments and secondly the ability of the institution to repay the loan at the end of the term. Gernerally speaking, the more credit-worthy the institution (i.e. the Federal Government versus a small company needing funds), the less risk to the investment and therefore the borrowing insitiution will be able to negotiate lower interest terms.

New bonds (new issues) are offered at prevailing rates reflective to the term (how long the loan is and of the credit of the borrowing institution). Existing bonds can fluxuate based on changes in the interest rate and based on the creditworthiness of the instituino along the way providing to capital appreciation or losses should the bond be sold prior to maturity.

Hybrids

A new hybrid of investments have come into vogue where principal guarantees are being offered (often by secondary or non-traditional guarantors) where the return on the investment is linked to a variable investment instrument. The challenge is in understanding the fees being charged and the calculation of how the return will be linked to the targeted or underlying investment. These offer some principle guarantee by some institution, occasionally with a minimum return if the investment is held for a period of time (often seven years) with the potential of a higher return. They may be able to be redeemed before the contract expires but there may be timing restrictinos and charges for this.

Income Trusts (not really a fixed income investment often mistaken by people as such)

Another investment which people think of as fixed income investments are Income Trusts. These are not guaranteed investments and one should understand the differences when comparing them to a GIC or Bond investment. These are individual companies or a structure or blend of companies which pay out profits or return of principal (designed to pay out regular payments) which also have a trading value like to stock. Depending on the nature of the business, the income payments and frequency of them may change and depending on the demand for these products the purchase or sale price of these will also fluctuate in value. Generally speaking, if the income is reduced, the value of the investment will also reduce.