Death of Bonds or time to buy short-term GICs?

My latest MoneySense Retired Money column looks at a recent spate of media articles proclaiming the “Death of Bonds.” You can find the full column by clicking on the highlighted headline: Do bonds still make sense for retirement savings?

One of these articles was written by the veteran journalist and author, Gordon Pape, writing to the national audience of the Globe & Mail newspaper. So you have to figure a lot of retirees took note of the article when Pape — who is in his 80s — said he was personally “getting out of bonds.”

One of the other pieces, via a YouTube video, was by financial planner Ed Rempel, who similarly pronounced the death of bonds going forward the next 30 years or so and made the case for raising risk tolerance and embracing stocks. The column also passes on the views of respected financial advisors like TriDelta Financial’s Matthew Ardrey and PWL Capital’s Benjamin Felix.

However, there’s no need for those with risk tolerance, whether retired or not, to dump all their fixed-income holdings. While it’s true aggregate bond funds have been in a  de facto bear market, short-term bond ETFs have only negligible losses. And as Pape says, and I agree, new cash can be deployed into 1-year GICs, which are generally paying just a tad under 3% a year;  or at most 2-year GICs, which pay a bit more, often more than 3%.

One could also “park” in treasury bills or ultra short term money market ETFs (one suggested by MoneySense ETF panelist Yves Rebetez is HFR: the Horizons Ultra-Short Term Investment Grade Bond ETF.) It’s expected that the Fed and the Bank of Canada will again raise interest rates this summer, and possibly repeat this a few more times through the balance of 2022. If you stagger short-term funds every three months or so, you can gradually start deploying money into 1-year GICs. Then a year later, assuming most of the interest rate hikes have occurred, you can consider extending term to 3-year or even 5-year GICs, or returning to short-term bond ETFs or possibly aggregate bond ETFs. Watch for the next instalment of the MoneySense ETF All-stars, which addresses some of these issues.

Some 1-year GICs pay close to 3% now

Here’s some GIC ideas from the column:


“By April 19th, at RBC Direct Investing I found a handful of 1-year GICs paying 2.7% or more: B2B Bank (2.7%); Equitable Bank (2.77%); Effort Trust (2.8%); General Bank of Canada (2.8%); LBC Trust (2.7%); Laurentian Bank (2.7%); Home Trust Co. (2.85%); HomeEquity Bank (2.72%); and Versabank (2.82%).

Go out to 2-year GICs and you can even get 3% or more but personally I’d prefer to wait a year and reinvest then when rates should be higher still, whether on 1-, 2- or even 5-year GICs. As of April 19, the 2-year GICs paying more than 3%  at RBC Direct include B2BBank (3.35%), Equitable Bank (3.36%), General Bank (3.45%), Canadian Western Bank (3.29%), Home Trust (3.46%), VersaBank (3.35%), PC Bank (3.36%) and a few others.  Even going out 5 years none pay 4% or more.”


True, inflation may be running higher than this, in which case you may want to join the Rempels of the world and commit more to stocks, or inflation plays like commodities, energy or precious metals. But if you are looking to retain some semblance of the traditional 60/40 balanced portfolio — which some bond bears are also proclaiming is dead — then it might be prudent to split your investments between stocks that raise dividends to match or beat the inflation rate, and use short-term ETFs, 1-year GICs or short-term TIPS ETFs trading in the US (like VTIP) or their Canadian-dollar equivalents trading on the TSX, such as BMO’s ZTIP or comparable ones from iShares or C.I.


4 thoughts on “Death of Bonds or time to buy short-term GICs?

  1. This is such a tricky debate. On the one hand, Ed makes a very strong case for the death of bonds in a rising rate environment, but does that mean we should throw out asset allocation and time the market by ditching bonds? Using GICs is a great alternative, especially investing short-term for now and waiting for the next few rate increases.

    1. Yes: the trickiest part IMO is whether to liquidate long-term bond ETFs or even Aggregate Bond Funds at a loss to make room for 1-year GICs or treasury bills awaiting higher GIC rates second half of 2022.

  2. Timely article. I’ve been internally debating for some time as a couch potato ETF investors, I typically just add new $$ into whatever asset class is low, but the 10% or so loss YTD in our ZAG fund across a few accounts has been hard to watch. I just liquidated all our ZAG and will do 1 and 2 yr GIC’s. I don’t market time, but with interest rates going to go up I think ZAG will only get worse….

    1. It is annoying seeing red in a product purchased to be at least modestly green most of the time. I imagine money is gushing out of Aggregate Bond Funds right now.

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