Investing for 6% income in a declining interest rate world
The recent declines in Canadian interest rates have been a wonderful thing for some, but others are seeing their guaranteed investment returns rapidly decline.
A top-rate guaranteed investment certificate (GIC) today pays 4.05 per cent for one year locked in, 3.8 per cent for two years locked in and 3.55 per cent for three years locked in. I believe the best rate we locked in for a client was 5.74 per cent for two years back in October 2023. Even these rates in the range of 3.55 per cent to 4.05 per cent are going lower very soon and may go meaningfully lower.
If you want to earn income of six per cent or more on an investment portfolio, you will need to look somewhere other than GICs and money market funds.
These conversations become particularly important when someone sells a home and needs to turn the proceeds into monthly living expenses that might include monthly rental expenses for the first time in decades.
Sometimes, a client will come to us and say, “I am selling my home for $2 million and need to make the funds last and also fund my new rental condo/retirement home. How do I do it?”
With $2 million, you should be able to generate in the range of $100,000 a year if the focus is income while largely keeping capital protected. Keep in mind there will be years with better performance and years a little worse. Also remember that while capital gains should form a portion of returns, I am only focusing on income here.
Here is an overview of how we might achieve this today.
Allocation: 40 per cent of the portfolio, with a current yield of six per cent.
Like all investments with income yields, the yield is only one piece of the decision to own a stock. Some of the names below are ones with high yields that we currently
Read more on financialpost.com
