When it comes to investing for income in retirement, many people are looking for safety. That often leads them to consider low-risk options like bonds or Guaranteed Investment Certificates — GICs. But according to Suze Orman, personal finance expert and host of the "Women & Money" podcast, not all fixed-income investments offer the same benefits.
In a recent episode, Orman shared why she prefers bonds over GICs — and what investors, especially those approaching or in retirement, should understand before choosing between the two.
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What Is a GIC?
A GIC is a savings product commonly offered by Canadian banks and financial institutions, which are available in the U.S as well. When you invest in a GIC, you’re lending the bank your money for a set period — often one to five years. In return, you're promised a guaranteed interest rate and the full return of your original investment when the term ends.
"You’re essentially lending a bank or a financial institution money for a fixed period of time," Orman explained. The appeal is the safety. GICs are low-risk, and in Canada, they're generally insured up to $100,000.
But that safety comes at a cost.
GICs Offer Lower Returns and Less Flexibility
Orman didn't mince words about the downside. "You generally get a lower return in comparison to a bond," she said. While the return is guaranteed, it's often less than what you could earn with other fixed-income investments.
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Another limitation is liquidity. Most GICs lock in your funds until the end of the term. If you need to access your money early, you may face penalties or restrictions.
"You usually don't get your interest rate until it matures," Orman said. "It’s not like a bond that if interest rates go down, the value of the bond goes up, that you can easily cash out of."
Why Suze Orman Favors Bonds
Orman prefers bonds for one key reason: flexibility. "You can buy and sell them any time you want," she said. Bonds may also offer higher interest rates than GICs, depending on market conditions and the type of bond.
And there’s potential for added value. If the value of the bond increases, investors could potentially sell the bond at a profit before maturity.
However, it’s worth noting that bonds do carry some risk. Their value can fluctuate with interest rate changes, and unlike GICs, they’re not insured.
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Choosing What's Right for You
Ultimately, Orman acknowledged that the right choice depends on your goals. "If you like that your principal is protected, you like the guaranteed return… then just stick with your GICs," she said.
For investors who prioritize security over growth, GICs might still be a solid choice. But for those looking for more flexibility and potentially higher returns, bonds could be worth a closer look.
As always, it's a good idea to speak with a financial advisor before making changes to your portfolio — especially when planning for retirement income.
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