What fear does

Putin sends drones into Poland. NATO scrambles fighters to shoot them down. Xi, Vlad and the Bad Haircut guy hang out together in China. Gaza City turns into a cemetery. Trump troops arrest Korean battery plant workers. Netanyahu bombs Qatar.

Oh, my. Are we doomed?

Of course, at least in the minds of millions of Canadians who apparently have no faith in the future, fear risk and want to take zero chances. These are the folks the banks love – because they load up on GICs, then go home to lie under the covers with their cat.

Jerome’s one of them. But at least he’s thinking about options. Yesterday he got a note from his bank (RBC) giving current options for his soon-to-be-expiring guaranteed investment certificate. The appeal of these things is that they pay interest at a set rate over a defined period of time. The only downside would be if the bank went bust and could not pay you back at the end of the term. But for that there’s CDIC insurance – as minimal as it may be.

The main downsides are the absence of inflation protection, the fully taxable nature of interest (unless in a shelter like a TFSA) and the abysmal rate of return.

For example, here’s what J’s bank is offering – one week before interest rates actually go down.

For non-redeemable GICs (money locked up, interest paid at the end but taxed annually):

1 year- 2.90%
2 year- 2.95%
3 year-3.00%
4 year-3.05%
5 year- 3.10%

A one-year, fully-cashable GIC, by the way, pays 2.35%. (Inflation is currently 1.7%.)

Plus, the bank offers GICs linked to the prime rate. For one year the rate is 2.5% for a deposit of up to $250,000. Between that and a million you get an extra 20 basis points, and between one and five million bucks the payout is 2.95%.

Can you do slightly better at the credit union, online or with the guy who also handles mortgages and divorces, working out of his Cybertruck? Yeah, probably. But this is still a bad idea. GICs are not investments – they’re just money placeholders. As stated, the pittance paid is fully taxable at your marginal rate if not registered, funds are not liquid unless you take an even lower rate of return, interest rates are about to decline in all of North America, and inflation is certain to return because of Trumpenomics, meaning a GIC taken today could be giving a negative real return in a year.

Let’s compare that with a well-diversified basket of Canadian equities. You know, Bay Street. All of it. That’s more than 200 companies, from the Big Banks to Big Oil to Big Tech, plus gold, property, energy, retail and healthcare. This is the economy in which Jerome lives every day – and investors have been rewarded handsomely for supporting it.

So far in 2025 the TSX has gained an impressive 17.1% (as of this morning). The return for the past 12 months is an even-fatter 26.78%. And over the past 60 months the index has grown by 79.7% (or just under 7% per year).

But wait. There’s more. Dividends.

Most stocks (and the ETFs than own them) don’t just compensate investors by growing in value over time, they also pay out regular income. For years this has exceeded income bigtime. In fact over the past quarter-century the S&P/TSX Composite Index dividend yield has grown to be more than 5% annually. Over the same period of time, inflation averaged just over 2%.

“Compounded over that time period, inflation caused prices to increase by 70%,” says an RBC report aimed at high net-worth investors, “while dividend income grew by 244%. The bottom line: investors who continuously withdrew their dividends throughout the past 25 years were rewarded with a remarkable increase in their income relative to inflation.”

But wait. There’s more. A tax break.

While every single dollar earned in GIC interest in a non-registered account is taxed at your marginal rate, investors collecting dividends pay less. The dividend tax credit compensates investors for taxes the corporation issuing the dividend already paid. So that reduces double taxation, and gifts taxpayers holding Canadian stocks with special treatment. Plus, remember that 50% of all equity profits are free of tax while 100% of GIC returns are taxable.

Higher returns. Regular cash flow. Less tax. Inflation protection. Better future.

Or, you can be afraid and hide with a feline plotting how to kill you. Tough choice.

About the picture: “I’ll keep this simple,” writes Kathleen. “This is Raggi, my boyfriend’s beast (adopted from our local human society this year) with his stuffed monster.  Who could resist those eyes and ears!?”

To be in touch or send a picture of your beast, email to ‘garth@garth.ca’.

Source: https://www.greaterfool.ca/2025/09/10/what-fear-does/