Those willing to take on some calculated risk, GIC alternatives exist.

This report aims to provide insights into alternative investment options for Canadians seeking higher returns and are willing to take on some level of risk beyond traditional Guaranteed Investment Certificates (GICs). We will discuss various alternatives, including money market investments, bank notes, private income mandates, and more. Each of these options offers unique features and varying levels of risk and return potential.

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Money Market Investments:

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Money market investments are low-risk, short-term securities that provide stability to investors. They are considered ideal for those who prioritize capital preservation and liquidity. Here's a more comprehensive look:

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Treasury Bills (T-Bills):

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These are government-issued securities with maturities ranging from days to one year. T-Bills are among the safest investments available since they are backed by the government's credit. They provide a fixed return upon maturity, making them predictable and suitable for short-term financial goals or cash reserves.

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Commercial Paper:

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Commercial paper is a short-term debt instrument issued by corporations to raise funds quickly. While it offers slightly higher yields than T-Bills, it still maintains low risk compared to other investment options. Investors can choose from various issuers, each with varying credit ratings, affecting the level of risk involved.

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Certificates of Deposit (CDs):

CDs are offered by banks with maturities ranging from a few months to several years. They typically offer higher interest rates compared to standard savings accounts.? CDs can be a safe place to park funds for a predetermined period while earning a slightly better return.

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Structured Notes (My preferred option);

Structured notes are financial instruments designed to offer investors a combination of fixed income and derivatives features. These notes can be customized to suit different risk appetites and financial objectives. Here's a more detailed exploration:

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Principal Protected Notes (PPNs):

Principal protected notes provide investors with a guarantee that their initial investment, or principal, will be returned at maturity, regardless of market performance.? These notes typically consist of two main components: a low-risk bond component and a higher-risk derivative component. The bond component ensures the return of the principal, while the derivative component offers exposure to the performance of underlying assets, such as equities, commodities, or currencies.? PPNs are well-suited for risk-averse investors who want to protect their capital while gaining some exposure to potential market gains. The potential drawback is that returns may be capped or limited due to the principal protection feature.

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Principal at Risk Notes (PARs):

?Principal at risk notes do not guarantee the return of the entire principal amount at maturity. Instead, the principal repayment is linked to the performance of underlying assets or indices.? PARs offer the possibility of higher returns compared to PPNs, but they come with increased risk.? Investors in PARs should be prepared for the possibility of partial or even complete loss of their principal if the underlying assets perform poorly.

These notes are suitable for investors willing to take on more risk in pursuit of potentially higher returns and who have a thorough understanding of the underlying assets or indices.

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Structured notes can be customized to align with specific investment goals, risk tolerances, and market views.? Customization may involve selecting different underlying assets, setting participation rates, or adjusting the note's maturity date.? Investors can work with financial professionals to tailor structured notes to their preferences. The performance of structured notes is often linked to the movements of underlying assets or indices.? Investors should carefully evaluate the historical performance and future prospects of these assets before investing in structured notes.

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Structured notes can be traded on the secondary market, providing liquidity for investors who want to sell their notes before maturity.? However, the secondary market may have limited liquidity, and the price of notes can fluctuate based on market conditions.

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In summary, structured notes, including Principal Protected Notes (PPNs) and Principal at Risk Notes (PARs), offer a unique blend of fixed income and derivatives features. PPNs prioritize principal protection, making them suitable for risk-averse investors, albeit with potential return limitations. PARs, on the other hand, offer the potential for higher returns but come with the risk of partial or total principal loss. Customization options allow investors to tailor these notes to their specific needs, but a thorough understanding of underlying assets and market linkage is essential. Engaging with financial professionals can aid in selecting and managing structured notes effectively.

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Commodities:

Investing in commodities like gold, silver, oil, or agricultural products can serve as a hedge against inflation and provide portfolio diversification.? Certain commodities, like gold and silver, are often considered inflation hedges, as their prices may rise during inflationary periods.? Commodities can be highly influenced by global economic factors, supply and demand dynamics, geopolitical events, and weather conditions.? This can lead to significant price fluctuations. ?Including commodities in a portfolio can help diversify risk and reduce correlation with traditional asset classes like stocks and bonds.

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Bonds can be considered a superior investment to Guaranteed Investment Certificates (GICs) in certain situations due to several key factors:

?Bonds typically offer higher potential returns compared to GICs. This is because bonds are debt securities that are traded in the open market, and their prices can fluctuate based on market conditions. If interest rates fall after you purchase a bond, its market value may increase, leading to capital gains in addition to the interest income.? Bonds are generally more liquid than GICs. You can sell bonds on the secondary market before they mature, allowing you to access your funds if needed. GICs, on the other hand, usually have fixed terms with limited or no early withdrawal options.

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Bonds offer a wider range of investment options compared to GICs. You can invest in government bonds, corporate bonds, municipal bonds, and more, allowing for greater diversification to manage risk within your portfolio.? Bonds often provide better protection against inflation compared to GICs. Some bonds, such as Treasury Inflation-Protected Securities (TIPS), adjust their principal value with inflation, ensuring your investment keeps pace with rising prices.? Depending on your location and tax laws, interest income from certain bonds may have more favorable tax treatment than interest income from GICs. Consult a tax professional to understand the specific implications in your area.

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However, it's essential to note that bonds also come with their own set of risks, including interest rate risk, credit risk, and market volatility. The choice between bonds and GICs should align with your financial goals, risk tolerance, and investment horizon. It's often wise to consult with a financial advisor to create a well-balanced investment strategy that suits your individual needs

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In conclusion, for investors willing to take on some additional calculated risk, GIC alternatives should be considered.