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Laddering investments

In most regions across Canada, you're guaranteed some bone-chilling cold in January and February. Another sure thing during these months, which coincide with RRSP campaigns, is that you'll be facing a sea of financial advice delivered on TV and the radio, in newspapers and magazines, and through e-mail messages.

Your challenge will be to wade into these sometimes uncertain waters and make the right investment decisions to suit your specific financial needs.


Investing in guaranteed investment certificates (GICs) using the laddering strategy could be a comfortable choice in your overall financial strategy. You'll know that your investment is earning a secure rate of return. And by laddering your investments, you can put your money away for the short term to gain flexibility, as well as for the long term to get better interest rates.


Laddering investments


Laddering works like this: you choose the amount of money you want to invest. Divide this initial amount into five smaller guaranteed investments. Then pick different terms and maturity dates for each of these smaller investments.


Here's an example:

Your initial investment is $10,000
Divide this amount into five separate investments of $2,000 each
Invest $2,000 each into a one-year, two-year, three-year, four-year and five-year term
When your first investment matures after one year, you reinvest that $2,000, plus the interest you've earned, in a five-year term investment

Each year, one of your investments will mature. You would then reinvest in a five-year term, possibly benefiting from a higher interest rate and continuing the laddering process.

How can laddering benefit you?

Security in guaranteed investments:

Minimize interest rate risk: By investing in regular intervals, you can reduce your investment risk. Only a portion of your portfolio comes due at any one time. This strategy can limit your exposure to possible fluctuating interest rates.
Maximize the long-term rate of return: If you convert your maturities to five-year terms, you can take advantage of the possibility of higher interest rates. Longer-term investments typically offer better interest rates than short-term investments.

Comfort of guaranteed returns: You're secure with the knowledge that your investments will grow at a constant interest rate, with a guaranteed return at the end of the term.
Flexibility to respond to investment opportunities and financial needs:

Ability to respond to interest rate changes: You'll have access to 20 per cent of your investments every year. If the interest rates are higher, you can invest in longer-term investments. If interest rates drop or temporarily flatten out, you can minimize your risk because only 20 per cent of your investments are maturing at any one time.
Increased availability: Each year a part of your investment matures and you'll be able to spend it if that's what you need to do. You also have the opportunity to make new investment decisions.
Ability to choose the maturity dates: You can have specified investments mature when you need money for a large purchase or special occasion, for example college or wedding expenses.

Your advisor can help you to decide if this strategy matches your long-term and retirement objectives. Using your advisor's knowledge and experience, you'll be better able to sort through the many investment options available and identify how long you want to invest, and what level of risk you're prepared to take: low, medium, or high.


Deciding where to put your money each year is one of the most important financial decisions you make. Talk to your advisor about getting help to build your portfolio around a sound financial strategy that includes your personal investment style, objectives, and risk tolerance. You may even experience a warm and cozy feeling knowing that the storms of uncertainty won't affect your guaranteed investments.

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Stephanie Catcher
September 9, 2020
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Steve Catcher
June 9, 2014
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