Does TINA Still Apply to Canadian Stocks? GICs vs Bonds

Like many investors, I’ve noticed recent reports that roughly $10 billion moved out of chequing, savings and mutual funds into guaranteed investment certificates (GICs) during the third fiscal quarter. Bond yields have also risen substantially. Even so, I still believe the central idea behind the investing acronym TINA — “There is no alternative” to investing in the markets — holds true for anyone focused on growing their wealth. To be precise: if your goal is wealth growth over time, there is effectively no substitute for equity investing.

This is an important distinction advisors and investors should consider before moving out of the stock market in favour of so-called safer investments such as GICs and bonds. Below I outline the trade-offs, why bonds can sometimes be preferable to GICs, and when fixed-income instruments make sense in a portfolio.

Will the real rates of return for GICs grow wealth?

The appeal of a guaranteed return is especially strong during periods of market volatility, but it’s essential to understand the return you actually receive once inflation and taxes are considered. Historically, GICs have often failed to produce positive real returns. A long-term review of GIC performance shows that after inflation and taxes, investors benefited in only a handful of years since 2000; in most years the real return was negative.

At the time of writing, advertised GIC rates are higher than they have been in many years. For example, one-year GIC offers approaching mid-single digits look attractive at first glance. However, when inflation is running considerably higher — in recent periods inflation has exceeded several percentage points — the real return on those GICs can be negative. That means investors are preserving nominal capital but losing purchasing power over time.

Beyond inflation and taxes, GICs carry an opportunity cost: they are generally designed to be held to maturity and offer limited liquidity. If you need access to funds before maturity, you may face penalties or be unable to redeem at all. Flexible or cashable GICs do exist, but the yields are typically much lower and often do not compensate for inflation-adjusted erosion of wealth.

Why bonds may be better than GICs

Like GICs, bond yields have risen from their lows. Short-term government Treasury yields in some jurisdictions have reached multi-year highs, and longer-dated government and corporate bond yields have also increased substantially. For money you want to park conservatively, bonds can be a viable option.

However, higher bond yields still may not fully outpace inflation, so bonds alone are unlikely to grow a portfolio over the long term. The feature that often makes bonds more attractive than GICs is liquidity and flexibility. Many bonds can be sold prior to maturity in secondary markets. If market conditions change and stocks present buying opportunities, you may be able to liquidate bond holdings and redeploy capital into equities. With GICs that are held to maturity, such flexibility is limited or costly.

There is a trade-off: selling bonds before maturity can result in principal losses if interest rates have moved unfavourably. Still, the ability to reposition assets provides a strategic advantage that GICs generally lack.

When investing in GICs and bonds makes sense

Rising yields on GICs and bonds make these fixed-income instruments more attractive for portfolio diversification and risk management. Depending on your financial goals, time horizon and risk tolerance, fixed income can reduce portfolio volatility and provide income that offsets some equity risk.

For example, an investor might allocate 40% of a balanced portfolio to fixed income earning a mid-single-digit yield and 60% to growth-oriented assets targeting higher long-term returns. That allocation can raise the average return of a diversified portfolio while providing stability during downturns. Fixed income holdings can be particularly appropriate for investors looking for capital preservation, a steady income stream, or a lower-risk allocation as they approach spending stages of life.

Everyone will return to equity markets

History shows that equity markets can plunge quickly and recover just as fast. The pandemic sell-off in March 2020 is a clear example: markets plunged on uncertainty and then rebounded within months. Investors who move to cash-like instruments in a panic may miss the recovery that follows.

Money often leaves the equity market during periods of fear and then gradually returns once confidence and growth prospects improve. Timing that return is difficult, which is why remaining invested with a long-term view tends to benefit investors intent on capital appreciation.

It’s all about inflation, interest rates and the economy

Market direction is strongly influenced by central bank policy, inflation trends and broader economic conditions. When central banks signal a pause or slowing in interest rate hikes, markets frequently respond positively as expectations for lower borrowing costs and improved corporate earnings rise. Conversely, renewed rate-hike cycles or accelerating inflation can put downward pressure on equities.

Many investors mistakenly focus on individual stock performance without recognising that broader economic forces — rising costs, higher rates and slowing growth — often drive market declines. Understanding this macroeconomic backdrop helps explain why markets move and why fixed-income alternatives may look appealing despite their limitations.

Final thoughts: GICs vs bonds

GICs and bonds are reasonable choices for Canadian investors who prioritise safety, capital preservation and predictable income over growth. If you are comfortable accepting lower returns — often below mid-single digits after inflation — and you value guaranteed or relatively stable income, these instruments deserve consideration.

For those seeking financial growth, however, a long-term allocation to equities remains a compelling strategy. Before choosing between GICs, bonds and stocks, ask yourself these questions:

What do I want my money to achieve?
Do I want capital growth, income, or a mix of both?
How much volatility can I tolerate?
What time horizon do I have for these investments?

Clear answers to these questions will guide your asset allocation and help you align your portfolio with your goals and risk tolerance. A disciplined approach to diversification — combining equities for growth with fixed income for stability — often provides the best balance for long-term investors.