Typically, low interest rates pose a challenge to fixed-income investors, including GIC holders. This makes it more important than ever to set the highest returns you can from your GIC investments.

Laddering is a simple diversification strategy that can potentially maximize returns and reduce your portfolio's sensitivity to interest-rate changes.

The principles of this strategy are simple:

• To ladder your GIC portfolio, start by investing in a range of shorter and longer terms (one year through five years) so that 20% of your portfolio matures each year.
  
  
• Protect your investment by investing the proceeds from the maturing shorter-term GICs in new GICs at the longer term, usually five years.
  
  
• When interest rates are falling, the longer-term GICs will continue earning higher rates. When interest rates are climbing, you will be re-investing in GICs with higher rates.

Looking at your regular Personal Portfolio Statement from Scotiabank, you'll see at a glance the value, maturity dates, and other details of all your GIC holdings.

The GIC Laddering Worksheet provided below in pdf format will help you build your GIC Laddering strategy.

• Download the GIC Laddering Worksheet today!

Please Note: The worksheet in PDF format requires the Adobe® Acrobat® Reader ™ (version 4.0 or higher) to be viewed. If you don't have the Reader, you can download it for free from the Adobe website.

Why it makes sense to ladder your GICs

One of the most difficult decisions to make when establishing the GIC portion of your portfolio is deciding on the term of the investment. Although longer term GICs usually have higher interest rates than short-term GICs, when you invest in a long-term GIC, your investment is usually locked-in, which means you cannot take advantage of any increase in interest rates during the term of the GIC. Conversely, investing in short-term GICs to wait out interest rates, for example, usually results in lower interest income.

Making either investment decision carries a certain amount of risk, particularly if interest rate predictions for the future aren't on the mark. Rather than trying to predict where interest rates will be next year or in five years, reduce the risk and even out your interest income by laddering your GICs.

Why you should continue to ladder even in lower rate environments

The benefits of laddering are easy to see when interest rates are rising, but sometimes the decision is less clear when rates have declined. Consider the following reasons to continue to ladder, even in a lower rate environment. By laddering, you:

• Reduce the risk of having 100% of your principal mature in a lower rate environment. When you ladder your investment, you expose only a percentage of your principal - rather than all of it - to the new, lower interest rates at any given time. This is because only a portion of your investment matures each year.
  
  
• Retain access to a percentage of your investment each year, should you need to use these funds to augment your income, make a special purchase or take advantage of another investment opportunity.