Tax-Efficient Yield Idea: Reinvesting Mature GIC Money in 2025

As Guaranteed Investment Certificates (GICs) begin to mature in 2025, many investors and their advisors are faced with a dilemma: reinvestment rates are far lower than they were just 12 months ago. This presents a unique opportunity for high-net-worth clients to enhance their investment returns and improve portfolio tax efficiency by considering an alternative investment option — Real Estate Investment Trusts (REITs).

In this post, we will explore what REITs are, their benefits, and how reinvesting mature GIC money into a REIT can help to improve both yield and tax efficiency for investors looking to diversify their portfolios.

What is a REIT?

A Real Estate Investment Trust (REIT) is a company that owns, operates, or finances income-producing real estate. REITs provide investors with the opportunity to invest in a diversified portfolio of real estate assets — such as office buildings, apartment complexes, shopping malls, and industrial properties — without the need to directly own or manage the properties themselves.

Just like stocks, REITs are traded on major stock exchanges, making them highly liquid and accessible to individual investors. They are structured to offer a reliable income stream through the distribution of rental income and, in many cases, the potential for capital appreciation.

Benefits of a REIT

1. Attractive Yields

REITs often offer higher-than-average dividend yields when compared to traditional equities. For example, Class A REITs are currently offering a distribution yield of 5-8%. This is significantly higher than the rates many GICs are providing today, especially as we are seeing lower reinvestment rates in 2025. For investors who rely on income from their portfolios, REITs present an opportunity to secure more substantial cash flow from their investments.

2. Up to 100% Return of Capital (ROC)

One of the standout features of REITs is that their distributions are often classified as Return of Capital (ROC). This means that a significant portion of the dividends paid by REITs is not considered taxable income, at least initially. Instead, they are applied to reduce the investor’s cost base in the REIT. This can be an advantage from a tax perspective, as ROC can delay taxes and potentially result in a more tax-efficient investment. Over time, this feature can significantly improve the overall after-tax return for investors, especially for those in higher tax brackets.

3. Consistent Returns and Long-Term Stability

REITs have a proven track record of delivering consistent returns. In fact, many REITs have delivered 105 consecutive months of positive returns since their inception. This track record of reliability is particularly appealing for investors who are looking for stability in an increasingly volatile market. Residential rents, which are a key driver of income for many REITs, tend to rise with inflation, providing a natural hedge against inflationary pressures. This makes REITs a more attractive option when compared to other income-producing investments, such as GICs, which may struggle to keep up with inflation.

4. Low Correlation to Other Asset Categories

REITs are also known for their low correlation to other asset classes, such as stocks and bonds. This diversification benefit can help reduce portfolio volatility. By adding REITs to a portfolio that may be heavily concentrated in stocks or bonds, investors can achieve better overall portfolio balance. This is especially useful in times of market uncertainty when traditional asset classes are more volatile.

5. Inflation Hedge

The income produced by REITs, particularly residential rents, is an effective hedge against inflation. As inflation rises, rents often follow suit, which means that the income generated by real estate assets typically grows along with inflation. This can help protect purchasing power over the long term, making REITs an attractive investment in an inflationary environment.

Reinvesting GIC Money into a REIT

As GICs mature in 2025, many investors will face the dilemma of reinvesting at much lower rates than in previous years. This is where REITs can provide an appealing alternative. Here’s how reinvesting GIC proceeds into a REIT can benefit high-net-worth clients:

1. Enhanced Yield

The yield on GICs has dropped significantly over the past year, and with interest rates staying relatively low in 2025, the reinvestment rates for GICs may not meet investors' income needs. By reinvesting GIC money into a REIT, investors can capture much higher yields, which can be particularly beneficial for income-focused investors.

For example, a 6.75% yield from a Class F REIT can far outpace the typical yield from a GIC, particularly as rates for new GICs fall below this threshold.

2. Tax Efficiency with ROC

Since a large portion of REIT distributions is Return of Capital (ROC), the income generated from REITs is typically more tax-efficient than traditional interest income from GICs. While interest income from GICs is fully taxable, ROC distributions from REITs allow investors to delay tax obligations. This can be particularly advantageous for high-net-worth individuals looking to manage their tax liabilities more effectively.

3. Diversification and Inflation Protection

By reinvesting GIC proceeds into a REIT, investors can add a diversification element to their portfolios, particularly if they are concentrated in fixed-income or cash-equivalent investments. Furthermore, REITs can provide a hedge against inflation, making them an appealing option for preserving wealth in an inflationary environment, where GICs may not provide the same level of protection.

4. Liquidity and Transparency

Unlike directly owning real estate, investing in REITs offers liquidity and transparency. REITs are traded on major stock exchanges, so they can be bought and sold quickly, providing investors with greater flexibility. Additionally, since they are public companies, REITs are required to report their financial performance regularly, offering investors visibility into the underlying assets and operations.

Conclusion

In 2025, many investors will face the challenge of reinvesting maturing GICs at significantly lower rates. For advisors looking to provide their high-net-worth clients with a way to enhance yield and improve tax efficiency, REITs present an attractive alternative.

REITs offer investors consistent returns, attractive yields, tax advantages, and a natural hedge against inflation. With 5.00% to 8.00% distribution yields for REITs, they present a compelling opportunity for those looking to maximize the value of their portfolios.

By reallocating the proceeds from maturing GICs into REITs, investors can benefit from a more diversified portfolio, enhanced tax efficiency, and potentially higher yields, all while gaining exposure to the lucrative real estate market without the complexities of direct property ownership.

At Volpe Wealth Management, we help clients navigate these opportunities, ensuring that their investment strategies are well-positioned for both current and future financial goals.

Contact us today to learn more about how reinvesting mature GIC money into REITs can benefit you in 2025.

Disclaimer: 

The comments contained herein are a general discussion of certain issues intended as general information only and should not be relied upon as tax or legal advice. Please obtain independent professional advice, in the context of your particular circumstances. This blog was written by Brett Volpe], for the benefit of Brett Volpe, Financial Advisor with Volpe Wealth Management, a registered trade name with Investia Financial Services Inc., and does not necessarily reflect the opinion of Investia Financial Services Inc. The information contained in this article comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any securities. 

Mutual Funds are offered through Investia Financial Services Inc. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated.