GICs vs equities | Page 3 | General financial discussion | Discussion forum

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Freedom said

Buying GICs does not destroy wealth., the bond market is many times larger than the stock market. Do all those people who invest in bonds not build wealth?

 

1940 to 1981 Treasuries lost 53% in real terms. Of course we have seen a very meaningful loss in the last 5 years as well. Including on a 5-year GIC purchased at 2021. Then average 5-year GIC rate is quoted by BoC at about 0.99%. That’s a 12.4% loss in real terms. My boring 70/30 run of the mill passive portfolio returned 37.4% in REAL terms over the same period. Yes, it does not always work like that but one has to be completely ignorant of the markets to suggest that GICs are a sure way to preserve wealth.

I invest in fixed income but its a very specific reason of diversifying assets (70/30 portfolio) at a particular stage in my career. I fully expect to incur some losses in real after tax terms over the long run on that portion of my portfolio. Corporations and governments invest for other reasons - they need to offset specific liabilities. Corporations rather than individuals hold the vast majority of GOC bonds. This topic isn’t about corporations.

I have not tried to include the effects of broker fees or taxes in my discussions. I have a very good tax situation due to low income and high TFSA balance, and many people have terribly abusive broker fees and churns. Picking a good broker is a daunting task, like picking a good lawyer - or any sort of consultant. That's one reason why ETFs have become so popular. Everyone's mileage may vary.

For what it's worth, I also am still making 4.5-6.5% on stuff I bought in the early pandemic years.

RetirEd, for those investors who use a full service advisor, there is always a potential risk of churn IF the investor lets such a broker do so, but most full service firms now work on a '% of AUM' basis such as 1% or so, rather than transaction based commissions, so there is no benefit to churn.

Bank advisors (and even some full service brokerage advisors) peddling high MER mutual funds are another problem, but then again, that is for the investor to decide/challenge. I wouldn't get within 50 metres of a bank branch based advisor. Too many investors simply defer/take the easy way out with advisors rather than taking some responsibility.

The real trend is towards DIY self-directed discount brokerages where transaction fees have come down to zero in many cases, or $5-10 per transaction. That, plus the past 20 year proliferation of broad based ETFs, many of which have MERs of <10bp and sometimes even <5bp has made investing extremely cost effective. I have yet to pay one cent YTD in brokerage fees in my investment accounts.

Investing has changed a lot over the past 20 years, especially in costs (brokerage and mutual funds) and in products available (low cost ETFs). It is up to the investor to educate him/herself on what is available and what strategy works best for him/her.

zgic said

@cgouimet:
Fixed Income: I have never invested in bonds and have asked this question before on this forum, please give me a bond example today (Bond# and name of issuer) which will give me more than a 3.80% for a 2 year holding period with same risk and better yield.
If I get a vehicle for this and can invest today, than I can say with certainty that bonds are better than GICs for individuals for fixed income.

I read lot of theories here, saying GICs loose you money, so I am unable to understand why I am not getting an example with a bond# for this today.
(@AltaRed did say: GICs help protect the purchasing power)  

AAA credit rated Government bonds of similar term (5 years or less) rarely, if ever, yield more than GICs for a few reasons, e.g. they are liquid vs illiquid GICs and market competition is different, e.g. investor pool. The longer the term, the more investors demand more yield to take on future inflation risk. As of last Friday, GOC 2 yr bond yield was 3.1%, 5 year 3.41%, 10 year 3.70%

One has to get into Corporate bonds of A credit rating to as low as BBB (and maybe unsecured rather than secured) but still investment grade to get yields as good as those from some the best of online digital banks. Also yields for face value under $25k purchases decrease somewhat due to built-in commission structure from bond dealers.

Ultimately, quoted corporate bond yields depend on: 1) face value, 2) term, 3) credit rating, 4) secured or unsecured (collateral backing), 5) senior or subordinate (priority of payment upon default)

Bond markets are closed today so there are no quotes today.

Is this intended to be serious? BNN, Rosenberg and AI?

toto said
I was strictly a GIC buyer, and read David Trahair's books, and did that until I was 58.
Then when the pandemic hit I decided to take advantage of the dip on the TSX.
I do my own trading through wealthsimple and investorline , my wealth increased by 30 percent, even with taking some writedowns when I tax harvest.
I'll keep the core equities , but if inflation takes off I'll buy GICs at a nice rate too. as long as your money is working for you its good, and everyone's situation is different  

Careful. You started very late and went right into stock picking and market timing focusing on one small corner of the world market.

Freedom said
What I was hoping for was thoughtful commentary on stocks, bonds, or economic and political predictions—like you see on BNN with Rosenberg or other economists they interview.
What I have gotten instead are people who do not know the difference between a bear market and the Great Depression, and who cannot operate AI to get relevant statistics.
I asked resdlaert about his political and economic predictions and the reasons for them. No answer. I was hoping for a well-reasoned position that I could compare with my own and perhaps even modify my own views based on it.
That could help us better predict the future course of GIC rates, which would benefit everyone here. But I don't see well-reasoned positions or facts to support most of what has been said.
Instead, there have been transparently untrue statements, such as the claim that the market has never gone down over a rolling 10-year period during the lifetime of anyone currently living.
Just hearing that makes me wonder: is that logical? What about the Great Depression? There are people alive today who went through it.
I asked AI to check the historical record and do the math. It concluded that the statement is not true.
I don't know if the opinions here are of much value. They don't seem to be fact-based or particularly well-informed.  

I think you should be specific in your negative comments, citing who said what in your assertions, so that can be fact checked. Otherwise it is conjecture.

I have provided a number of facts (via links to source material) for you to analyze, albeit most of it, if not all, is US based, that being the elephant in the room in market cap based stock markets.

Some of us acknowledge there have been certain rolling 10 year periods of negative returns but one must be careful to ascertain whether the source is based on simply index prices, or total return, whether S&P500, Total Market, etc. One source is here https://www.crews.bank/blog/ro.....ar-returns but it is devoid of defining which market (large cap or total) nor does it say anything about re-invested distributions (total return vs strictly index value). This other source https://credentwealth.com/10-y.....g-returns/ is specific, i.e. S&P500 Total Return (including re-invested dividends).

I can assure you AI is relatively useless without actually fact checking it! Surely you don't take AI at face value.

I think we do know the difference between the Great Depression (one bear market albeit the grizzly of them all) and bear markets in general, so I don't where your assertion is coming from. The Great Depression is no longer relevant just as buggy whips and horse drawn carriages are no longer relevant. Monetary and fiscal policy in OECD countries has been well learned from the mistakes, e.g. protectionism and credit freezes, during the Great Depression. There will be nothing like it again.

Yes, there are still some survivors of the Great Depression around, in their 90s now, but they are not the demographic that is investing today, nor do many still have their faculties. That isn't relevant for this discussion.

As to your original(?) thought about the direction of GIC rates, absolutely no one knows nor does anyone know how central bank monetary policy will unfold with regard to managing inflation vs jobs and GDP growth, nor does anyone know how forward trends in government fiscal policies will affect what central bankers have to do to keep politicians from derailing the monetary system.

My assumption though is the indefinite future will be more of the recent past if for no other reason than world population growth, and specifically that in developed countries, is well below replacement rate with no end in sight. That means less consumption, the primary driver of GDP growth. The primary offset to that is if Africa especially, and to a lesser extent Latin American, can get its act together with dramatic improvements in standard of living...and hence higher consumption.