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Why keep so much in a savings account?
August 29, 2021
9:15 am
AltaRed
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mordko said
Most humans are naturally risk averse and tend to look for certainty even if it’s mathematically bad for our pockets.  

That is not a bad thing. It is always a balancing act looking for 'optimum' returns, aka the efficient frontier. I'd never advise anyone to seek the 'highest' returns, if for no other reason than it is undefinable. All one can do is seek a probability within a range of of CAGR outcomes.

IOW, there is a strong probability that VEQT (100% equity) will outperform VGRO (80/20) or VBAL (60/40) over longer periods of time, but there is no certainty of that in the shorter term of say 5 years or less. Both the S&P500 and the TSX Composite had almost decade long returns less than, or close to, bonds or 5 year GIC ladders. I've not run 10 year periods in http://www.ndir.com/cgi-bin/do.....de_adv.cgi to verify that.

August 29, 2021
9:24 am
Dean
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suburbs4life said

I have to ask this in case I am missing something ..... why does it seem like many posters here are keeping at least a couple $100K in savings accounts??

. . .

As you've already read, there's Lots of reasons ... especially these days ❗

I for one, presently keep lots of cash parked in High Interest Savings Accounts (@ 1.25 to 1.50 %) for the short term, waiting for GIC's to go back up again, and for the *&^%$# stock market bubble to Finally Burst ... it's a 'waiting' game.

For many of us right now . . .

      Dean

sf-cool " Live Long And Prosper " sf-cool

August 29, 2021
9:39 am
mordko
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AltaRed said

That is not a bad thing. It is always a balancing act looking for 'optimum' returns, aka the efficient frontier. I'd never advise anyone to seek the 'highest' returns, if for no other reason than it is undefinable. All one can do is seek a probability within a range of of CAGR outcomes.

IOW, there is a strong probability that VEQT (100% equity) will outperform VGRO (80/20) or VBAL (60/40) over longer periods of time, but there is no certainty of that in the shorter term of say 5 years or less. Both the S&P500 and the TSX Composite had almost decade long returns less than, or close to, bonds or 5 year GIC ladders. I've not run 10 year periods in http://www.ndir.com/cgi-bin/do.....de_adv.cgi to verify that.  

That’s a different issue. Today cash is guaranteed to lose to inflation. Probability does not come into it. Older people who want to spend it all tomorrow have no choice, they need cash. Younger people putting meaningful $s into cash might as well just donate it.

Bonds are different from cash/HISA. Even then a young person with an education and salary already has a lot of years of a large fixed income in front of him and is getting further and further from the “efficient frontier” by buying bonds.

August 29, 2021
9:46 am
dougjp
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Exactly as Dean said. For me its like parking a car, which is usually a temporary condition before some activity. "Waiting to pounce" (on a perceived more favorable opportunity) is another way to put it.

Perhaps an example of how it went wrong for me vs. having money in savings. After a long period of watching the market at these high levels, and perhaps a bit of boredom (?), I bought a small amount of a stock of a solid Company which reported decent quarterly results, but which were below analyst's expectations. The share value dropped a good deal on the announcement, stabilized around the lower level for a number of days. I then bought. Without further news, the share started declining slowly again. Now I'm down 14% sf-cry

"Tell a man that there are 400 billion stars and he'll believe you. Tell him a bench has wet paint and he has to touch it." ~ Steven Wright

August 29, 2021
10:03 am
mordko
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dougjp said
Exactly as Dean said. For me its like parking a car, which is usually a temporary condition before some activity. "Waiting to pounce" (on a perceived more favorable opportunity) is another way to put it.

Perhaps an example of how it went wrong for me vs. having money in savings. After a long period of watching the market at these high levels, and perhaps a bit of boredom (?), I bought a small amount of a stock of a solid Company which reported decent quarterly results, but which were below analyst's expectations. The share value dropped a good deal on the announcement, stabilized around the lower level for a number of days. I then bought. Without further news, the share started declining slowly again. Now I'm down 14% sf-cry  

There are other options besides saving accounts and timing the market to buy single stocks on analysts say so and expecting immediate returns.

August 29, 2021
12:58 pm
Bill
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dougjp, rare that I've bought a stock and it went up from there, i.e. my usual experience is I could have gotten it cheaper sometime after I bought. Not sure it's common for folks to catch the absolute low point on a buy. Many times I've been under water, even for relatively long periods of time, but pretty much invariably, if my original analysis was thorough and measured, sure enough I stop seeing the red (unrealized loss) and start to see green (unrealized gain) beside that stock when I do sign in to my accounts.

So I wouldn't calculate my unrealized loss %, especially shortly after a purchase, just incites emotions and might disturb my sleep.

August 29, 2021
1:44 pm
Alexandre
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suburbs4life said
..... why does it seem like many posters here are keeping at least a couple $100K in savings accounts?? ... Should your money not be making more than inflation for wealth generation?

I keep all my funds in savings accounts. Never invested in anything (stocks, bonds, precious metals). All my life had my income coming from salary only.

Why, you ask, I don't invest. Well, because I don't care investing. I track my budget religiously, and my income exceeds my expenses. Month after month, year after year.

I follow Dickens in that: “Annual income twenty pounds, annual expenditure nineteen nineteen and six , result happiness.
Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”

Yes, occasionally I check share price of my current favorite company, and it might go up 5% in one day. I tell myself, "if I only put all my money in it yesterday and pulled today."
Then, I remember my other favorite company I worked at for 10 years, a darling of a stock market in its years of glory, and Nortel. Both of them are delisted. That cools me down at once.

-------------------

I am not of retirement age yet. When I am, my basic health needs will be met in Ontario (OHIP). I'll be getting CPP+OAS+GIS. If I divide money I plan to have at 65 by 30, which would be an assumption of how long I'll live in retirement, my annual funds I can spend on myself would be sufficient for my needs.

If I start reaching 90 and realize I am about to outlive my retirement money savings, I'll sell my house and move to assisted living community. Proceeds from the sale of the house should cover remaining up to 10 years of my life in reasonably comfortable environment.

August 29, 2021
2:14 pm
dougjp
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Bill said
dougjp, rare that I've bought a stock and it went up from there, i.e. my usual experience is I could have gotten it cheaper sometime after I bought. Not sure it's common for folks to catch the absolute low point on a buy. Many times I've been under water, even for relatively long periods of time, but pretty much invariably, if my original analysis was thorough and measured, sure enough I stop seeing the red (unrealized loss) and start to see green (unrealized gain) beside that stock when I do sign in to my accounts.

So I wouldn't calculate my unrealized loss %, especially shortly after a purchase, just incites emotions and might disturb my sleep.  

Very true, and I've known that after many years of investing. Mordko, I think you misread my example, based on your comment about buying because of an analyst say so (which I didn't). It was simply a stock I was interested in buying.

On second thought, it was a misguided idea as an example to answer the question about why we keep a lot of money in savings accounts. Keeping ahead of inflation has never been a reason, historically the inflation rate usually exceeds savings rates, even back in the years when the latter rates were high.

"Tell a man that there are 400 billion stars and he'll believe you. Tell him a bench has wet paint and he has to touch it." ~ Steven Wright

August 29, 2021
2:22 pm
COIN
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President Ronald Reagan's investment advice.

1/3 in cash
1/3 in bonds
1/3 in equities
1/3 in real estate

(Yes, it's a joke.)

August 29, 2021
4:24 pm
mordko
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Alexandre said

suburbs4life said
..... why does it seem like many posters here are keeping at least a couple $100K in savings accounts?? ... Should your money not be making more than inflation for wealth generation?

I follow Dickens in that: “Annual income twenty pounds, annual expenditure nineteen nineteen and six , result happiness.
Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”

Yes, occasionally I check share price of my current favorite company, and it might go up 5% in one day. I tell myself, "if I only put all my money in it yesterday and pulled today."
Then, I remember my other favorite company I worked at for 10 years, a darling of a stock market in its years of glory, and Nortel. Both of them are delisted. That cools me down

-------------------

None of my business really but I find this very sad. Human ingenuity and capitalism bring good things to those who diversify and invest over a period of time. Trust in cash and government is naive in my book.

P.S. Don’t remember this quote by Dickens but do remember the O’Henry one. Also about 20 currency units but in dollars.

August 29, 2021
6:24 pm
savemoresaveoften
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Alexandre said

suburbs4life said
..... why does it seem like many posters here are keeping at least a couple $100K in savings accounts?? ... Should your money not be making more than inflation for wealth generation?

I keep all my funds in savings accounts. Never invested in anything (stocks, bonds, precious metals). All my life had my income coming from salary only.
 

Not personal but you are simply not a role model for anyone to follow. Well that may work for you, I can guarantee it wont work for someone who is in the 20s right now.

August 29, 2021
6:25 pm
Bill
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Couldn't agree more re ingenuity and capitalism but, based on what I hear around me regularly from folks of all ages & stripes, we're in the process of increasingly jettisoning capitalism in the 1st world, so IMO it might be another form of naivete to assume the post-WWII past will resemble the future around here. Given that, I'm not as confident advising that having lots of cash is not good.

August 29, 2021
7:50 pm
COIN
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Bill said
we're in the process of increasingly jettisoning capitalism in the 1st world,   

Capitalism made western democracies 1st world countries, it would be foolish to kill capitalism.

August 30, 2021
4:30 am
dougjp
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COIN said
Capitalism made western democracies 1st world countries, it would be foolish to kill capitalism.  

The country is awash with foolish people these days, and it doesn't end at our borders...... sf-cry

"Tell a man that there are 400 billion stars and he'll believe you. Tell him a bench has wet paint and he has to touch it." ~ Steven Wright

August 30, 2021
4:53 am
Bill
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Check out history, COIN, won't be by any means the first time a society has marched enthusiastically into foolishness.

Capitalism has destroyed the planet, governments need to do more for us, we need to redistribute wealth, if you're poor it's because of others, if you're wealthy it's because you're greedy or corrupt, large corporations are not good things, etc, etc - these are sentiments most of today's people agree are axiomatic, from what I can tell. So I've no idea how you could advise young people to keep doing what worked in times when those sentiments weren't what infused society. Indeed cash, gics, HISAs, etc might be king in the coming years, it's possible.

August 30, 2021
7:57 am
mordko
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Bill said
Check out history, COIN, won't be by any means the first time a society has marched enthusiastically into foolishness.

Capitalism has destroyed the planet, governments need to do more for us, we need to redistribute wealth, if you're poor it's because of others, if you're wealthy it's because you're greedy or corrupt, large corporations are not good things, etc, etc - these are sentiments most of today's people agree are axiomatic, from what I can tell. So I've no idea how you could advise young people to keep doing what worked in times when those sentiments weren't what infused society. Indeed cash, gics, HISAs, etc might be king in the coming years, it's possible.  

We might be confusing “most people” with “the really loud ones”. That aside, I am not at all sure even if we assume the imminent death of capitalism, it would translate into “cash is king” and “put all you have into HISA”. Communist regimes are not famous for preserving the value of national currencies and the sanctity of bank accounts. This would be a very rare and major event and if you think its probable then the way to deal with it is by having assets in other jurisdictions.

August 30, 2021
8:23 am
Bill
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Exactly, the West is going left but capitalism's immediate future might be in parts of Africa, Asia, South America, i.e. where many poor folks are working hard to get up the ladder a bit. Luckily for domestic investors those markets are available via various instruments, that global perspective I would agree with giving to young investors. (But I try not to put down their own society to my own kids, I believe it's very important to model positivity to young people, so I try not to share any negative, old-man views with them - and surprisingly some of them have noticed the same things about the world themselves anyway.)

I agree, if & when wealth has been redistributed it won't much matter if it had been in the form of equities or HISAs. But I guess I was thinking you can put a bunch of cash under the mattress and tell no-one, might come in handy in little bits when hard times come.

August 30, 2021
9:25 am
Alexandra
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If one lives in BC and they were fortunate enough to have bought a home before 2016, they could be over $500K richer just in terms of home equity alone than they were 7 years ago. Much more than that for many.

If that bubble ever bursts, the wealth factor for many is going to drop dramatically. Don't think it will happen until at least 2023. New builds just can't keep up with demand. It is insane.

So, I think most of the wealth here for the average family whom are homeowners is in that one particular equity and not in stocks or mutual funds.

August 30, 2021
9:57 am
Alexandra
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Alexandra said
If one lives in BC and they were fortunate enough to have bought a home before 2016, they could be over $500K richer just in terms of home equity alone than they were 7 years ago. Much more than that for many.

If that bubble ever bursts, the wealth factor for many is going to drop dramatically. Don't think it will happen until at least 2023. New builds just can't keep up with demand. It is insane.

So, I think most of the wealth here for the average family whom are homeowners is in that one particular equity and not in stocks or mutual funds.  

sorry, I meant to say "than they were 5 yrs ago and not 7"

August 30, 2021
9:57 am
Maritimegal
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If I were younger I'd keep more in the markets. But if you might need the cash, remember: the markets rise over time but maybe not the time frame in question.
For example, the TSX didn't go up (and stay up) from just before the 2008 market crash until about late 2016. If you had everything in the markets in those eight years you were in for a lot of worry and not much gain, but if you had your cash in renewable GICS your innards were tranquil and you were at least making a bit of money every year.

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