Why keep so much in a savings account? | Page 3 | General financial discussion | Discussion forum

Please consider registering
guest

sp_LogInOut Log In sp_Registration Register

Register | Lost password?
Advanced Search

— Forum Scope —




— Match —





— Forum Options —





Minimum search word length is 3 characters - maximum search word length is 84 characters

sp_Feed Topic RSS sp_TopicIcon
Why keep so much in a savings account?
August 30, 2021
10:37 am
mordko
Member
Members
Forum Posts: 50
Member Since:
April 27, 2017
sp_UserOfflineSmall Offline

Maritimegal said

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.  

If you had everything in the markets you wouldn’t have been in a single country making up 3% of the market. Or at least you shouldn’t have been. And it would have been very profitable.

August 30, 2021
10:56 am
Norman1
Member
Members
Forum Posts: 4270
Member Since:
April 6, 2013
sp_UserOfflineSmall Offline

Maritimegal said

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.

That was not the case.

An unlucky investor who invested in the TSX 300 at the start of 2008 was up around 19% by the start of 2016. By the start of 2018, the investor was up by around 57%.

It takes a bad recession like 2008 to bring equity returns down to the returns of GIC's. Otherwise, GIC's and fixed income are no match.

The US S&P 500 was more impressive. Up about 130% from start of 2008 to start of 2018.

August 30, 2021
11:39 am
AltaRed
Member
Members
Forum Posts: 1475
Member Since:
October 27, 2013
sp_UserOnlineSmall Online

From http://www.ndir.com/cgi-bin/do.....de_adv.cgi the TSX300 was up a total of 44% in the 1/1/2008 to 1/1/2018 and the S&P500 was up 197% in the same period in CAD terms.

The problem as I tend to see it with risk adverse equity investing is most retail investors should NOT be in individual stocks or sector specific or even country specific mutual funds or ETFs. Global diversification helps smooth out the bumps, e.g. TSX performed poorly relative to S&P500 in the last decade, but outperformed the S&P500 in the first decade of this millennium.

The link above shows this in spades for a wide range of time periods. All the information a Canadian investor needs to compute returns with a few hundred scenarios is on that page.

Regarding global diversification, look at MSCI World Index returns (USD) since 1970 to 2018 here https://ystat.org/ There were only 6 times when the 5 year CAGR return was negative, and only one period ending 2008 where a 10 year CAGR was negative.

Added: This does not take away the need/desire/comfort factor to hold some cash or other 100% guaranteed funds. They just should not be expected to beat inflation on a multi-year basis and one should not put all their retirement plan eggs in that fixed income basket.

At the very least, the very conservative investor should consider something like a 60/40 balanced fund (or ETF like VBAL) or the 40/60 more conservative offering of VCNS for both their accumulation and retirement years. My mother still had 15% of her investable assets in equities to complement her GIC ladder into her 90s. The risk was too high to be caught with low interest rates in a solely fixed income portfolio.

August 30, 2021
12:51 pm
Alexandre
Member
Members
Forum Posts: 445
Member Since:
November 8, 2018
sp_UserOfflineSmall Offline

savemoresaveoften said
You are simply not a role model for anyone to follow. I can guarantee it wont work for someone who is in the 20s right now.  

Let's review "role model" part:

-------------------------------------
Work hard. Get honest pay for honest work.
Pay off all debts, including mortgage, by 45.
Put aside half of what you earn, after 45.
Don't be jealous of neighbors' material possessions.
Modesty when making decisions in life is good.
Greed is bad.
-------------------------------------

You know, when I re-read this, I start to understand your point. What I wrote sounds so old fashioned. Very much last century or even one before it. Dickens times.

mordko said
I find this very sad. Capitalism bring good things to those who diversify and invest over a period of time.

My personal finance planning software tells me this month will be another month I'll end with positive cash flow. I take it as a good thing.

Let me ask you back: imagine life that you want to live, make it comfortable one but without excesses.
What if some philanthropic Gates Foundation offers you to cover the difference between what you earn and what you spend, every month it is negative, and add a bit extra.
Meaning, you'll end every month with positive cash flow, guaranteed, and a small addition to your Savings account.

One exception: stock market losses are not covered.

If you were in this situation, would you really be inclined to undertake "investing" and "diversifying?" For what purpose? To earn extra money for the sake of earning money?
That would be very sad, if you ask me.

August 30, 2021
1:25 pm
COIN
Member
Members
Forum Posts: 243
Member Since:
March 15, 2019
sp_UserOfflineSmall Offline

When I was young, an older stock market investor gave me only one advice.

"It is never a bad time to own Royal Bank shares." His RY ACB at that time was $5 and the dividend per share was $4. Yes, over time the dividend yield had grown from whatever to 80% of his cost.

Disclosure: Yes, I am an owner of the Royal Bank (a very tiny minority owner).

August 30, 2021
1:31 pm
savemoresaveoften
Member
Members
Forum Posts: 683
Member Since:
March 30, 2017
sp_UserOfflineSmall Offline

Alexandre said

Let's review "role model" part:
 

I only meant the "investment model" part, I consider someone putting 100% into savings as a type of investment model as well, just not the ideal one for others to follow.

Sounds like you have a frugal discipline life style and now reap the benefit which is great. It is just that what you practiced and work back then simply wont work for a young person today or tomorrow.

August 30, 2021
2:22 pm
mordko
Member
Members
Forum Posts: 50
Member Since:
April 27, 2017
sp_UserOfflineSmall Offline

Alexandre said

My personal finance planning software tells me this month will be another month I'll end with positive cash flow. I take it as a good thing.

Let me ask you back: imagine life that you want to live, make it comfortable one but without excesses.
What if some philanthropic Gates Foundation offers you to cover the difference between what you earn and what you spend, every month it is negative, and add a bit extra.
Meaning, you'll end every month with positive cash flow, guaranteed, and a small addition to your Savings account.

One exception: stock market losses are not covered.

If you were in this situation, would you really be inclined to undertake "investing" and "diversifying?" For what purpose? To earn extra money for the sake of earning money?
That would be very sad, if you ask me.  

May I ask “why?”

Do you avoid investing because you consider HISA more virtuous? Equity tends to provide resources for businesses to develop and employ people. Why is it so bad? Also ensures that we can rely on ourselves rather than the taxpayer in the old age. What’s wrong with that?

Last but not least… You talk about “losses” and “Nortel”. I could understand that someone who lived through a major stock market crash and got badly hurt in it could get jaded for life. That is the “sad” part. People who have diversified portfolios over the long term have gains rather than losses.

Your positive cash flow is awesome but the government doesn’t. It is borrowing like there is no tomorrow. They will eventually inflate the debt away and peoples savings and government benefits along with them.

And to answer your question - Depending on suits in Ottawa or a mythical foundation for my financial security in my old age isn’t my “happy” scenario.

August 30, 2021
3:28 pm
Bill
Member
Members
Forum Posts: 2553
Member Since:
September 11, 2013
sp_UserOfflineSmall Offline

I think about a quarter of workers (one in every two or three households) get public sector paycheques, mostly good & safe pensions. A big group right there that has zero need of investing, they're set. Maybe many inveterate savers (Alexandre?) are in that boat.

August 30, 2021
3:40 pm
AltaRed
Member
Members
Forum Posts: 1475
Member Since:
October 27, 2013
sp_UserOnlineSmall Online

Many public sector pension plans are gold plated, e.g. 60% of the average of the 5 best years and fully COLA'd but many are less rich than that. Many are only partially COLA'd and less than the 2% contributory type. Depends on contributory rate among other things.

That said, a lot of households do have solid pension plans to count on during retirement and don't need much of a portfolio....but on that note, when one has such a rock solid annuity, why not try to get at least inflation on an after tax basis with the rest of the portfolio?

I agree with others that those in early to mid-career today have little chance of a satisfactory retirement relying on HISA and GIC rates today even before considering taxes. Inflation will kill the pot.

August 30, 2021
3:58 pm
Bill
Member
Members
Forum Posts: 2553
Member Since:
September 11, 2013
sp_UserOfflineSmall Offline

The first generation where most females had careers too is starting to die off, the millennials, etc (especially those whose parents own their home in a large city) are going to inherit per capita more money than any other generation in history. Funny they never mention that in the how-hard-life-is-today narrative. With boomers having their (few, compared to previous generations) kids later in life, these windfalls will come just in time for retirement for their kids. I'm pretty sure that factors in to a lot of young folks saving/investing/working attitudes, what's the worry?

August 30, 2021
4:11 pm
mordko
Member
Members
Forum Posts: 50
Member Since:
April 27, 2017
sp_UserOfflineSmall Offline

Bill said
I think about a quarter of workers (one in every two or three households) get public sector paycheques, mostly good & safe pensions. A big group right there that has zero need of investing, they're set. Maybe many inveterate savers (Alexandre?) are in that boat.  

Fair enough. A slightly different scenario from “I rely on state pensions and HISA because greed is bad”.

August 30, 2021
4:17 pm
Loonie
Member
Members
Forum Posts: 7293
Member Since:
October 21, 2013
sp_UserOfflineSmall Offline

The accountants and financial planners I've spoken to have all said (no exceptions so far) that nobody should ever count on an inheritance. A lot of things can change before you get your turn.

August 30, 2021
5:14 pm
savemoresaveoften
Member
Members
Forum Posts: 683
Member Since:
March 30, 2017
sp_UserOfflineSmall Offline

Loonie said
The accountants and financial planners I've spoken to have all said (no exceptions so far) that nobody should ever count on an inheritance. A lot of things can change before you get your turn.  

On top, counting on govt handout such as OAS, GIS and the like is also not something I will advice anyone. Those should be seen as icing on the cake, play money in retirement only.

August 30, 2021
8:24 pm
COIN
Member
Members
Forum Posts: 243
Member Since:
March 15, 2019
sp_UserOfflineSmall Offline

Loonie said
The accountants and financial planners I've spoken to have all said (no exceptions so far) that nobody should ever count on an inheritance. A lot of things can change before you get your turn.  

I'll bet an inheritance tax will come back, in addition to the new potential "wealth tax". Maybe do an inter vivos trust and/or an estate freeze now.

August 31, 2021
2:10 am
RetirEd
Member
Members
Forum Posts: 143
Member Since:
November 18, 2017
sp_UserOfflineSmall Offline

I like to keep about $25K in high-interest cash. That covers me for a new (used) motorcycle purchase and one health emergency at a time. With ladders opening up about twice a year, I feel confident in that. I own no real estate so there's no HELOC/2nd/reverse mortgage option for me.

For me, the biggest reason to avoid risk is that (as a senior) I have no steady income stream to replace losses, or time to recover from them. I can remember giving a Co-Op advisor the speech being discussed here seven years ago: "I've pretty much got it made and have no heirs. Why should I take on any risk at all?"

That being said, I do chase high GIC rates. I've been exploring index ETFs for some months for my TFSA cash, but things are still volatile and spooky.

For the 10-year+ long term, sliding-window return averages show top-rate 5-year GICs usually outperforming equities.

Most importantly, I have zero interest-costing debt and NEVER pay penalties from sloppy bookkeeping. (Sure, I'll float credit purchases to the end of the month, and take my Cash Back.) The spread between penalties and interest earned is ludicrous.

The most important thing a person in their 20s can do, even before avoiding debt, is to NOT HAVE CHILDREN. They will keep you poor and will prevent any meaningful progress on environmental problems. We're doubling human population every 20 to 25 years, and no amount of plant-eating, bus-riding, freezing in the dark and not flying can offset that. Politicians don't dare mention that (heard of it in the current campaigns? No.) because people want a larger next-generation to pay off their debt and drive up real-estate prices. And that's not even touching the third-rail issues raised by identity politics.

I remember helping a financially-clueless friend at his mortgage renewal appointment. He could pay off his mortgage in two years and get a better rate, or he could take it to five years and buy (high-commission) RBC mutual funds, which suck. The salesthing showed him a chart of 25-year GIC rates for about 20 options, and then another for mutual funds. The mutuals' average showed better than the GICs - but I pointed out that one knows ahead of time what your GIC is paying, and you can easily pick the best return; some mutual funds may beat that, but YOU DON'T KNOW WHICH WHEN YOU BUY! And you have NO guarantee you'll be able to know when to get out before a crash.

My friend is mortgage-free and happy now. But he's still unwilling to sell the mutuals he bought on his payroll plan, despite them losing value constantly. Only about $10K in them after 20 years of steady buying.

BILL: We're hardly "in the process of jettisoning capitalism." It's been getting increasingly favourable for the richest of the rich and worse for everyone else, which means it's working as is intended by the financial Powers That Be.

Capitalism does very well at motivating people to create value. (I don't say "create wealth," because top capitalists mean "amass wealth" when they say that, even if it's a zero-sum game.) But there's no point in letting them do that if not enough of those gains are shared to make it worth the society's while.

And, also to Bill: The excessively favoured housing market is what keeps the rich rich and the poor poor over generations.

COIN:
If inheritance or wealth taxes do rear up, they are only being considered at extremely high levels of wealth. I doubt many of us here - if any - would be affected.

PENSIONS: In general, politicians know not to ask seniors to make sacrifices for those who come later, because they won't be around to reap the benefits. Cuts to pensions and other senior benefits are only proposed for those still young enough to adjust their plans for the future. Harper tried to lower the pensionable age and it was (only) one of the reasons he got roasted.
RetirEd

August 31, 2021
4:55 am
savemoresaveoften
Member
Members
Forum Posts: 683
Member Since:
March 30, 2017
sp_UserOfflineSmall Offline

RetirEd said
The most important thing a person in their 20s can do, even before avoiding debt, is to NOT HAVE CHILDREN. They will keep you poor and will prevent any meaningful progress on environmental problems. We're doubling human population every 20 to 25 years, and no amount of plant-eating, bus-riding, freezing in the dark and not flying can offset that. Politicians don't dare mention that (heard of it in the current campaigns? No.) because people want a larger next-generation to pay off their debt and drive up real-estate prices. And that's not even touching the third-rail issues raised by identity politics.
RetirEd  

We need children so when we all get old and stuff, the young can carry us and the society forward. If the baby boomers did not have children, we wont have the young and talented to have the internet the way it is now, and allow us to preach different investment styles / advices 🙂

August 31, 2021
5:30 am
Bill
Member
Members
Forum Posts: 2553
Member Since:
September 11, 2013
sp_UserOfflineSmall Offline

RetirEd, globally free-market capitalism is lifting more and more folks out of poverty every day, lots of data to support that. And one effect is that gets the birth rate down, something you advocate. Locally, even in our society the poor and middle classes are better off than ever before though the media, fueling the politics of envy, focuses on the fact that the wealthy may have leaped ahead even more.

You'd have to explain what you mean by "excessively favoured housing market", I just see willing sellers and buying transacting with each other. My neighbours just sold, for what some in the neighbourhood thought was a crazy-high price, to a couple of 30-somethings, 2 kids, regular jobs, don't look rich or poor so far to me, both parties seemed to be happy with their transaction.

August 31, 2021
5:54 am
mordko
Member
Members
Forum Posts: 50
Member Since:
April 27, 2017
sp_UserOfflineSmall Offline

Cuts to pensions and other senior benefits are only proposed for those still young enough to adjust their plans for the future. Harper tried to lower the pensionable age and it was (only) one of the reasons he got roasted.
RetirEd

1. Harper did no such thing.
2. Harper did propose an INCREASE to OAS and GIS age. Pensionable age was not changed.
3. The proposal was made in 2012 and was due to kick in 2023. The change wasn’t going to impact seniors at the time, but only those young enough to adjust their plans.
4. Harper did the right thing. He could count and cared about the future. You could be right that this was one of the key reasons why Harper lost and Trudeau is our PM.

August 31, 2021
6:01 am
mordko
Member
Members
Forum Posts: 50
Member Since:
April 27, 2017
sp_UserOfflineSmall Offline

But he's still unwilling to sell the mutuals he bought on his payroll plan, despite them losing value constantly

I am sorry, but I don’t believe you. Mutual funds from RBC are not my cup of tea but “constantly losing value”? You are making it up. Name them.

August 31, 2021
8:13 am
Bill
Member
Members
Forum Posts: 2553
Member Since:
September 11, 2013
sp_UserOfflineSmall Offline

Just a heads up to any newer folks here: sustained references to politicians on here usually leads to censorship, ending of thread, etc.

Please write your comments in the forum.