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Why keep so much in a savings account?
August 31, 2021
11:21 am
Winnie
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Alexandre said
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.
 

Me too. Never invested in anything.

Savings accounts up to CDIC limits and GIC's only.
All my income from salary only.

I don't know how to invest, never learned, never wanted to try any investment.

Recently, when interest rate dropped below 3%, I transformed part of my savings from digital numbers on the screen to real gold coins.
I like to hold and play with my coins, instead of just looking on my numbers, it's more fun for me.

No, I did NOT invested in real physical gold, I just transformed or moved from one form of savings holding to another.

I do not expect any earnings or profit from that transformation at all.
I understand, that value of my savings may decrease and that is perfectly fine with me.
If value will increase, no problem too, that is also fine, but I'm not expecting that at all.

August 31, 2021
12:22 pm
HermanH
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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.

Over-population is not quite the problem. The problem is that most over-population is non-productive people.

For those who think that humanity generated greenhouse gas emissions can cause weather changes, the most important step would be to reduce the human population. CoVid would have been an excellent opportunity to do so. Any other factor such as war or pestilence could also do the same. If they want to try and exert their influence on nature (an exercise in futility), then they can reduce and remove the human factor. Of course, no one dares even consider it. Instead, most folks will continue to whine and moan about how something must be done (by everyone and anyone else BUT them.) 😀

August 31, 2021
1:37 pm
COIN
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Bill said
Just a heads up to any newer folks here: sustained references to politicians on here usually leads to censorship, ending of thread, etc.  

I can understand the desire to keep politics/politicians out of our forum but the reality is that politics/politicians have such a huge impact (positive or negative) on our finances/investments/lives.

August 31, 2021
6:18 pm
Kidd
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Bill said
Just a heads up to any newer folks here: sustained references to politicians on here usually leads to censorship, ending of thread, etc.  

I believe i hold the record for deleted posts. What's my prize?

Julio in post #4 perfectly answered the op's original question. My added tidbit... Even as an atheist i knew gluttony was a sin, it's a trap. Many if not most, can never have enough money. They don't know when to walk away from the table.

August 31, 2021
7:11 pm
Norman1
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RetirEd said

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.

You don't need to know any of those things. It doesn't matter if one cannot predict the return in five years to 0.01% like one can with a GIC or bond.

You need to know is that a diversified S&P 500 index fund or TSX 300 index fund will outpace GIC and bonds over ten year and longer periods. Don't need to know if it will be 1.32X, 1.86X, or 2.51X.

If I go to medical school for 10+ years, I don't know if I'm going to earn 2.8X, 3.6X, or 10.2X minimum wage when I graduate and start practicing. But, I know I will be much better off than staying uneducated and earning minimum wage for the rest of my working years.

August 31, 2021
7:20 pm
AltaRed
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+1 to Norman's reply. One just lets a diversified equity portfolio run....through corrections, bears and the like. It is not necessary to know anything else.

Most investors are best off in broad based index funds (mutual or ETF). That way, they are not fixated on individual stock holdings gyrating up and down. The major country stock indices trend to the northeast through time. It is the inept decision making of when to buy and when to sell individual equities that causes investors to shoot themselves in the foot. A $1M portfolio today does not need to consist of more than ONE holding, e.g. VEQT, VGRO, VBAL, or VCNS (or its X or Z cousins). Seriously!

September 1, 2021
9:16 am
Bill
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If you've been buying blue chippers for a few decades and now have a good pile when & why should you "walk away from the table"? Is it because it some point you passed a point that someone else determines is now greedy? Is it because you now want to spend your time transferring money around chasing rates, opening accounts here and there where rates are high, finding places for your money when GICs mature, etc? A lot easier in your old age just to continue to spend zero time on your holdings and keep collecting the ever-increasing dividends, seems to me.

September 1, 2021
10:19 am
mordko
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Find it interesting that money would be presented as “sinful” on a “high interest savings” forum. Should we be interested in a far less sinful “no interest” forum? Which, frankly, applies to all HISAs today, even before the taxman takes a cut. Not if you take inflation into account.

Is it really “sinful” to try and avoid losing money to inflation and look after your family’s financial security in the old age rather than having to rely on the government for benefits?

We all need some cash but having a high proportion in an asset guaranteed to lose value does not seem like a great strategy.

September 1, 2021
10:44 am
dougjp
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I find the OP's question and some of the subsequent discussion bizarre for a high interest savings forum!

After all, who would be here at all if they didn't have "a lot" of money (defined as each person determines for themselves) in HISA or 'equivalent' safety of principal accounts like GICs. Or, they used to have a lot of money in HISA or the like, moved it elsewhere, and just keep coming here out of habit! sf-confusedsf-laugh

"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

September 1, 2021
11:54 am
Kidd
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To clarify.

i require 0% return on my investments to get me to my end day, and i am aware of that. Yes, I get offers from the banks, we can get you xx% based upon past performance. I know the banks care jack about me getting xx% return on my investment, they make a commission and fees off me taking one of their to good to miss deals. I honestly reply, not interested.

I'm not worried about beating inflation, hell 3/4 of the members in this forum, don't believe there is inflation. I will argue that there is, i see it daily on every purchase i make.

Now, if tangerine were to offer me something decent, damn right I'd take it, and i do frequently call them to inquire but i am not dependent upon their offer. I've told the csr numerous times, you need me, more than i need you.

Gluttony... people kill for money, people hunger for money, they chase after it to the ends of the earth, they spend their entire life trying to amass an unspendable amount. If you have all that you NEED, then isn't that enough?

September 1, 2021
3:53 pm
Bill
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It's impossible to know the exact day you've achieved what you need for the rest of your life, so that's not a useful suggestion. Some people will fall short, some will have excess, that's the reality. Also, many of us enjoy our careers, jobs, and are productive, useful people in society, so it would be very dumb to quit only because you think your pile just got big enough today for your needs forever. Never mind that things can happen in the future that might change what you need, e.g. unexpected health events to oneself or family member that may result in much higher expenses of care and living.

And the more one has the more one has available to distribute to others. I'm hiring a friend right now to built me a couple of decks which I could have done myself, I'm happy to pay a good guy a generous amount to provide him with some employment. And I'm happy to not need GIS, etc, and to be at an income level where I pay the OAS clawback, higher rates of tax, etc, in order that that money is available for those who need it way more than I will. It's always felt good to me to be a contributor to, instead of a withdraw-er from, whatever common enterprise we're all engaged in around here, so the more I have the more I can re-distribute via my consumption, etc.

September 1, 2021
8:58 pm
christinad
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When my grandma died at 93 her money was almost 100% in equities. Her stock portfolio took a substantial drop before she died and of course at a certain point the stocks were sold bad price or not. My dad thinks her money lasted as long as it did because it was in stocks so you can choose what perspective you want here. Personally i will not have my money 100% in stocks when i’m in my 90s. I’m not really sure what the allocation will be but it won’t be that.

September 2, 2021
4:42 am
mordko
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Asset allocation is about managing risks. Our long term risks are different from short term risks.

In the short term we may need to urgently buy a new car or spend on healthcare or help a family member. Stocks are risky in that respect. They are a volatile asset class. Thats why we hold fixed income, including some cash.

In the long term our risk is running out of money before the lights are out. Fixed income (including cash) is risky in that respect. Fixed income can and has lost a lot of value in real terms over long periods of time. Stocks are very good at preserving and increasing value over long periods of time.

September 2, 2021
8:32 am
AltaRed
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The challenge then is how to balance asset allocation as one gets into their elder years. It is going to be highly situational depending on portfolio capacity to meet living needs plus how much one cares about the size of the legacy once one bites the dust. No one size fits all.

For most elder portfolios, I would recommend '110-age' for equity allocation so that it is a balance of a better cash flow lifestyle while alive while mostly preserving the estate's value for beneficiaries. My mother was still 15% in equities when she passed at age 96. I would have had her in a higher allocation percentage throughout her senior years (maybe as high as 50% in income generating equities as late as her 90s) but the other beneficiary of her estate was going to need his share of her legacy to get by in his senior years and I thus could not afford to have the legacy at much risk from an invested capital perspective. IOW, it was situational.

In my case, I will most likely keep a high percentage in equities through the rest of my life. My broad based equity portfolio currently generates circa 2.3% yield* today annualized in recurring income from mostly equity dividends and ETF distributions and the absolute amount of recurring investment income grows each year with dividend increases from some of the holdings. It is better than almost any investment grade fixed income will deliver now and likely into the future. If and when the stock markets get so high that the yield percentage drops closer to 1.5% will I consider crystallizing at least some of those gains to put more of the assets into investment grade fixed income at equivalent yields.

* Yield percentage is a poor way of measurement because the percentage is highly dependent on the market value of invested capital. For example, a portfolio in April 2020 with a yield percentage of >3% would be under 2% today because of the huge gains in stock market growth since that time. One needs to be careful using yield percentage in discussions.

September 2, 2021
9:35 am
Norman1
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100% equities for a 90 year old is appropriate if pension payments and whatever the dividends are each year from the equities is enough.

Such a senior effectively has an infinite time horizon and can have everything in equities.

For others not as fortunate, they should have at least their next five years covered by a ladder of GIC's. Any funds not needed for 10 years or more would be in equities.

As each year passes, some equities in the 10+ years bucket could be liquidated to ensure that at least the next five years would be covered.

September 2, 2021
9:47 am
Norman1
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christinad said
When my grandma died at 93 her money was almost 100% in equities. Her stock portfolio took a substantial drop before she died and of course at a certain point the stocks were sold bad price or not. My dad thinks her money lasted as long as it did because it was in stocks so you can choose what perspective you want here. …

Your Dad is right. One doesn't get the long-term returns one gets from stocks from bonds and GIC's.

A substantial drop just before dying only matters if the investor dies shortly after investing. The investor who dies 20 years after investing and has 4X their investment before a 30% drop in their final year has 4 x 0.70 = 2.8X their investment.

September 2, 2021
9:52 am
AltaRed
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I concur with 5 years as a good round number. I keep about 5 years of fixed income (cash reserve) in place to cover the perceived* deficit in cash flow I would experience if I was unwilling to crystallize a beaten down equity in a bear market. As discussed earlier in this thread (I think) there are few 5 year rolling periods in history with a negative return. Even then, that could be conservative because there are always some equities that hold their own even during a bear market OR I could cut back on discretionary spend to manage a deficit if the bear hung around longer than 5 years.

For full disclosure, I have a small DB pension plus CPP that provides me with about 1/4 of my annual cash flow. The rest is mostly recurring investment income from my portfolio along with some invested capital drawdown.

* I say perceived because it is a judgement call on how much recurring investment income might deteriorate as a result of a bear equity market. Some dividends get cut while only a few might increase....for a net decrease.

September 4, 2021
8:13 am
Norman1
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If one is set for the next five to ten years with maturing GIC's and bonds, then one can act long term with one's stocks.

It is a more flexible approach, described in Add growth stocks for more income, that locks in the short term and invests for the long term.

September 4, 2021
10:13 am
Loonie
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Norman1 said
If one is set for the next five to ten years with maturing GIC's and bonds, then one can act long term with one's stocks.

It is a more flexible approach, described in Add growth stocks for more income, that locks in the short term and invests for the long term.  

We are very far along in a bull market. Anyone who counts on coming out at 6.5% annually in growth stocks in 10 years might well be in for a disaster. In the scenario described, the retiree is absolutely dependent on this outcome. This is far too risky.

A more sensible and well thought out approach to securing retirement income for middle income people can be found in Frank Vettese's book, Retirement Income for Life, second edition 2020.

September 4, 2021
1:29 pm
Kidd
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Sorry BUT the original question was... why do you keep so much in savings?

Please write your comments in the forum.