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Why keep so much in a savings account?
September 11, 2021
8:47 am
cgouimet
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dougjp said

You can't shop rates and move money into these;

https://www.highinterestsavings.ca/chart/

You are stuck with available inside registered savings accounts. For example;
https://www.renaissanceinvestments.ca/products/hisa

Some are 0%, or 0.15% in the case of Manulife. Some RRSP/RRIF in discount brokerages only have captive investment savings available and don't allow going to other FI's products. I believe TD operates that way, or used to years ago.  

OK. Got it ...

September 11, 2021
9:00 am
Norman1
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Bill said
Not sure where the 10 years comes from, maybe there's research underpinning that. The US stock market peaked in 1929 and didn't get back to that level until about 1954 so for 25 years 100% fixed income would have been better. …

Yes, I presented the research years ago.

It is also not true that it took 25 years to recover from 1929. The investor would have recovered around end of 1936.

According to NYU: Historical Returns…, $100 invested in S&P 500 at the start of 1928 grew to $143.81 at the start of 1929. That $143.81 recovered and became $145.38 by the end of 1936.

By end of 1954, that $145.38 at the start of 1929 became $783.18, far from just breaking even.

September 11, 2021
9:23 am
Norman1
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Bill said

With regard to young investors, I'd advise them to examine a broad range of human history as older folks tend to regurgitate advice based on their particular few decades of experience, imo.

What I wrote years ago still applies:

Norman1 said
I think doom and gloom were also there in the 1928 to 2014 period. There was the Great Depression in the 1930's. World War 2 (1939 to 1945). Wasn't there a US-Russia nuclear arms race in the 1970's in which an accidental intercontinental missile launch could trigger mutual nuclear strikes and end the world? Lesser-developed country debt crises in the 1980's.

The world seems to come to an end, for some reason, every decade. I think it will continue to do so. sf-laugh

September 11, 2021
10:09 am
Bill
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Maybe it's an arithmetic trick that I need explanation on, but the DJIA peaked at 381 in 1929 and didn't hit that level again until 1954. I don't get how you can have recovered by 1936 (and it dropped after that too, took to 1945 to get back to 1936) - ?

Also, no argument USA/West was superpower, ascendant until after WWII, many say USA/West has been in global decline for a while now. If true, that affects future of today's young folks. It might be funny to some, and never the end of the whole world, but every single superpower in history has its cycle of expansion, contraction, and at some point is superceded, be foolish to act as if the future equals the past.

September 11, 2021
10:54 am
Norman1
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Dow Jones Industrial Average is a price average, not a total return one. Impact of dividends and reinvesting those dividends is not reflected in a price average or price index.

Over the long term, price averages or price indices reflect what one is left with when one spends the dividends as they are received.

Reinvesting the dividends can make a significant difference in the long term. One stock went up by about 5X in twenty years. However, its DRIP account is about 10X my initial investment.

Being a world superpower is not really that important. No-one is buying iPhones or Hollywood movies because the products are from a company in the US.

September 11, 2021
11:02 am
Loonie
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Norman, the NYU figures don't include real life. In reality, so many people lost their jobs and housing, had to support other generations, etc that they couldn't hang on in rapidly falling markets, let alone to 1954. Given life expectancy in those days and available resources according to age, I would wager that most 1929 investors would not even be alive in 1954. And, further, this only refers to US investments.

But, more importantly, I am dismayed at the way you are cherry picking for the results you want.

The first full year of the Great Depression was 1930, so one should look at figures starting with that year, not 1928 or 1929. Then one should, if one alleges that 10 years is an adequate period for markets to rebound, look at 10 years forward, which would be 1939. Then one should compare these results to same period for other investments.
By my calculations, using the "real return" columns, the 10 years 1930 through 1939 returned the following on 100.00 : S&P 112.45 with extreme volatility; 10yr TBonds 189.58 with only one year in a very minor negative position; Baa bonds 246.88 with low volatility. I would have picked the TBonds, given this choice, and would have been very glad I had, as would my heirs if I'd died in that period. I would have given a friendly wave to the Baa bond holders but just as happy not to have taken their risks.

I can't be bothered working it out for 1954, but note that 1954 was an extremely lucky year for the market, with over 50% real return, meaning that 1953 would have been much much less if it were the measure.

People planning their retirement income should be extremely cautious in appropriating examples from the past as we head into "unprecedented" waters - that means that even the Great Depression may not be as severe as what may be yet to come. Your first obligation is to secure a sustainable steady income for yourself. If you want to gamble with the rest, be my guest.

My own analysis is that in the foreseeable future, some businesses will succeed wonderfully and others will lose dramatically because our world and its needs are changing rapidly. I read once that a fortune was made in glass canning jars during the Great Depression, but I'm not smart enough to figure out what the modern equivalent is.

Talk is cheap on this forum. Do your own reading and research. It won't hurt me if you don't, but it could hurt you.

September 11, 2021
11:42 am
Alexandra
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Loonie said
Norman, the NYU figures don't include real life. In reality, so many people lost their jobs and housing, had to support other generations, etc that they couldn't hang on in rapidly falling markets, let alone to 1954. Given life expectancy in those days and available resources according to age, I would wager that most 1929 investors would not even be alive in 1954. And, further, this only refers to US investments.

But, more importantly, I am dismayed at the way you are cherry picking for the results you want.

The first full year of the Great Depression was 1930, so one should look at figures starting with that year, not 1928 or 1929. Then one should, if one allegess that 10 years is an adquate period for markets to rebound, look at 10 years forward, which would be 1939. Then one should compare these results to same period for other investments.
By my calculations, using the "real return" columns, the 10 years 1930 through 1939 returned the following on 100.00 : S&P 112.45 with extreme volatility; 10yr TBonds 189.58 with only one year in a very minor negative position; Baa bonds 246.88 with low volatility. I would have picked the TBonds, given this choice, and would hav been very glad I had, as would my heirs if I'd died in that period. I would have given a friendly wave to the Baa bond holders but just as happy not to have taken their risks.

I can't be bothered working it out for 1954, but note that 1954 was an extremely lucky year for the market, with over 50% real return, meaning that 1953 would have been much much less if it were the measure.

People planning their retirement income should be extremely cautious in appropriating examples from the past as we head into "unprecedented" waters - that means that even the Great Depression may not be as severe as what may be yet to come. Your first obligtion is to secure a sustainable steady income for yourself. If you want to gamble with the rest, be my guest.

My own analysis is that in the foreseeable future, some businesses will succeed wonderuflly and others will lose dramatically because our world and its needs are changing rapidly. I read once that a fortune was made in glass canning jars during the Great Depression, but I;m not smart enough to figure out what the modern equivalent is.

Talk is cheap on this forum. Do your own reading and research. It won't hurt me if you don't, but it could hurt you.  

For the most part the "modern" equivalent to canning was first the "zero zone" freezers of around 1960 and then the "frost free" two door fridges and freezer chests.

I remember my parents canning everything possible during the late 40's and throughout the 50's. whilst living in the interior. Dessert was pretty well always bing cherries, peaches, apricots or pears.

I truly am amazed at your (Loonie) and others vast historical and current financial knowledge It is always enjoyable reading all of your posts. I have even acted upon or at least looked into some of your suggestions in the past.

Right now though, I have about 25% of my funds in cash accounts and growing each month. I'm just so unsure of what I perceive as a nervous financial environment in North America.

Luckily, I can afford to do this and at least I'm not losing sleep because of worry and anxiety.

September 11, 2021
12:53 pm
AltaRed
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Look at http://www.ndir.com/cgi-bin/do.....de_adv.cgi to run all the scenarios one wishes since 1980. The last 40 years is a pretty good time frame to look at rolling periods of 5, 10, 20, 40 years. The Depression era can be tossed because central bankers now know how to avoid years of economic loss, and the high inflation years of the '70s can be tossed for similar reasons. OECD countries will collectively strive for Goldilocks plus/minus a standard deviation or so.

There will be the odd curve ball like pandemics and maybe even a regional war, but short of a superbug, Yellowstone blowing its top, or a meteorite hitting earth, central bankers will be able to mitigate crises. I agree with Loonie that one needs to have some solid reserves to stick handle crises but I cannot comprehend any negative rolling period over 10 years, and perhaps as little as 5 years. Invest accordingly.

P.S. I agree with Norman1 as regards indices. Be careful of what you are looking at. One has to consider Total Return indices with dividends included, not raw index data points.

September 11, 2021
1:24 pm
Bill
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I did consider the dividends impact, didn't realize it was the only explaining factor and that they made so much difference.

It's not so much that USA has been a superpower, it's that its free market capitalism (with all its flaws) is being enthusiastically superceded around the world by state-managed/controlled economies and that will bring general poverty vs the affluence capitalism has wrought, in my eyes.

I can't agree that we can toss out the bad parts and then use the good parts of the last 80 or so years to say that's how it's going to be in the future. Those of us familiar with human history know that the same cycles recur over and over, everywhere, the more you learn about history that becomes crystal clear, and pretty much every generation or two thinks "we're modern, it's different this time". Recent example: there was huge optimism in the West about humanity's new age (electricity, etc!) at the end of the 19th century, and then the 20th was the most barbarous (total victims) so far. You would not know this (i.e. that "recent-cy bias" is misleading), if you just read financial-topic books.

September 11, 2021
3:37 pm
AltaRed
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I recognize one cannot just throw out history and say it is different this time, but at the same time, central bankers have learned how to mitigate impacts to some degree, certain life altering effects like Yellowstone blowing up excepted. Being tremendously overweight cash and GICs won't do one any good then either. It will be guns and ammo.

I would suggest grovelling with ~2% returns today in a HISA and/or GIC and/or A+ bond portfolio is automatically self-defeating post-tax, post-inflation. It's a guaranteed loser. I agree it is important to have 'reserve's in HISA/GIC holdings during one's retirement years. The only question is how many years worth. For me, in my early '70s, I am good with about 5* years reserve to supplement other sources of income. The rest of it is in globally diversified equities.

*Depending on how one measures it. Less if I didn't cut back some discretionary spend. More if I severely cut back discretionary spend.

September 11, 2021
3:52 pm
dougjp
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AltaRed said
I recognize one cannot just throw out history and say it is different this time, but at the same time, central bankers have learned how to mitigate impacts to some degree, certain life altering effects like Yellowstone blowing up excepted. Being tremendously overweight cash and GICs won't do one any good then either. It will be guns and ammo.

I would suggest grovelling with ~2% returns today in a HISA and/or GIC and/or A+ bond portfolio is automatically self-defeating post-tax, post-inflation. It's a guaranteed loser. I agree it is important to have 'reserve's in HISA/GIC holdings during one's retirement years. The only question is how many years worth. For me, in my early '70s, I am good with about 5* years reserve to supplement other sources of income. The rest of it is in globally diversified equities.

*Depending on how one measures it. Less if I didn't cut back some discretionary spend. More if I severely cut back discretionary spend.  

I don't see anything really new here. Mind you, I haven't bothered to look at stats over the years. I just sense from looking at it numerous times, that the usual is where being in HISA and/or GIC mean going backwards post-tax, post-inflation.

"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 11, 2021
4:52 pm
Loonie
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I think the arguments are getting repetitive, so I won't say anything else for now except that we won't need a meteor to disrupt our economy and I don't believe central banks have infinite power to hold back the hordes when they decide the party's over.

September 11, 2021
5:11 pm
Bill
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By the way, is this Yellowstone blowing up thing a possibility? Do I need to google it? I live in SW Ontario, I should be good. Right?

September 11, 2021
5:17 pm
savemoresaveoften
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Bill said
I did consider the dividends impact, didn't realize it was the only explaining factor and that they made so much difference.

It just proves that the keyword is not to invest 100% in equities, but rather to invest a good portion of your savings in dividend yielding blue chip stocks for the long term gain.

September 11, 2021
5:43 pm
christinad
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This post in myownadvisor seems timely

https://www.myownadvisor.ca/why-would-anyone-own-bonds-now/

For me, one of the reasons i hold mainly gics for fixed income is my risk tolerance. You can tell me stocks bounce back and now is a good time to buy all you want, i feel better having some fixed income. Right now i have around 17% fixed income (excluding emergency fund) but i’d like to get it a bit higher to 20-25%. You have to do what you are comfortable with. I agree it is painful right now investing in fixed income.

September 11, 2021
7:46 pm
AltaRed
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Bill said
By the way, is this Yellowstone blowing up thing a possibility? Do I need to google it? I live in SW Ontario, I should be good. Right?  

Off-topic, but it is a remote possibility like an asteroid hitting earth. Much of the park within the ring road is an old cauldron and a mighty blow could cause something like a multi-year global winter and global crop failure from the ash cloud in the upper atmosphere. Billions(?) could die. The point is there will always be remote risks of catastrophic events that are outside one's control.

September 11, 2021
8:32 pm
Norman1
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Loonie said
Norman, the NYU figures don't include real life. In reality, so many people lost their jobs and housing, had to support other generations, etc that they couldn't hang on in rapidly falling markets, let alone to 1954. Given life expectancy in those days and available resources according to age, I would wager that most 1929 investors would not even be alive in 1954. …

S&P 500 investor recovered by the end of 1936, well within the 10 year period. It is up to the stock investor to ensure he/she has a 10+ year time horizon. Same with the annuity buyer.

The annuity buyer needs to be confident he or she will live to at least 84 years old or so. Otherwise, the annuity payments received won't return the purchase price.

But, more importantly, I am dismayed at the way you are cherry picking for the results you want.

The first full year of the Great Depression was 1930, so one should look at figures starting with that year, not 1928 or 1929. Then one should, if one alleges that 10 years is an adequate period for markets to rebound, look at 10 years forward, which would be 1939. Then one should compare these results to same period for other investments.
By my calculations, using the "real return" columns, the 10 years 1930 through 1939 returned the following on 100.00 : S&P 112.45 with extreme volatility; 10yr TBonds 189.58 with only one year in a very minor negative position; Baa bonds 246.88 with low volatility. I would have picked the TBonds, given this choice, and would have been very glad I had, as would my heirs if I'd died in that period. I would have given a friendly wave to the Baa bond holders but just as happy not to have taken their risks.

Bill selected the period. So, there was no cherry picking.

Anyone smart enough to invest in stocks in January 1930, after that crash in October 1929, already sees the opportunity presented by of the downturn.

Furthermore, the excessive real returns of 10-year US Treasury bonds, from 1930 to 1939, are not going be repeated without the benefit of the deflation (-2.1% per annum) of those ten years:

Year Inflation
1930 -2.67%
1931 -8.93%
1932 -10.30%
1933 -5.19%
1934 3.48%
1935 2.55%
1936 1.03%
1937 3.73%
1938 -2.03%
1939 -1.30%

That kind of deflation not likely. Consumer prices fell 6.8% per annum from start of 1930 to end of 1933. 6.8% per year gain in purchasing power those years from just cash in a mattress!

Just as it isn't likely that we will see that same interest rate drop, from 10%+ down to around 1%, of the past thirty years in the next thirty years.

September 12, 2021
4:37 am
savemoresaveoften
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For those that says catastrophic natural event that will crash equities, my response will be if such an event happens, money is probably not my top concern.

September 12, 2021
5:43 am
Bill
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I was kinda joking about Yellowstone, I certainly wouldn't factor in random, single-event natural catastrophes to my financial planning. But to me, as an amateur historian, it's much easier to discern the general direction a society, and its economy, is headed (of course without knowing the actual tipping points, etc). At least I like to think so. And note that the stock market crash of 1929 which ushered in the Great Depression came as a sudden shock to the masses (though in retrospect it was, always is, obvious to all what caused it), it had been the Roaring 20s after all. But as Norman1 points out it was no biggie anyways to equity investors who stayed the course with their dividend payers.

savemoresaveoften, I would consider dividend yielding blue chips as equity investments, maybe you were saying the same in #114.

September 12, 2021
6:23 am
Loonie
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Norman1 said
S&P 500 investor recovered by the end of 1936, well within the 10 year period. It is up to the stock investor to ensure he/she has a 10+ year time horizon. Same with the annuity buyer.

The annuity buyer needs to be confident he or she will live to at least 84 years old or so. Otherwise, the annuity payments received won't return the purchase price.

Yes, the S&P investor would be at $136.41 by 1936, but the Tbonds would be up to 165.42 and the Baa bonds would be up to 219.62 . Further, the S&P investor would, according to standard advice, likely have held on, only to see that investment plummet to 85.04 the following year, whereas the other 2 were relatively unscathed. I think that what this illustrates, apart from the extreme volatility of the market in that time frame, is how hard it is for investors to plan. One time you tell them to hang in for 10 years, another time the cutoff measured is six years; and for yet another time it's 25 yrs. It seems you only want to look at years where you can show a cumulative gain.
When someone looks at where to put their money, particularly an older person, it's reasonable for them to want to have a justifiable sense of how long they might have to wait for a result that will handily exceed other less risky options. In the time frame of the 1930s, 10 years, they would have been much better off with other investments, as they would at 6 years or 7 years.
You will say that the 1930s were a very unusual time and will not be repeated. I regard that as conjecture. We simply don't know. After the debacle of 2008, virtually every money manager and financial expert claimed they had not seen that one coming. This myopia can recur, again, and again. For all we know, the next crash could be even worse than the 1930s.

I'm not sure why you keep talking about annuities, but there is nothing wrong with buying the insurance they provide, in principle. They have made a decent retirement possible for a lot of people who would otherwise have outlived their retirement income. But they are not going to help everyone and are less helpful to buy now, with low interest rates. Deciding for or against them involves a full assessment of one's income streams and their sustainability for the rest of one's life and is not simply a question of what their returns are. They also help protect against unscrupulous POAs.

Perhaps you were indeed responding to Bill's parameters of time but, given your history of posts, I think it's reasonable to think you would disagree with them if you felt them misleading, as I did. You have continued to pluck the dates you find to support your arguments.

Thank you for posting the link to the chart. It is informative. You can analyze it any way you like. My goal is simply to show readers that there is more than one way to look at it and to remind us all that we're not going to be able to predict the future in the kind of detail required.
I wouldn't rule out deflation. There are factors working for and against it. On the one hand, disruptions related to the major upheavals resulting from climate change and so on, and possibly covid, will make things more expensive, but on the other hand aging demographics and low birth rate will reduce spending substantially.

Please write your comments in the forum.