Should You Consider An All-GIC Portfolio? | Page 2 | GIC Discussions | 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

No permission to create posts
sp_Feed Topic RSS sp_TopicIcon
Should You Consider An All-GIC Portfolio?
June 17, 2017
1:40 pm
Norman1
Member
Members
Forum Posts: 1258
Member Since:
April 6, 2013
sp_UserOfflineSmall Offline

Research may improve the odds of success dramatically. But, the improvement may not be enough.

Research could improve the odds of success from 1-in-100 to 1-in-20. But, if the payoff is "only" 10X original investment, then each winner will not make up for the money lost on 19 losers. One will end up underperforming someone who just parked their money in GIC's.

June 18, 2017
12:04 pm
gicjunkie
Ontario
Member
Members
Forum Posts: 35
Member Since:
November 7, 2014
sp_UserOfflineSmall Offline

Very interesting discussion.
One can survive and actually prosper in retirement on an all GIC portfolio if you have saved enough capital to do so and ladder it properly. This portfolio is almost risk free, if done right. One's ability to survive this way may also depend on if you have additional sources of income (pension income) to supplement the GIC interest. But this is a situation which may be far off into the future for most of you younger bloggers.
When you are young, and trying to save, it can be difficult to accumulate capital while paying off a mortgage, buying furniture and providing for children. This is where proper budgeting and restraint come into play.
More often than not, young wage earners go bit crazy with their new found "wealth" of having a job right out of school. For these youngster, buying a new house or condo may also seem like a pipe dream. If you are lucky enough to be able to access a reasonable down-payment for a house, debt reduction should obviously be the first goal on the agenda. Canadian mortgages have no tax advantage, for the most part. If you are a working couple with no kids, sock away one salary or as much as you can (the restraint part). Invest it, but keep some of it reasonably available for emergencies. Don't spend it all on fancy cars and travel. If you are fortunate to have a great, high paying job, your goals will be realized sooner rather than later. Your income, debt load and comfort with risk will dictate how conservatively you invest your money.
Remember at least one piece of investment advice from all of this : don't gamble with money you cannot afford to lose.

June 18, 2017
9:29 pm
slow_n_steady
Member
Members
Forum Posts: 10
Member Since:
February 27, 2015
sp_UserOfflineSmall Offline

My two cents to add to the discussion for what it is worth.

I want to emphasize that whatever your personal strategy for investing is ie. stocks, bonds, GICs, etc. - I am not telling anyone to change. We are all quite capable of making our own informed investment decisions and have different knowledge and experience to draw from.

Saver-Mom - don’t let anyone pressure you into anything. My simple advice would be to figure out “how much am I willing to lose” and that would be the amount to consider investing with. I was moved to write a reply to your post based on “advice from young people” which I am but I am “not with the herd” when it comes to investment strategies. I write the story below to offer a contrast to what I feel is the mainstream championing of aggressive equity investing.

In mid-2007, by chance I spoke with a financial fiduciary about investing (I didn’t pay them for this, just a chance encounter, and I didn't know them prior to our conversation). The financial fiduciary was/is an independent certified financial planner/advisor who works for a set annual fee percentage based on portfolio size and advises you on proper investments, telling you when to sell to get profits prior to risk getting too high, and to buy when things are low risk at good value. You would assume this is what a "financial advisor" is suppose to do but that is not my experience. This fiduciary only use ETFs (and T-bills) to keep fees low - no kickback from the products they sold so their advice was in your best interest, not in theirs (ie. no hidden kickbacks from product (read stocks/funds) to sway their advice, or sell you “products” (ie. stocks/funds) institutions are trying to unload on their clients so they take the loss, not the institution)). This fiduciary managed portfolios of a minimum size 1 million $ - I am definitely not in that ballpark. Prior to being an independent fiduciary, they were a high-up advisor at one of the Big5 investment houses in downtown Toronto.

To get to my point, this financial fiduciary at the time advised me to be only in GICs. They instructed me the market was at a top and to get out of equities NOW (I was in 100% equities at the time in July/Aug 2007). They told me until I had a house paid off, kids out of the house (and if I wanted to pay for their post-secondary too), and after that had amassed at least 500k$ in savings - not till then to consider getting into equities. Clearly this advice was not self-interested on their part.

They also explained to me that of the portfolios they do manage, that most of the “rich” are actually not exposed to that much risk - maybe 20% of their portfolios are in equities. So as an aside, I think the investment firms also try to sell us on this idea of purchasing equities as what-rich-people-do when more than likely the rich are concerned about preserving their principal.

I took their advice to move to GICs only (though it was really hard to tell my “financial advisor” at the time to sell everything who was trying to keep me in) and the timing was impeccable due to the major downturn in stocks that started in the fall of 2007. Saved me a lot of heartache and money.

Afterwards, I came across David Trahair's books and felt his advice made a lot of sense - ie. pay down any debts first (including mortgage), then start building savings and GIC laddering, and finally not investing in RRSPs until ~10 years prior to retirement as you will have a much better picture of how much CPP you will be getting so not to lose out on government clawbacks on OAS etc. Simple and straight forward.

So, though very boring, I have kept with the GIC strategy. It’s really painful at these rates as I am sure we can all agree! But GICs are simple to understand, safe and straight forward. As they say, don’t buy an investment you can’t explain yourself.

I am not near retirement but am still not tempted to get back into equities anytime soon as I have little faith in the honesty of the stock market (referring to high frequency trading, market manipulation, insider trading, disreputable ratings agencies, and irrational exuberance in the market currently). Even worse is the lack of Glass-Steagall in the USA - thank God we don't have that in Canada.

After the market 2007 downturn, I was humbled to the fact that I know I don’t have the time, knowledge or expertise to properly trade stocks/ETFs/funds and when I have, I know that I am speculating at best in a market with forces I can’t control. I also feel I am ill-qualified from understanding economic metrics to foresee market downturns and thus properly evaluate risk of investments. A high tide lifts all boats.

Unfortunately, I don’t think there is a shortcut to diligent saving.

It makes me sad to think of how “financial advisors” tell you to put X% in equities (especially high risk equities) based on your age because you can “afford to make it back because you have the time”. Well, what if you can’t afford to lose? Look at the employment market for young people today... it's not pretty.

June 19, 2017
12:16 pm
Top It Up
Member
Members
Forum Posts: 370
Member Since:
December 17, 2016
sp_UserOfflineSmall Offline

gicjunkie said

Don't spend it all on fancy cars and travel.  

I don't know - the Millennials seem pretty set on getting that 3-series Beamer along with an annual trip to Costa Rica.

June 19, 2017
5:55 pm
Saver-Mom
Member
Members
Forum Posts: 147
Member Since:
December 12, 2015
sp_UserOfflineSmall Offline

Slow-n-steady, you took the thoughts right out of my head and put them on paper! I agree with everything you said. Others have said, and I will repeat, the greatest predictor of how much you will have when you retire is how much you have manage to save rather than spend. Not the interest you make. Also, counting on pensions, OAS etc seems like a risky strategy to me. Slow and steady wins the race.

June 19, 2017
6:15 pm
Top It Up
Member
Members
Forum Posts: 370
Member Since:
December 17, 2016
sp_UserOfflineSmall Offline

Saver-Mom said

... the greatest predictor of how much you will have when you retire is how much you have manage to save rather than spend.  

Somewhere here is a cautionary tale, about becoming so absolutely focused on saving, that you actually forget to spend, or worse, actually deprive yourself of any enjoyment from your labours, due to an on-going uncertainty of how much money you'll need in retirement.

June 19, 2017
7:30 pm
Loonie
Member
Members
Forum Posts: 2903
Member Since:
October 21, 2013
sp_UserOfflineSmall Offline

Saver-Mom said
Slow-n-steady, you took the thoughts right out of my head and put them on paper! I agree with everything you said. Others have said, and I will repeat, the greatest predictor of how much you will have when you retire is how much you have manage to save rather than spend. Not the interest you make. Also, counting on pensions, OAS etc seems like a risky strategy to me. Slow and steady wins the race.  

At a certain point, anything and everything becomes risky. Some won't have workplace pension plans but we will all have CPP and most will have OAS without clawback. OAS might get re-jigged, but then so might tax rates. The Canadian dollar might buy a lot less than it does now.
Currency risk is not to be underestimated. If we wanted to protect ourselves more thoroughly, we might consider that as well, and diversify somewhat. Inflation risk can be offset by purchasing real return bonds, but you lose a bit for buying them. There is some degree of risk in absolutely every strategy. Prices are always in flux; tax breaks and rates change regularly; benefits get reconfigured; and so do interest rates and returns on everything we may invest in.

While I have not done it, I do see some merit in putting some of one's assets into something like the Mawer Global funds. This would be to offset some of the above risks. Trahair's analysis, as I recall, does not allow for this. I wouldn't suggest this for someone who is still fairly young and might need the cash, but it would make sense for some older people. The problem, as I see it, is in deciding how much to invest in this way. If it's just a small percentage, it won't make much difference in terms of offsetting other problems. If it's larger, it may introduce too much risk! - and that's why I haven't done it. Yet, currency risk remains an issue in my thinking.

June 20, 2017
4:56 am
Top It Up
Member
Members
Forum Posts: 370
Member Since:
December 17, 2016
sp_UserOfflineSmall Offline

Going forward, it's things like gold-plated public service pension and benefit plans that will be the death knell of this country - a taxpayer burden that hangs like a pall ... now THAT'S a real issue -

Worse Than It Looks:The True Burden and Risks of Federal Employee Pension Plans

https://www.cdhowe.org/sites/default/files/attachments/research_papers/mixed/Commentary_449%20.pdf

Federal government employees enjoy pure defined-benefit pensions that promise relatively generous benefits to a large current and former workforce. Being largely unfunded, these plans impose on taxpayers obligations running into the hundreds of billions of dollars. What is worse, misleading accounting understates the true burden and risks these plans create for Canadian taxpayers.

June 20, 2017
4:31 pm
Bill
Member
Members
Forum Posts: 554
Member Since:
September 11, 2013
sp_UserOfflineSmall Offline

Top It Up, plus the analysis deals only with federal public servants, a relatively small part of the picture - seems to me in most towns other public sector workers (teachers, police, fire, hospitals, other provincial ministry and city/town workers) far outnumber federal public servants.

June 20, 2017
4:54 pm
Top It Up
Member
Members
Forum Posts: 370
Member Since:
December 17, 2016
sp_UserOfflineSmall Offline

Absolutely, no question. Here's a study done on the "bloated" public service in Canada with emphasis on the western Canadian Provinces (minus crown-corporations, which in Manitoba, have truly become a sore point) -

The Size and Cost of the Public Sector in Western Canada

https://fcpp.org/wp-content/uploads/FC17006_SizeCostPSWest_F1.pdf

June 27, 2017
6:12 pm
Norman1
Member
Members
Forum Posts: 1258
Member Since:
April 6, 2013
sp_UserOfflineSmall Offline

Loonie said

While I have not done it, I do see some merit in putting some of one's assets into something like the Mawer Global funds. This would be to offset some of the above risks. Trahair's analysis, as I recall, does not allow for this. I wouldn't suggest this for someone who is still fairly young and might need the cash, but it would make sense for some older people. The problem, as I see it, is in deciding how much to invest in this way. …

A good starting point is to divide the money into three buckets based on when the money will be needed:

  1. 0 to 5 years from now
  2. 6 to 10 years from now
  3. more than 10 years from now

Bucket #1 in savings accounts and GIC's. Bucket #3 in equities. Bucket #2 is a gray area.

Each passing year, one year of money moves from #2 to #1 and from #3 to #2.

June 27, 2017
9:49 pm
Loonie
Member
Members
Forum Posts: 2903
Member Since:
October 21, 2013
sp_UserOfflineSmall Offline

"gray area": the more gray hair you have, the more you should have in cash, bonds, GICs! sf-laugh

July 2, 2017
10:10 am
Rick
Member
Members
Forum Posts: 428
Member Since:
February 17, 2013
sp_UserOfflineSmall Offline

Top It Up said
Going forward, it's things like gold-plated public service pension and benefit plans that will be the death knell of this country - a taxpayer burden that hangs like a pall ... now THAT'S a real issue -
  

Like how these right wing conservative think tanks always blame the public sector minions and their "gold plated" pension plans for all the ails of the country. I wonder how many ex-public service employees that work at EI, CRA or such are sitting at home raking in the dough after 30 or 40 years of service? My father spent years working for the feds at EI, and by no means retired with a gold plated pension that enabled him to live in the lap of luxury until he passed. He needed a second career with another pension as well as CPP just to maintain a middle class status. The issue is a red herring. The problem is not the ground level staff and their pensions that are pushing this country to the brink. Look to the politicians, whom we rely on to steer the country to prosperity, and their out of control spending that will ultimately ruin Canada. I won't even mention THEIR gold plated pensions and golden parachutes because, in the long run, it is a drop in the bucket compared to total revenue. But when you talk about solving a potential crisis by eliminating/reducing benefits for the ground level workers that actually accomplish the work, that is just fallacy. My dad once told me that every EI fraud investigator on staff recovered over a million dollars from fraud. When Harper was in financial straits, he laid off half the staff. There's good financial oversight. Meanwhile, we are giving out grants, tax breaks, loans and write-offs to national /multinational corporations (Bombardier) in the billions. All while the federal debt increases at an unsustainable rate as the spending continues. A good provincial example was the recent BC election. After it was over, the Lie-berals found an extra billion plus in the sofa cushions. Any thought of returning ANY of it to the over-taxed citizens? Nope! How about putting it towards the 60 or 80 billion dollar provincial debt? Nope! Just another windfall for the incoming NDP/Green alliance (it won't be enough) to spend. This country may be headed toward a financial crisis, but it won't be because of the federal pension plans.

July 2, 2017
10:14 am
Rick
Member
Members
Forum Posts: 428
Member Since:
February 17, 2013
sp_UserOfflineSmall Offline

Back on topic. I used mutual funds when I started (way too late) to save for retirement. Now that I am close, I have it all in GIC's. More risk when you can afford it, 0 risk when it's time to rely on those funds as part of your income.

July 2, 2017
10:35 am
Cranston
Member
Members
Forum Posts: 206
Member Since:
April 7, 2017
sp_UserOfflineSmall Offline

Rick said
Back on topic. I used mutual funds when I started (way too late) to save for retirement. Now that I am close, I have it all in GIC's. More risk when you can afford it, 0 risk when it's time to rely on those funds as part of your income.  

I am in my late 60's. I am with an advisor and now have all GICs. I am managing all my GICs to mature spring 2018. And even though he has a decent amount of GIC choices I can do better and I won't have to pay that naggging $150 a year self directed fee. I sold all of my mutual funds and etfs when they rose to my selling price. The only good thing that the US election did for me. But I look back over the years of GIC rates like 18% and lower and always wonder if I would have done better just doing GICs all along? Currently I remove $6100 a year from my RRSP via my RRIF account and top up my TFSA.

Keep in mind some brokers ALWAYS want you to be in an ETF or mutual fund FOR ONE REASON ONLY.......so your dividends pay your self directed fees.

A recently passed friend of mine was 93 and RBC continued to have him in stocks and continued to collect hefty monthly fees. And I too was beginning to be more trusting but can see how you can be taken advantage of.......but no more.

I also have a few other friends that are in ALL GICs only as well.

July 2, 2017
12:10 pm
Loonie
Member
Members
Forum Posts: 2903
Member Since:
October 21, 2013
sp_UserOfflineSmall Offline

Don't forget bonds. They may not pay as well (at least government ones) but they're liquid. You can sell them any time if you have a sudden need for more money that GIC laddering doesn't quite cover. This becomes more of a consideration as you watch all your money getting locked in with the all-GIC strategy.
You can also consider annuities for basic income security to top up pensions etc.

July 2, 2017
4:32 pm
Cranston
Member
Members
Forum Posts: 206
Member Since:
April 7, 2017
sp_UserOfflineSmall Offline

Loonie said
Don't forget bonds. They may not pay as well (at least government ones) but they're liquid. You can sell them any time if you have a sudden need for more money that GIC laddering doesn't quite cover. This becomes more of a consideration as you watch all your money getting locked in with the all-GIC strategy.
You can also consider annuities for basic income security to top up pensions etc.  

Hi. I still have my iTrade account for TFSA only, but was planning on shutting it down as their GIC rates are not that favourable. It costs me zero to have and did look at bonds a long time ago. To be honest I fail miserably in understandting them. Ie Rating/risk, buying/selling mid term, Income tax steps/capital gains/inflating my income and cost to buy/sell and the percentage in my pocket. If I put non registered money in iTrade I may be charged quarterly fees.

So tell me a good bond to check out and enlighten me too, if you like. 🙂 🙂 And will I exceed the % of what I earn in my Accelerate savings account (1.7%)? And no, I am not satisfied with 1.7%. 🙂 🙁

July 2, 2017
5:02 pm
Jon
Member
Members
Forum Posts: 214
Member Since:
August 9, 2014
sp_UserOfflineSmall Offline

I think a bond etf is better than just bond as it is more diversify, have higher liquidity and have lower barrier of entrances (bonds generally need 10000 and above as a basic unit of transaction, also explain why it have lower liquidity).

July 2, 2017
6:08 pm
Top It Up
Member
Members
Forum Posts: 370
Member Since:
December 17, 2016
sp_UserOfflineSmall Offline

Rick said

Like how these right wing conservative think tanks always blame the public sector minions and their "gold plated" pension plans for all the ails of the country.  

AND rightly so, SINCE it's the taxpayers that have to do double duty - fund public service pensions PLUS save for their own retirement. How about public servants do what most Canadians have to do AND be responsible for their own retirement savings and quite being a drain. Heck, taxpayers gave them the job in the first place and then they have to cover their retirement as well ... sheesh.

July 2, 2017
10:46 pm
Norman1
Member
Members
Forum Posts: 1258
Member Since:
April 6, 2013
sp_UserOfflineSmall Offline

Cranston said
…If I put non registered money in iTrade I may be charged quarterly fees.

The $25/quarter low-activity account admin fee is waived under many conditions. Condition (v) is having over $10,000 across one's Scotia iTRADE accounts:

²The Low Activity Account Administration Fee is charged on a per account basis each calendar quarter. This fee will be assessed based on account balances and trade activity at the close of business on each of March 15, June 15, September 15 and December 15 of each year. The Low Activity Account Admin Fee will be waived,

i) for new customers opening their first account at Scotia iTRADE during the initial 6 months following account opening,
ii) for accounts of customers who have executed at least 1 commission-generating trade in any one or more of their Scotia iTRADE accounts during the preceding 3 months,
iii) for Registered Plan accounts (RRSP, RIF, LIRA, LIF, RESP, TFSA),
iv) for Cash Optimizer Investment Accounts and
v) for customers with aggregate account equity at Scotia iTRADE greater than $10,000,

provided that in each of (i), (ii), (iii), (iv) and (v), all accounts of the customer are fully activated and the customer has a valid and current mailing address on file with Scotia iTRADE, and

vi) for Unclaimed Accounts.

Commission-generating trades are buys and sells of: Equities, Options, Mutual Funds subject to commissions and Fixed Income instruments. Buys and Sells of GIC's, ETFs which do not generate a commission, Canada Savings Bonds and Provincial Savings Bonds are examples of trades that are not commission-generating.

If one is interested in just fixed income, one could open a Cash Optimizer Investment Account that's just for "fixed income, fixed income mutual funds, and money market instruments" and is exempt under (iv) from the low activity admin fee.

No permission to create posts

Please write your comments in the forum.