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September 23, 2023
2:20 pm
Loonie
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I'd like to know more about rodeworthy's "horizontal strategy". What does that mean?

I have been using a traditional ladder but am rethinking it as I now only go to 3 years max due to my age, potential need for more liquidity, and concerns about thee economy.

The purpose of a traditional ladder, as stated earlier, is to even out the annual income.

However, I find I don't really have a need to do that now (either for spending or tax purposes), so now what?

A friend of mine just takes whatever is the highest offer, regardless of term. Occasionally, if he considers all rate to be unacceptably low, he waits for something better - which always seems to come in a few months. Over time, this seems to work well for him.

Another view is that one should aim to have GICs of similar amounts coming due on a regular basis, for income - every month or quarter etc.

September 23, 2023
2:55 pm
phrank
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Loonie said
I'd like to know more about rodeworthy's "horizontal strategy". What does that mean?

I was curious too, so I searched google and funny enough a post of theirs came up:

https://www.highinterestsavings.ca/forum/gic/equity-credit-union-gta-gics-5-for-2-to-5-yrs/#p76603

Rodeworthy said

I only buy 1-yr and 2-yr GICs. My plan is to begin a "horizontal" ladder over the course of 12-mo. with a 1 and 2 yr GIC each month starting in September can now begin. This plan worked well for us in the 2015-18 period. Interest rates are better now and we can up the principal for each GIC this time around.

Rationale? "Old people should not climb high ladders".

A friend has done the same thing - creating a "horizontal ladder" with one and two year GICs. In addition, they selected monthly interest payment so they can, if they wish, add the interest received to the next GIC - which is a good strategy if interest rates maintain or increase while the ladder proceeds. Equity CU rate of 5% for 2 years is very good. Of course if one chooses monthly interest payout, the rate would be a bit lower but still good.

September 23, 2023
3:44 pm
dougjp
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I do much the same as rodeworthy, and that rationale quote is cute!

Mine is a shorter GIC ladder, maximum 1 year with one 15 month exception, and I currently have 14 of them. Over the past (approx) year, the HISA vs. short term GIC rate spread widened by quite a bit.

This short term laddering approach means I can substantially reduce the amount I have in savings accounts at lesser rates. Simply put, with GICs coming due pretty much all the time, the flexibility value that HISA provides is negated.

I haven't always done this, it changed with (a) age and (b) market conditions with banks paying more to ensure matching funds to lending obligations. The downside is early exposure to dropping rates.

" We may never pass this way again " - Seals & Crofts

September 23, 2023
4:03 pm
Bill
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dougjp, exactly same story for me lately, including your last paragraph! Just cherry pick a top 1 year rate when someone's offering a juicy rate.

September 23, 2023
4:07 pm
canadian.100
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phrank said

Rodeworthy said
I only buy 1-yr and 2-yr GICs. My plan is to begin a "horizontal" ladder over the course of 12-mo. with a 1 and 2 yr GIC each month starting in September can now begin. This plan worked well for us in the 2015-18 period. Interest rates are better now and we can up the principal for each GIC this time around.

Rationale? "Old people should not climb high ladders".

At what age do people think that ladders should perhaps no longer be used - 65? 70? 75? 80? 85? I don't have an answer if friends whom I am assisting in their investing - GICs and stocks ask me.
Some of them don't depend on their ladders for regular income so in their case what difference does it really make. If they do not survive until the due date of the GIC, so it gets cashed and goes to their beneficiaries.

September 23, 2023
4:34 pm
dougjp
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canadian.100 said

phrank said

Rodeworthy said
I only buy 1-yr and 2-yr GICs. My plan is to begin a "horizontal" ladder over the course of 12-mo. with a 1 and 2 yr GIC each month starting in September can now begin. This plan worked well for us in the 2015-18 period. Interest rates are better now and we can up the principal for each GIC this time around.

Rationale? "Old people should not climb high ladders".

At what age do people think that ladders should perhaps no longer be used - 65? 70? 75? 80? 85? I don't have an answer if friends whom I am assisting in their investing - GICs and stocks ask me.
Some of them don't depend on their ladders for regular income so in their case what difference does it really make. If they do not survive until the due date of the GIC, so it gets cashed and goes to their beneficiaries.  

Assuming, as in my case, all GICs are in joint names. What happens to the GICs if (a) the primary holder a.k.a. tax payer dies or (b) the secondary holder dies? In those situations, especially when the only financially knowledgeable person dies, the main need for the other becomes access to cash.

I don't know. Maybe my logic for staying all short term turns out to have no logic to it?

" We may never pass this way again " - Seals & Crofts

September 23, 2023
5:20 pm
Bill
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Far as I know joint GICs just carry on in survivor's name, whether was primary or secondary.

As far as whether or not to use ladders after a certain age (I've never used GIC ladders) it all depends on various factors such as your health and income needs every year, I'd think. At age 85 Stats Canada says average life expectancy is still more than 5 years so if you consider yourself to be an average-type person you're good to go that way! At age 90 it drops below 5 years for males.

September 23, 2023
7:30 pm
RAV4guy
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althisa wrote in post 18:
"Thank you. That is a new discovery to me.
So the posted rates for GICs i.e 2 yr and 3 year, the durations you lock the GIC in for is actually a choice made within a range e.g 24 to 35 months.
Does that apply to all FI GICs or is Motive an exception?"

Motive is the only FI that I know of listing their GIC terms this way. I wanted a 3 year GIC for my ladder and 35 months looked like a better choice.

I believe Motive offers another benefit to those over 57, monthly interest paid at the same rate as annual pay interest. From their website; "On Motive GICs with a term of at least 12 months, customers over the age of 57 also have the option of having interest paid monthly into a Motive Savings account."

To get monthly pay I had to call. The phone response from Motive was important to me and Motive did okay in my opinion.

I deal with several FI and I have tried many more. I now include a local (Stratford, Ontario) GIC broker in the mix, after learning about GIC brokers on this forum.

September 23, 2023
7:41 pm
Loonie
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The age at which one might think about discontinuing a ladder or shortening it is not firm. It will depend on the person, their circumstances, state of health, how they feel about the economy. what their needs are etc.
I started thinking this way perhaps a couple of years ago, and I'm 76. I appear to have excellent genes but when your friends are sick or dying, you realize your vulnerability and you ask yourself, can my cash flow handle extraordinary needs? Might I want to blow a wad of money at some point? If you are a couple, then there are 2 sets of needs to consider.

Some people may not realize how much their needs and ideas may cost today and in future, so it may be worth visiting a few retirement homes etc to see what you get for how much. The median age at the retirement home I know best is 83.
Consider also the pharmacy expenses at retirement homes. I was shocked recently to see the charges for what I considered run-of-the-mill meds for an elderly person in such a setting. Do you have insurance that would cover it, bearing in mind how picky insurance companies can be? The pharmacy which serves this home seems to charge for each individual pill on a daily basis! And so on. The insured expenses added about another 25% to the retirement home bill. This person has an excellent insurance plan, probably one of the best. But the situation gave me pause.

September 24, 2023
8:11 am
Norman1
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Bill said
Far as I know joint GICs just carry on in survivor's name, whether was primary or secondary.

That's essentially what happens.

GIC issuer is provided proof of death of the joint tenant and a signed statement from the survivor or the survivors supporting the removal of the deceased's name from the GIC. Issuer deletes the deceased's name and the GIC continues with one less owner.

September 25, 2023
5:18 am
dougjp
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Norman1 said

Bill said
Far as I know joint GICs just carry on in survivor's name, whether was primary or secondary.

That's essentially what happens.

GIC issuer is provided proof of death of the joint tenant and a signed statement from the survivor or the survivors supporting the removal of the deceased's name from the GIC. Issuer deletes the deceased's name and the GIC continues with one less owner.  

Thanks for the clarification. The only confusion I still have relates to what gets reported where and when re: taxes if the primary (tax reporting on the interest) joint GIC owner dies, or even if there is a common routine that all banks follow when they are advised of a death.

An example - Lets say the joint GIC is a 5 year term, bought February 15, 2024, interest paid (or reinvested/compounded) annually, and the primary owner dies on March 1, 2024. The Final tax return is therefore due no later than April 30, 2025, and is to include income "earned up to the date of death". The GIC and its annual T5 slip will have the deceased's SIN but not the person's name any more, or will it/them. And how will the CRA deal with this.

In the back of my mind, its one of the reasons I'm reluctant to invest longer than a year, but maybe my thinking is unfounded or overly detailed? sf-confused

" We may never pass this way again " - Seals & Crofts

September 25, 2023
8:50 am
rodeworthy
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phrank said
I was curious too, so I searched google and funny enough a post of theirs came up:

https://www.highinterestsavings.ca/forum/gic/equity-credit-union-gta-gics-5-for-2-to-5-yrs/#p76603

Rodeworthy said

I only buy 1-yr and 2-yr GICs. My plan is to begin a "horizontal" ladder over the course of 12-mo. with a 1 and 2 yr GIC each month starting in September can now begin. This plan worked well for us in the 2015-18 period. Interest rates are better now and we can up the principal for each GIC this time around.

Rationale? "Old people should not climb high ladders".

Loonie said
I'd like to know more about rodeworthy's "horizontal strategy". What does that mean?
.
.
.
Another view is that one should aim to have GICs of similar amounts coming due on a regular basis, for income - every month or quarter etc.

phrank, I was both amused and somewhat startled to learn that your Google search located a post of mine on this forum. I know Google's search engine is powerful but that was an eyeopener sf-surprised

Thanks for bringing that forward. I will add a bit more below to report how the project is doing.
-------------------------------------------------------------------------
Loonie, you have it right. The objective of this project is to have GICs of equal amount principal invested each month for 12 months. I am placing a 1-year and 2-year GIC in each of those months. At the end of the first year the maturing 1-year GIC of each month will be invested again as a 2-year GIC. Only the principal will be reinvested - the interest will be retained in Savings accounts and hopefully we will find some way to spend it 🙂

One could do this with only 1-year investments or 3-year. Whatever works for you. I just don't want to look out 5-years and only do the re-investment on a yearly basis. Many variations work but the object is to keep your feet on the ground and not look too far into the future.

That means there should be 24 GICs for the project. Why do we have 32?

Well, sometimes there are complications. Some of these investments involve registered money which, obviously, are not joint. It was necessary to use 4 investments per month with a 1- and 2-year investment for RIF and TFSA GICs. The principal for these were halved to keep the total the same as other months. Another wrinkle. The RIF money we placed with Oaken in December had the minimum payout extracted from the RIF GICs the following month (January). To keep the total principal invested on track we took out unregistered GICs for the payout amounts. Once again, Oaken's lack of savings accounts for registered money confuses things.

And we had some US$ lying around that I could not resist getting the much improved rates so that added 2 more.

This may not work for everyone. Obviously there is a period of deferred income for the first year and the second year will pay out monthly only the interest earned in a 1-year GIC. If money is tight and you need income for living expenses this may become unworkable.

We have completed the first year of investing new money as of August. In September, we began the process of reinvesting the matured 1-yr investments into a 2-year GIC. I have decided to delve further into our cash account and make another monthly payment available so I can negotiate a new investment for any month without regard for the investment maturing that month. When it does mature it will be used for the next month's purchase. This way we can pick and choose the right investment for the right time of that month.

I hope that covers it. Sorry this is so long. Any questions, fire away.

September 25, 2023
2:48 pm
RetirEd
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When I have a large lump of cash coming free at a time of peak rates or dropping future yields, I will put up to half my assets in the best rates a 5-year term at an acceptable institution will get. I leave that to guard the future. Because the rate is good and I won't need that cash, I let it compound.

Because of the tax-free status, I let tax-free stuff compound.

The rest is flexibly laddered to yield cash flow, and usually with annual or monthly interest payout. I will select terms on maturity basis as well as rates - sometimes choosing a shorter or longer term to fill a hole in future payouts. I keep a separate payout calendar spreadsheet.

I'll sometimes leave cash in my best-earning savings account for a month or so to allow me to consolidate GICs and not have to rebuild spreadsheets too often. I like to have about $10K liquid most of the time, and my benefit payouts support day-to-day living expenses.

RetirEd

September 25, 2023
5:04 pm
Loonie
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Thanks for the detailed explanation, rodeworthy. Wow!

I understand what you are doing, and wish you well.

I think I would find it too much work to follow your plan, but it could be modified. As I age, I will be even less likely to want to do all the work involved. I am always looking for ways to decrease the workload and the number of FIs I deal with, with minimal financial sacrifice. It would be easier and faster if I didn't have significant vision problems or if spouse were adept at this.

My current compromises: not so many GICs; use FIs that have higher insured limits or no limits (CUs); and use deposit broker when it makes sense so I have less work to do (and rates are still very good). I am less concerned about having GICs due monthly or having the interest available. I do prefer annual payout as it makes it easier to manage insurance limits. I find our expenses vary enough from month to month that having regular monthly interest doesn't matter, but it will give you a more regular ladder. Some months we don't even spend our guaranteed fixed income.
Our asset s continue to increase faster than we can spend them. Not a bad thing at our age (mid 70s), and we are enjoying giving some of it away.

Plans are made to be revised, and I imagine we will see several more iterations!

September 25, 2023
6:39 pm
Norman1
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dougjp said


An example - Lets say the joint GIC is a 5 year term, bought February 15, 2024, interest paid (or reinvested/compounded) annually, and the primary owner dies on March 1, 2024. The Final tax return is therefore due no later than April 30, 2025, and is to include income "earned up to the date of death". The GIC and its annual T5 slip will have the deceased's SIN but not the person's name any more, or will it/them. And how will the CRA deal with this.

The first T5 slip will be for the 2025 tax year showing interest for the first complete investment year February 15, 2024 to February 15, 2025. The slip will likely have neither the deceased's SIN nor the deceased's name and just the survivor's SIN and survivor's name.

Survivor will report the part of the T5 slip interest from March 1, 2024 to February 15, 2025 on the survivor's 2025 tax return.

The interest from February 15, 2024 to March 1, 2024 would have been reported earlier on the deceased's final 2024 tax return.

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