Can't continue 'high interest' accounts any longer

HaroldCrump said:

I think this is BS that the media and Govt. is dishing out to us.

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I'm curious to know why you think the media and Govt. would want to mislead the public regarding inflation. I'm not trying to refute whether claims the CPI is low are true or not - but it really sounds like instead of having an issue of how the CPI is calculated you believe the public are actually being lied to.

Part of the issue with the CPI is that it includes energy costs, and with natural gas at $3/KJ, and oil also low (relative to last year) its not surprising they will drag CPI down.

Regarding your specific claims (higher food and clothing prices) - here's a link that shows you are correct!

http://www.statcan.gc.ca/subjects-sujets/cpi-ipc/cpi-ipc-eng.htm

How inflation/deflation of specific consumer products affects an individual will have more to do with how much is spent in that category. My personal food budget represents at most 5-7% of my total spending - so even if food inflation is at 10% annually, it will have little impact on my overall spending power.

I suppose the important thing is not to read too much into the importance of the CPI. I haven't seen how the CPI is supposed to correlate to actual spending power (i.e. how much consumers spend on each of those categories).

Sampson said:

I'm curious to know why you think the media and Govt. would want to mislead the public regarding inflation. I'm not trying to refute whether claims the CPI is low are true or not - but it really sounds like instead of having an issue of how the CPI is calculated you believe the public are actually being lied to.

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Agreed, to a certain degree.
Perhaps the financial media is more culpable than the govt.
I keep hearing in the media that because inflation is low and deflation is a risk in the near term, we should put up with low returns on savings, we should not expect salary raises, etc.
I know for a fact that some employers (even those companies that are doing relatively fine in these times) are using these stats and commentaries to keep salaries pegged at previous year levels.
You only need to visit your local Wal-Mart or grocery chain store to see how inflation has crept up in the last 1 - 2 years.

How inflation/deflation of specific consumer products affects an individual will have more to do with how much is spent in that category. My personal food budget represents at most 5-7% of my total spending - so even if food inflation is at 10% annually, it will have little impact on my overall spending power.

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Agreed, in my case however, household expenses are the largest component after mortgage.
This includes groceries, clothing, and other general household use items that need to be replenished every few weeks/month.
For such a household, higher expenses with offsetting increase in earned income leads to lower savings.
Since prices of luxury and discretionary items are now lower (cars, fancy electronics, etc.) retailers are making up for lost margins by jacking up prices of daily use products.
The govt. in turn is happy to keep collecting the GST/PST which otherwise would have reduced.

We don't have to many options now, and there's no reason to change your asset allocation because one type of asset is not performing as well.

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There are lots of options , they just carry more risk , higher rewards are a reason to change your asset allocation.

I change my asset allocation with the change in markets , I always like to have my money where the best returns are.

Chasing returns is a dangerous game.

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Chasing returns IS the game , again it just requires a little risk tolerance , I have my funds in REIT's paying between 8% and 20% , there's no way I'm going to keep much in a savings account at 1% when returns like that are still available and in my opinon carry little risk.

Even most index funds are better than savings accounts , or how about market or commodity linked PPN's , really no risk to the downside , except you maybe lose out on your 1% interest , but still a chance to profit on any upswing of the economy.

The saving grace in these low interest environments is that inflation is low also, so your cash isn't being eaten away as quickly

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To me that is not a saving grace , if inflation hits 4% then your 1% gains for the previous three years are toast.

furgy said:

There are lots of options , they just carry more risk , higher rewards are a reason to change your asset allocation.

I change my asset allocation with the change in markets , I always like to have my money where the best returns are.

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I'm not exactly sure the OP is asking how best to determine his personal risk profile. You make many excellent points regarding holding equities vs. cash but without knowing the rest of the OP's portfolio, I tried to keep my suggestions limited to what may happen within his cash portion of the portfolio. Without knowing the overall objectives of the OP, and only knowing he wants to increase the return on a cash holding. If the OP needs that money in 6 months for a down payment on a house, then suggesting to move it to higher risk holdings may not be the best idea.

Personally, I'm a big fan of equities, and my cash and fixed income are quite lacking (about 4%, up from basically 0%).

furgy said:

Chasing returns IS the game

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Chasing whatever is hot in the market may work for some, but my guess is that its a failing strategy for most.

furgy said:

Even most index funds are better than savings accounts

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This was certainly not true over the past year.

furgy said:

To me that is not a saving grace , if inflation hits 4% then your 1% gains for the previous three years are toast.

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I don't believe the OP has his money in a fixed-term GIC so if inflation hits 4%, the BOC will adjust their prime lending rate, and the banks will all increase their prime rates - hence higher returns within the high interest savings accounts. That said, savings accounts will ALWAYS trail since the banks will not want to lose money.

I don't believe the anyone should hold a majority of their portfolio in cash, I'm in favor of the 120-age rule for cash and fixed income, but I do believe everyone should hold some cash. Opportunities always seem to occur when we are low on cash - having some set aside can result in some really significant gains going forward.

HaroldCrump said:

Can you please share the symbols you like?
I am starting to look into REITS recently...

Thanks

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My core holding in REIT's and my favourite is TR.UN , one of the best paying ones as well.

It is actually paying me in excess of 28% considering I loaded up on shares when they were at $1.80.

For someone getting in at todays price of say , $2.30 or so , your return will be about 21-22% , it is a safe distribution in my opinion and one that will be increased soon as the economy picks up.

Rather than steer you to just my REIT holdings , google Canadian REIT,s ,
there is lots of info out there on them.

This link has some good info as well.

http://canreit.com/

Sampson said:

Quote:

Originally Posted by furgy
Chasing returns IS the game

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Chasing whatever is hot in the market may work for some, but my guess is that its a failing strategy for most.

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You are totally wrong , I said chasing returns , not "what's hot" , if you liken the two as the same and keep your funds in low paying ivestments just to avoid chasing "whats hot" , you will most likely have mediocre returns.

I invest for income and always like to have my money where the returns are.

This is interesting... I was on the ING website looking all over to see if the 3% was a limited time offer, and there were no details anywhere. But I left it on the main page and if you wait long enough, the animation changes the coffee cups to a 3% rate that says "until October 1st 2009"... leads me to think this is a limited time promotion to get everyone's TFSA there and then it will jump down.

I think this is going to be one of the big weaknesses of the TFSA system. Since you can't move it throughout the year without paying a fee, the only time it will be cost effective to move is near the year end when you can withdraw on December 31st and redeposit on January 1st. I have a feeling this will lead to a lot of good rates then followed by a lot of rate drops once the funds are tied up for another year.