[Sampson]

Nothing!

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. Chasing returns is a dangerous game.

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

 

[Sampson]

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

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]

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.

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%).

Chasing returns IS the game

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

Even most index funds are better than savings accounts

This was certainly not true over the past year.

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

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.

 

[Sampson]

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.

Thanks Harold, I'm now understand and also share your cynicism on this regard. I think there are many companies that are doing just fine that use recessionary environments as excuses to keep wages low, layoff workers and other 'selfish' things.