Why keep so much in a savings account? | Page 2 | General financial discussion | Discussion forum

mordko said
Most humans are naturally risk averse and tend to look for certainty even if it’s mathematically bad for our pockets.  

That is not a bad thing. It is always a balancing act looking for 'optimum' returns, aka the efficient frontier. I'd never advise anyone to seek the 'highest' returns, if for no other reason than it is undefinable. All one can do is seek a probability within a range of of CAGR outcomes.

IOW, there is a strong probability that VEQT (100% equity) will outperform VGRO (80/20) or VBAL (60/40) over longer periods of time, but there is no certainty of that in the shorter term of say 5 years or less. Both the S&P500 and the TSX Composite had almost decade long returns less than, or close to, bonds or 5 year GIC ladders. I've not run 10 year periods in http://www.ndir.com/cgi-bin/do.....de_adv.cgi to verify that.

AltaRed said

That is not a bad thing. It is always a balancing act looking for 'optimum' returns, aka the efficient frontier. I'd never advise anyone to seek the 'highest' returns, if for no other reason than it is undefinable. All one can do is seek a probability within a range of of CAGR outcomes.

IOW, there is a strong probability that VEQT (100% equity) will outperform VGRO (80/20) or VBAL (60/40) over longer periods of time, but there is no certainty of that in the shorter term of say 5 years or less. Both the S&P500 and the TSX Composite had almost decade long returns less than, or close to, bonds or 5 year GIC ladders. I've not run 10 year periods in http://www.ndir.com/cgi-bin/do.....de_adv.cgi to verify that.  

That’s a different issue. Today cash is guaranteed to lose to inflation. Probability does not come into it. Older people who want to spend it all tomorrow have no choice, they need cash. Younger people putting meaningful $s into cash might as well just donate it.

Bonds are different from cash/HISA. Even then a young person with an education and salary already has a lot of years of a large fixed income in front of him and is getting further and further from the “efficient frontier” by buying bonds.

dougjp said
Exactly as Dean said. For me its like parking a car, which is usually a temporary condition before some activity. "Waiting to pounce" (on a perceived more favorable opportunity) is another way to put it.

Perhaps an example of how it went wrong for me vs. having money in savings. After a long period of watching the market at these high levels, and perhaps a bit of boredom (?), I bought a small amount of a stock of a solid Company which reported decent quarterly results, but which were below analyst's expectations. The share value dropped a good deal on the announcement, stabilized around the lower level for a number of days. I then bought. Without further news, the share started declining slowly again. Now I'm down 14%   

There are other options besides saving accounts and timing the market to buy single stocks on analysts say so and expecting immediate returns.

suburbs4life said
..... why does it seem like many posters here are keeping at least a couple $100K in savings accounts?? ... Should your money not be making more than inflation for wealth generation?

I keep all my funds in savings accounts. Never invested in anything (stocks, bonds, precious metals). All my life had my income coming from salary only.

Why, you ask, I don't invest. Well, because I don't care investing. I track my budget religiously, and my income exceeds my expenses. Month after month, year after year.

I follow Dickens in that: “Annual income twenty pounds, annual expenditure nineteen nineteen and six , result happiness.
Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”

Yes, occasionally I check share price of my current favorite company, and it might go up 5% in one day. I tell myself, "if I only put all my money in it yesterday and pulled today."
Then, I remember my other favorite company I worked at for 10 years, a darling of a stock market in its years of glory, and Nortel. Both of them are delisted. That cools me down at once.

-------------------

I am not of retirement age yet. When I am, my basic health needs will be met in Ontario (OHIP). I'll be getting CPP+OAS+GIS. If I divide money I plan to have at 65 by 30, which would be an assumption of how long I'll live in retirement, my annual funds I can spend on myself would be sufficient for my needs.

If I start reaching 90 and realize I am about to outlive my retirement money savings, I'll sell my house and move to assisted living community. Proceeds from the sale of the house should cover remaining up to 10 years of my life in reasonably comfortable environment.

President Ronald Reagan's investment advice.

1/3 in cash
1/3 in bonds
1/3 in equities
1/3 in real estate

(Yes, it's a joke.)

Alexandre said

suburbs4life said
..... why does it seem like many posters here are keeping at least a couple $100K in savings accounts?? ... Should your money not be making more than inflation for wealth generation?

I keep all my funds in savings accounts. Never invested in anything (stocks, bonds, precious metals). All my life had my income coming from salary only.
 

Not personal but you are simply not a role model for anyone to follow. Well that may work for you, I can guarantee it wont work for someone who is in the 20s right now.

Bill said
we're in the process of increasingly jettisoning capitalism in the 1st world,   

Capitalism made western democracies 1st world countries, it would be foolish to kill capitalism.

Check out history, COIN, won't be by any means the first time a society has marched enthusiastically into foolishness.

Capitalism has destroyed the planet, governments need to do more for us, we need to redistribute wealth, if you're poor it's because of others, if you're wealthy it's because you're greedy or corrupt, large corporations are not good things, etc, etc - these are sentiments most of today's people agree are axiomatic, from what I can tell. So I've no idea how you could advise young people to keep doing what worked in times when those sentiments weren't what infused society. Indeed cash, gics, HISAs, etc might be king in the coming years, it's possible.

Exactly, the West is going left but capitalism's immediate future might be in parts of Africa, Asia, South America, i.e. where many poor folks are working hard to get up the ladder a bit. Luckily for domestic investors those markets are available via various instruments, that global perspective I would agree with giving to young investors. (But I try not to put down their own society to my own kids, I believe it's very important to model positivity to young people, so I try not to share any negative, old-man views with them - and surprisingly some of them have noticed the same things about the world themselves anyway.)

I agree, if & when wealth has been redistributed it won't much matter if it had been in the form of equities or HISAs. But I guess I was thinking you can put a bunch of cash under the mattress and tell no-one, might come in handy in little bits when hard times come.

Alexandra said
If one lives in BC and they were fortunate enough to have bought a home before 2016, they could be over $500K richer just in terms of home equity alone than they were 7 years ago. Much more than that for many.

If that bubble ever bursts, the wealth factor for many is going to drop dramatically. Don't think it will happen until at least 2023. New builds just can't keep up with demand. It is insane.

So, I think most of the wealth here for the average family whom are homeowners is in that one particular equity and not in stocks or mutual funds.  

sorry, I meant to say "than they were 5 yrs ago and not 7"