Income fund over GIC at 5% ? | Page 4 | GIC discussions | Discussion forum

Loonie said
I am always amazed at the determination of some forum members to badmouth interest-bearing investments on a forum dedicated to same.  

I think it is important to have a broader discussion from time to time in "off-topic" threads such as this one just to help avoid tunnel vision. All discussion forums have occasional "off-topic" threads and are easily avoided if one wishes to do so.

At least some of us are not "bad-mouthing" interest bearing investments. They have a place in every portfolio for a variety of reasons (me included) but they are not the exclusive "end all" for most investors. It has been especially so in more recent times (20? years) where real interest rates net of inflation from the BoC, on an after tax basis, have generally been negative. That is a 'clear and present' danger for anyone who still has a long (20+ year?) life span and doesn't have a large portfolio to take that kind of inflation risk. Over the last 20 years or so, one would have had to have a nominal CAGR of about 4% on a pre-tax basis on the portfolio just to stay even with inflation of 2-2.5%. It is simply the math.

That said (1), for most people, an increasingly conservative portfolio as one ages is likely the right thing to do, e.g. the old planning 'rule of thumb' of "100 minus age" in equities, and the rest in fixed income of various types. Some will need/want to be more conservative than that, especially if they cannot accommodate the variability in returns and cash flow, and others may want to be more aggressive than that. Different strokes for different folks, i.e. no single right answer.

That said (2), I agree there are other forums better suited for a broader perspective on "financial knowledge and education" such as https://www.financialwisdomforum.org/forum/ and if not that discussion forum, then at least the financial wiki https://www.finiki.org/wiki/Main_Page

Norman1 said
Before considering after-inflation returns, one needs to determine whether one can diversify into stocks. If one doesn't have a ten year time horizon with any of the $800,000, then stocks likely won't work and one may be doomed anyways, with or without diversification.

As well, the expected return of stocks is around 7% per annum, with dividends reinvested. That's before fees. It is not the 15% to 18% per annum that it was decades ago.

One isn't going to achieve 7% per annum if one needs to draw out 1/12 of 6% each month and the fund manager is charging 1/12 of 2% each month.  

Of course one has to consider age and time horizon as part of the decision about how much, if any, to put into equities. I prefer to use the word 'equities' rather than 'stocks' because too many think individual stocks for equities when there is a wide range of broad market index ETFs these days with low cost MERs. There are far better ways to invest in the market than through the classic high cost mutual fund from the nice person at the bank.

XIU is a benchmark representation of the Canadian stock market and can be bought through a DIY brokerage or via a "% of AUM" advisor. https://www.morningstar.com/etfs/xtse/xiu/performance It returned 8.57% over 10 years, or 5.51% over 15 years. The 15 year includes the financial crisis, the pandemic crisis and the current downturn. It did even better in the first decade of this century. The US market represented by SPY did better over both a 10 year and 15 year period https://www.morningstar.com/etfs/xtse/xiu/performance with 12.91% and 8.85% over 10 and 15 year periods respectively. Holdings in either or both of those ETFs would have grown despite a 4-5% annual take (withdrawal) from those holdings.

The point is it is simple via index funds to have exposure to Canadian and/or US equity markets. It is hard to make those decisions though and hard to stay the course. Having some of one's investments in either or both of those would have added a tremendous tailwind to one's portfolio but as can be seen from both of those Morningstar charts, individual annual performances have had considerable volatility. One has to be able manage their withdrawals on a timely basis either themselves, or through an advisor.

For those inclined not to go anywhere but their bank financial advisor, the RBC Canadian Dividend mutual fund has been the "standard" for Canadian equity. https://www.morningstar.ca/ca/report/fund/performance.aspx?t=0P000072KJ It's 10 year CAGR performance has been 8.3%.

Regardless, having an equity allocation is not for everyone and each has to decide for themselves what they do, given their risk profile, age and portfolio size. Just like none of us should take 'swipes' at GICs/fixed income, it is also not reasonable to take 'swipes' at equity if chosen wisely.

canadian.100 said

I am always amazed at the determination of some forum members to badmouth equity-type investments. If it is against the rules to refer to/or compare with equity investments (or include other discussions/comparisons about investments e.g. annuities, RRSPs, RRIFs, pensions, joint ownership, insurance, taxation, nasty big banks, incompetent online banks etc. etc.), then perhaps the manager/owner of this blog might want to include such in the rules. Have a great Labour Day!  

I haven't seen anyone badmouth equities in this thread. Are you referring to comments I made? Didn't badmouth them at all. The relatively fortuitous position I find myself in now is due in large part to equities. All I've said, and I've seen others write, is that it doesn't make sense to buy them if you don't need to prior to what seems likely to be a significant correction, or if you're concerned with maintaining your capital as you move into retirement. No need to make an argument out of thin air.