Tag Archives: GICs

Stocks beat bonds, hands down: Bob Cable

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Here at the Hub we like to present all points of view. On Tuesday, we ran a guest blog by author and chartered accountant David Trahair about the new second edition of his book, Enough Bull, which explained why he is 100% in fixed-income vehicles like GICs. Today, we do the same thing with a guest blog by Scotia McLeod’s Robert S. Cable, who argues almost the polar opposite in his new book, Inevitable Wealth. We’ll review both books formally in the coming weeks. Meanwhile, over to Bob! – – JC

Stocks beat bonds, hands down

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Robert Cable

 By Robert S. Cable

Special to the Financial Independence Hub

All of the research I’ve carried out since I began doing this in 1980 and every piece of research I’ve seen comparing stocks to bonds– every single time comes to the same conclusion — that is that stock returns don’t just beat the returns of bonds, stocks clobber bonds. It’s absolutely no contest.

In my book, Inevitable Wealth, I compare 40 years of returns, from 1975 through 2014. I show $100,000 invested in Government of Canada five-year bonds, with money reinvested every five years, to the same $100,000 invested in stocks by way of the TSX Composite Index.

In 1975, those bonds yielded 7.25% so your annual income started out at $7,250. Stocks paid somewhat less, $5,360. Advantage bonds—initially. However just four years later, the dividends paid on stocks had moved higher to the point where the dividends paid on stocks was greater than the bond’s income.

But check out these numbers. In 2014, your bonds paid an annual income of just $2,770, down from $7,250, 40 years earlier. Talk about taking a pay cut! Meanwhile in 2014, stocks paid dividends of $49,560. Your stock income was more than 17 times what bonds paid.

What’s really interesting though is this: while stocks paid a much superior and growing income, they really aren’t income investments. The dividend income paid is simply a by-product of these companies sharing their profits with shareholders.

But as they say, that’s only half the story. We’ve looked at the income stocks and bonds produced. But what about the value of each of these investments over those 40 years?

Stocks beat bonds by 17 to 1 over 40 years

Well, that $100,000 you invested in bonds back in 1975 is still worth right around the same $100,000. If you took inflation into account, your $100,000 would actually be worth more like $15,000. The $100,000 invested in stocks? Well, not including the dividends, at the end of 2014 your stocks would be worth a bit more, $1,732,060. Continue Reading…

Why David Trahair is 100% in fixed income

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David Trahair
David Trahair

By David Trahair

Special to the Financial Independence Hub

I have been writing about personal financial issues for over 12 years now. I have also been giving seminars to other accountants on my ideas since 2008.

Suffice it to say I have spent a large amount of time thinking about and analyzing the best way to get ahead financially and I have had a tremendous amount of feedback along the way.

And I still have 100% of my family’s investments in guaranteed fixed-income products.

Zero exposure to stock market

That’s correct, I have zero exposure to the stock market. It’s all in Guaranteed Investment Certificates (GICs) or provincial government bonds using a three-year laddered approach.

Sound crazy? Well I’ll tell you why it’s not.

First of all, the assumption is that you have to have exposure to the stock market because it’s the only thing that will give you excellent returns. But how good are those returns versus plain old GICs?

I have done an analysis for my Enough Bull course that will give you some idea. Continue Reading…

Are low interest rates punishing savers? Hardly!

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Robb Engen, Boomer & Echo

By Robb Engen, Boomer & Echo

It’s easy to see how savers feel punished in today’s low interest rate environment. You have to look hard to find a daily savings account that pays more than one per cent.

Fixed income investments aren’t much better, with 5-year GICs barely touching 2 per cent. All of this means parking your short-term savings will do little more than keep up with inflation – you’re treading water, at best.

Rates have fallen steadily for a quarter century

We’ve seen a steady decline in rates for the past 25 years – around the time when the Bank of Canada adopted its inflation-control target to preserve the value of money by keeping inflation low, stable, and predictable. In January 1991, the overnight rate was 10.88 per cent, the interest paid on daily savings was 9.66 per cent, and inflation ran at 6.9 per cent. By 2002, the overnight rate fell to 2.25 per cent, daily savings interest dropped to 1 per cent, and inflation held steady at a now familiar 1.4 per cent.

Related: Can you succeed with an all-GIC portfolio?

So should we long for the days when GICs paid 10 per cent or more? Are low rates really  punishing savers? Hardly. Continue Reading…

ING vs. Tangerine: two years since the Buyout

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Danielle Kubes, Pretty Little Poor Girl

By Danielle Kubes,

Special to the Financial Independence Hub

I haven’t noticed many changes since Scotiabank bought out ING Direct in 2012, except for two:

  1. They changed the name to Tangerine

Why did they do this? Is it a fruit? Is it a colour? WHY? People like my parents already think ING is a fake bank that will steal all my money: calling it something as light and fluffy as Tangerine does not help my case that it is a real bank with real interest rates, and that banks with tellers and real estate are as 20th century as AOL.

I will forgive them, however, because CEO  Peter Aceto told Canadian Business that they weren’t allowed to use the name ING anymore. Here’s the rationale behind that decision:

“Simplicity” and “innovation” were two things the bank wanted to come across in its new name—the idea was to hearken back to its earlier days (being an alternative, simplified place to do your banking), but push the brand forward at the same time. The name Orange was considered on the shortlist, but was considered to be “too safe or obvious of a choice.” Tangerine makes reference to ING Direct’s orange history, (Ed Note [DK]: by orange history, do they mean just using the colour orange? How does a bank have colour history?) while also being significantly different.

Aceto says part of the branding discussion also took into account the more “fun” aspects of the name.

“We understood the risk that a name like that could be interpreted as being silly, or not serious,” he says. “Banking is important, it’s serious. We’re asking you to give us your life savings, or to help you buy a home or invest.”

That’s why there won’t be any references to fruit in any of Tangerine’s advertising materials or promotional campaigns. The fun name “does a lot of work for us” in sparking interest in Tangerine, Aceto says, but service at the customer level needs to be thoughtful and earnest in order to build a client base.

“I want people to think, oh, they’re different. They’re not like everyone else.”

 

  1. tangerine-ing-direct-debit-interactThey changed the debit card by making it flimsier and WRONG

Writing the bank name horizontally across a debit card made sense when we signed for things.

Now we use a chip and PIN# method of payment. The chip is always entered vertically.

So why, on all debit cards, is the bank name still horizontal?

ING was the only card to write its name vertically, which was logical and made them seem the most current.

With the buyout, it has gone backwards and written its company name horizontally.

Also, while you can’t see this in a picture, the new card is very flimsy and bendy. It’s not really a problem but coupled with Tangerine it just kind of makes the bank seem flimsy.

Now, these are all  personal pet peeves that have no affect on how they do business; banking  with them hasn’t changed. They don’t have the best interest rates anymore; that award would go to credit unions in Western Canada, but they are still way better than the Big Five banks and they also have lower fees (no fees!) than the credit unions.

All in all, it’s still my favourite Canadian bank with which to do my daily banking, but it’s no longer my favourite choice with which to invest in GICs, which will be the subject of another  post.

Here’s how this article originally appeared at Danielle’s Pretty Little Poor Girl blog. And you should click on the link because apart from Danielle’s awesome slogan, she includes an extra paragraph at the bottom of her original post that further teases the good folks at Tangerine: JC.