Category Archives: Edge

How Did Our Investments Perform In 2014? I’ll “Shoyu” Mine! Part One

Posted on by

I read several personal finance blogs and have been amusing myself reading all the True Confessions about their past year’s investments’ performance. So without further ado, here’s how our investments did in 2014.

Fixed Income Is a Synonym for Zero Growth

Anyone who’s been following along on my random journey to financial tidiness knows we do not invest to win big or make great gains. We invest trying desperately not to lose too much money.

(This is why I have repeatedly said you should not follow my ideas for investing unless you are prepared to get the same incredibly low returns we get!)

Anyway, back to the numbers.

How did our GICs fare?

As I’ve mentioned before, we have a huge chunk of our savings, both for retirement and for emergencies, in GICs.

On average, we got a return of 2.6% on them in 2014.

But whoa nelly, don’t forget that’s BEFORE inflation.

So based on our personal rate of inflation we: lost money. Yep, we lost 1.7% on our GIC-invested funds in 2014. Ouch.

Frankly, that was worse than I expected. In previous years, our GICs have always earned slightly above our long-term personal rate of inflation. Thanks, NOT, Ontario Hydro, property taxes and water bills.

Of course it could have been much worse. If we’d bought our GICs through a big bank, we probably would have had an average return of about 1.2%.

I attribute our somewhat better performance to the fact that we did NOT buy any market-linked GICs, sometimes called principal protected notes. We also invested in GICs through our brokerage accounts where you can buy from a large number of financial institutions. And we staggered our maturity dates across all 12 months to take avoid having to renew everything in a “bad” month.

Now how can I be happy with a -1.7% rate of return? I’m happy because the amount we have in GICs, combined with CPP and OAS, is still enough to guarantee an acceptable income in retirement for us, if they can keep pace with inflation until we die at age 100. These GICs represent our retirement “safety net” and the money invested in them is not required to do more than provide this insurance policy.

How did our Bonds fare?

We currently don’t own any individual bonds. Instead, we have put a large slice of a DC pension into a PH&N mid-length term-to-maturity bond fund. It does not invest in junk bonds but it does have the ability to get up to some interesting tricks buying and selling bonds rather than just holding them to maturity. For me, this fund seems very risky. Can you tell how risk averse I am when I am scared of a bond fund managed by arguably Canada’s best bond fund managers?

Anyway, according to the most conservative estimate (mine) this fund returned 7.8% last year. (I had a bit of trouble doing the math properly, since I took a large chunk out of it mid-year.) According to the DC pension statement, our personal rate of return last year for this fund was 8.8% after all the different levels of fees and commissions.

Do I expect that again this year? No. I was astonished they managed that last year! Everyone keeps telling me that any second now bonds will crash as interest rates begin to climb. So I have no idea what to expect for 2015.

It does help balance the loss our GICs experienced. In fact, it more than offsets it.

Stay tuned for Part 2 where I check on our ETFs and other Equities.

Related Reading

Join In
How did your investments fare in 2014? Can you call accidentally adding another few quarters and dimes to the “under the car seat and behind the couch cushions” fund “investing?” Please share your enthusiasm or whining with a comment.

What Was Our Personal Rate of Inflation in 2014 and How Does It Affect Our Retirement Plan?

Posted on by

Neither my husband nor I work for the government or any pseudo-governmental companies so we are not getting an indexed defined benefit pension when we retire. We are not getting any kind of retirement benefit that will increase with the rate of inflation, other than our CPP and OAS. That makes it important to me to know roughly what rate of inflation we might expect in retirement because any inflation means that what our income can buy will diminish over time. So what was our personal rate of inflation for 2014 and will it impact our retirement plans?

It’s Worth Tracking Your Expenses Even If You Are Saving Lots of Money

We don’t budget the “normal” way. We plan on meeting our bills and saving for various short- and long-term goals and then we spend what we want. Our hobbies are low cost and very satisfying. So usually we end up with some extra that we add to our long-term savings.

We do track our expenses though.

And at the end of the year, I back calculate how much we spent on discretionary things to ensure it hasn’t increased dramatically over previous years.

Tracking our expenses lets me spot things like leaking faucets and the long-term trend downwards in the price of natural gas. That helps avoid complacency in planning for retirement: eventually that nat gas is going to go back up and probably even above what we paid in the early 2000s.

Adding up the monthly bills also lets me estimate what our personal rate of inflation was for the previous year or years.

How Much More Did 2014 Cost Us than 2013?

And the actual retail value was….

4.3%

Ouch!

I knew we paid more for nat gas last year because of the colder winter (and various other reasons.)  Our usage climbed about 20% and so did our cost.

And I knew that our property taxes had climbed again thanks to local government issues.

But I had no idea the total was so bad.

Our electricity costs, for example, rose 10%. But our hydro usage only increased less than 3%. Thanks Ontario Hydro! I remember they said they were going to shoot up the costs for all times of use but somehow I didn’t expect to see it actually happen.

And our water costs increased 10%, even though the volume of water we consumed stayed the same. Crumbling infrastructure” comes with a high price tag.

How Does This Personal Inflation Rate Affect Our Retirement Plans?

Well, it makes the beach house in the tropics look increasingly unlikely.

4.3% means we might have to work longer or spend less in retirement. We could try investing for higher returns, too, but discussing that would take a whole separate article.

Sheesh. I think I’d better go have a drink to recover from this shock. It can’t be water, though: I can’t afford a higher usage bill on top of the increased rate. Maybe I’d better go squeeze some of those crabapples still clinging to the tree: I can only hope they’ve fermented.

Related Reading

Join In
Was your personal rate of inflation close to the CPI that Ottawa calculates? Or do you wonder what on earth they buy and live on to get such a low rate? Please share your views on whether you are losing ground to inflation with a comment.