Category Archives: InvestorLine

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

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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.

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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.

The TSX Is In Freefall: Time to Buy!

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Oh, boy, Santa came early this December! Based largely on fear and possibly on eggnog overdose, the TSX is diving for the deeps today. And, lucky me!, I have new money to invest! But what to buy? Enbridge just raised its dividend to within 2 cents of TD and ENB has dropped more than $2.50 today to bring it back down from the artificial high the announcement created. TD itself is still smarting from the effect of investors who weren’t happy they increased their profits because they didn’t increase their profits enough. But perhaps the best bargain of all is the entire TSX is down to bringing things like the index-fund ETF XIC down more than 65 cents to $22.20 (so far.) So what should I buy now the market is falling?

Should I Buy More Dividend Paying Stock?

I have some of our money invested into individual dividend paying stocks. The ones I’ve picked in the past are not expected to make any significant capital gains. Instead, they are expected to withstand market drops without losing huge amounts of capital and to keep their dividend payments steadily rolling out even during the lean years.

By accident, since all stocks took a hammering in the 2008/9 zone, all our dividend stocks have actually made substantial capital gains on paper in the few years we’ve owned them. But we only track whether their value has stayed above their purchased cost plus inflation. We don’t count on ever realizing that capital gain because we don’t expect to ever sell them unless the companies themselves become a bad risk. And if that happens, we’d expect to lose not only the capital gain but probably the initial purchase price.

Instead, what we watch with curiousity is the growth in the dividends. So far, it has been growing at a rate much greater than inflation. That’s necessary if we are to find them a good long-term investment. If the dividends lose ground to inflation we would have to sell part of our position to generate income in retirement, something we are hoping to avoid.

We are looking on these stocks as surrogates for long-term bonds or GICs. They are much MUCH riskier! However given the low rates offered for fixed income investments for the past few years we felt we had to start putting some money into equities.

So what about today with this pullback? Should I put my new investment money into more of these defensive dividend stocks? Or ….

Should I Buy More Units of a TSX Index-Mirroring ETF?

I like XIC. It’s the iShares S&P/TSX Capped Composite Index ETF.  It tries to replicate the performance of a lot of the TSX. It has almost 2 billion dollars invested in it and it has a MER of 0.27%. It pays a distribution of about $0.45-0.55 a year depending on what goes on with the underlying companies. Morningstar predicts that means it has a 2.25% yield. (TD and ENB, by the way, currently have a yield of over 3%.)

There are other index funds that track the TSX. Some have lower MERs. Some are not capped. VCN from Vanguard, for example, has a MER of 0.05%. I’m not recommending XIC I’m just saying I happen to own some of it. In fact, my current position in XIC is suffering from a non-realized capital loss. It’s the only thing I own that’s in the red.

What are some of the benefits of buying an index fund with my new money during this slump? Well, it ensures I’m buying a portion of whatever is down in value that shouldn’t be. (because I do believe that the market doesn’t deserve to be down and that it will rebound.) It does pay that tidy annual distribution so I won’t be left with buyer’s remorse if I buy just before the market really goes down and stays down for a few years. (Getting a distribution or dividend makes it easier to hang tough and wait out dips.) It decreases the risk that I am putting all my money on a lame horse. And it will not upset MjonM. (Although he might question why XIC.)

All excellent points to consider.

And the Winner Is–

Well, fortunately I’m expecting to have some more money to put in later this month. And I still have some free trades in our non-registered account. So for now I pick: XIC.

But if ENB goes back down to where it should be, I might just wander by and buy some more with my next infusion of cash. That dividend increase is very attractive to an income investor. Or I might want some more TD. Or…..

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Are you enjoying some early Boxing Day sales on your favourite ETFs or stocks? What stock do you hope to find stocking your stocking this month? Please share your gloating with a comment.