Should I take commuted value or deferred pension

Preparing for life after work. RRSPs, RRIFs, TFSAs, annuities and meeting future financial and psychological needs.
8Toretirement
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Re: Should I take commuted value or deferred pension

Post by 8Toretirement »

adrian2 wrote: 13 Apr 2017 11:47
8Toretirement wrote: 13 Apr 2017 11:21 During this time Bonds had one of the greatest runs in history, this will not be matched in the next 10-20 years due to current bond interest rates.
How do you know that? Interest rates may fall further, towards zero or beyond.
Not saying it's likely or not; but we do not know.

The Canadian prime rate held steady within a range of 4.5%-5.5% from the mid 40's until the late 60's. Then peaked at over 21% in 1981, working its way down to 2.70% currently. We won't have a similar run up in interest rates in the next 20 years as it would bankrupt the country. Although there was volatility from the late 60's the Bank of Canada has very little room to maneuver due to historically high consumer debt levels.
longinvest
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Re: Should I take commuted value or deferred pension

Post by longinvest »

8Toretirement,
8Toretirement wrote: 13 Apr 2017 15:34 The Canadian prime rate held steady within a range of 4.5%-5.5% from the mid 40's until the late 60's.
Inflation was higher, back then*, so it makes sense that interest rates were higher to compensate.

* From 1945 to 1970, inflation was 3.3%. In the last 10 years, from 2007 to 2017, inflation was 1.6%.

Anyway, I don't care. What I wrote was that the premium of a 100% stock portfolio over a balanced portfolio has been pretty pitiful in the last 56 years period. As for the future, I don't know.

If one knew for sure that a 100% stock portfolio will beat the pants off a balanced portfolio, one should go for it!

It would be interesting, though, if one could explain why investors wouldn't realize that stocks would be less risky than bonds and price them accordingly. It's a free market, after all, and nobody should be willing to part with his stocks for less than they are worth. Maybe someone knows where to find dumb investors willing to sell their stocks for far less than they are worth. (Logically, a seller should be asking more for the less risky product).

I always wonder who's on the other side of my transactions and what they might know that I don't. :wink:
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DavidR
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Re: Should I take commuted value or deferred pension

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longinvest wrote: 13 Apr 2017 16:10 It would be interesting, though, if one could explain why investors wouldn't realize that stocks would be less risky than bonds and price them accordingly. It's a free market, after all, and nobody should be willing to part with his stocks for less than they are worth. Maybe someone knows where to find dumb investors willing to sell their stocks for far less than they are worth. (Logically, a seller should be asking more for the less risky product).
Reminds me of the 1999 book "Dow 36,000" . Thesis was that investors would soon realize it and drive the Dow up to 36,000 from its 1999 levels.
Here's a quote from The Atlantic - long long article from 1999
Over the long term stocks in the aggregate are actually less risky than Treasury bonds or even bank certificates of deposit.
https://www.theatlantic.com/magazine/ar ... 00/306249/

Here is the author explaining (in 2011) why he was wrong https://www.wsj.com/articles/SB10001424 ... 3264748042
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Re: Should I take commuted value or deferred pension

Post by gobsmack »

DavidR wrote: 13 Apr 2017 16:43 Here is the author explaining (in 2011) why he was wrong https://www.wsj.com/articles/SB10001424 ... 3264748042
Interesting read. It does not sound like he really learned the lesson. I ran into this old article by Krugman discussing the book.
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