Historical 5 Yr GICs

Banking and Saving strategies, maximizing interest rates, budgeting, GICs, HISAs.
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AltaRed
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Re: Historical 5 Yr GICs

Post by AltaRed » 10 Jun 2017 16:14

BRIAN5000 wrote:
10 Jun 2017 16:01
FWIW, our debate is meaningless for a large percentage of investors, especially seniors.
but maybe not for the seniors on this board
Indeed, but what percentage of the population of seniors participates in this forum? Much of what we discuss is not for our own personal use. It is for those we advise/support/recommend/assist incuding dis-interested spouses.

We get quite insular here...which is quite alright for us, but not for a lot of others, including I suspect, a good number of guests/lurkers.

Longinvest and I got quite off-topic from the original post....sorry abou that.
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Re: Historical 5 Yr GICs

Post by longinvest » 10 Jun 2017 16:27

BRIAN5000 wrote:
10 Jun 2017 16:01
Variable income in retirement is surely not my goal I'm not interested in cutting back on necessities or luxuries. I want to increase spending till I can't find anything to spend on.
This can effectively be guaranteed with a 4%-indexed life annuity. Not stocks, nor bonds, nor a mix of them, can guarantee this 100%. Nor would a dividend stream. Such an annuity is expensive, though!

But, a VPW-like withdrawal plan, tweaked so as to increase the likelihood of increasing withdrawals over time is certainly easy to design. Actually, here's the simplest one: each year, withdraw 1/N, where N is the number of years until an age beyond which one is extremely unlikely to be alive (or, if so, unlikely to be able to spend his money). 1/N implies and internal growth rate of 0% real, below the likelihood of stocks and bond future long-term returns*. Applying this on a balanced portfolio would most likely achieve the goal of continuously increasing withdrawals, and be much more generous than a dividends-only withdrawal plan, specially towards the end**.

* But, what do I know? I might be completely wrong. I'm really bad at predicting future returns.
** Delaying spending until very old age is an obvious consequence of an increasing income stream. Not very efficient, as one loses the opportunity to spend this money during one's younger and healthier years.

Added: AltaRed is right; I'm completely off topic. :oops:
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Re: Historical 5 Yr GICs

Post by Lazy Ninja » 10 Jun 2017 21:24

BRIAN5000 wrote:
10 Jun 2017 16:01
Variable income in retirement is surely not my goal I'm not interested in cutting back on necessities or luxuries. I want to increase spending till I can't find anything to spend on.
Spend it on coffee :wink: .
Two days agoBRIAN5000 wrote:Tim Hortons raised its price for a large coffee from $1.95 to $2.09 yesterday in B.C :x Seeing my wife gives me an allowance of $2.00 a day I can no longer afford to go to Timmies every day unless I downsize my beverage.

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Re: Historical 5 Yr GICs

Post by Taggart » 11 Jun 2017 04:19

All I know is I've been running a ladder of 1 through 5 year GIC's in a RRIF for an elderly relative since 2002. At least my forecasting has been pretty good as far as the money in the RRIF lasting until the age of around 95 on minimum withdrawals. Kind of painful to see that this has all been done somewhat late in a person's life where the 5 year GIC's are just basically keeping up with inflation and then to watch the mandated withdrawals get totally whacked on taxes.

The relative got what she requested from the beginning regarding the portfolio though. No volatility and no loss of capital in any calendar year.

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Re: Historical 5 Yr GICs

Post by longinvest » 11 Jun 2017 08:18

Taggart wrote:
11 Jun 2017 04:19
All I know is I've been running a ladder of 1 through 5 year GIC's in a RRIF for an elderly relative since 2002. At least my forecasting has been pretty good as far as the money in the RRIF lasting until the age of around 95 on minimum withdrawals. Kind of painful to see that this has all been done somewhat late in a person's life where the 5 year GIC's are just basically keeping up with inflation and then to watch the mandated withdrawals get totally whacked on taxes.
Actually, taxes were not paid when the money was contributed to the RRSP, so it is only fair that it got taxed on withdrawal. Between contribution and withdrawal, the money enjoyed tax-free growth. That was a huge benefit to allow the GIC ladder to grow at least as fast as inflation, maybe a little faster.
Taggart wrote:
11 Jun 2017 04:19
The relative got what she requested from the beginning regarding the portfolio though. No volatility and no loss of capital in any calendar year.
Exactly. The cost of low volatility is the loss of the possibility to make more (and to make less, too). Not only there was no loss of capital, but the cash flows of each GIC were perfectly known at the time it was bought.

Some people prefer the certainty of having enough to a small possibility of losing money and ending up with not enough.
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Re: Historical 5 Yr GICs

Post by longinvest » 11 Jun 2017 08:53

<OFF TOPIC>
Taggart wrote:
11 Jun 2017 04:19
At least my forecasting has been pretty good as far as the money in the RRIF lasting until the age of around 95 on minimum withdrawals.
Before 2015, the age 71 and higher RRIF minimum withdrawal rates were very close to a tweaked VPW with the following setup: internal rate 6.6%, last withdrawal age 99.5, cap of 20% on withdrawal rate.

Since 2015, the age 71 and higher RRIF minimum withdrawal rates are very close to a tweaked VPW with the following setup: internal rate 3.3%, last withdrawal age 99.5, cap of 20% on withdrawal rate.

VPW was inspired from the age 71 and higher RRIF minimum withdrawal rates. I prefer VPW because it uses the same model prior to age 71 and it modulates its internal rate based on the portfolio's asset allocation.

The 6.6% internal rate was completely out of whack; were they expecting retired people to be invested into a 100% stock portfolio with an expected 6.6% real return?

Even the newer 3.3% internal rate could be considered pretty aggressive, as investors usually put their bonds and GICs into their RRSP/RRIF. The current real yield on 30-year Real Return Bonds is approximately 0.5%, 3% lower. This implies an expected loss of 3% per year in inflation-adjusted minimal RRIF withdrawal amount after age 70.

</OFF TOPIC>
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Re: Historical 5 Yr GICs

Post by longinvest » 11 Jun 2017 09:08

<OFF TOPIC>

Thinking about it a little more, I suspect that they wanted RRIF withdrawals to mimic a nominal annuity. This would explain the 6.6% of old and the newer 3.3% internal rates.

</OFF TOPIC>
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Re: Historical 5 Yr GICs

Post by Taggart » 11 Jun 2017 11:58

I think you're making a lot of erroneous assumptions above in an imperfect world.

I'm sure there must of been a few wealthy people who may have used GIC's when the RRSP first came into being in 1957, but they weren't in my circle of acquaintances. My own parents who lived a lower middle class existence most certainly didn't have any savings to speak off in these days. One thing though as a family we always lived within our means, and we had to learn investing on our own with a lot of missteps along the way. My father when he was alive did it his way with what proved to be an expensive financial planner with I'm sure most if not all of what you refer to as tax free growth going into his pocket and not in their's.

If it weren't for John Daw's and Bruce Cohen's article on GIC's I wouldn't have known that the ladder of GIC's i was using would be a viable long term investment. It may not be perfect, but good enough.

Oh and by the way, neither my surviving parent or myself when I have to withdraw in a few short years from a RRIF need the minimum withdrawal, but forced to take it out nonetheless.

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Re: Historical 5 Yr GICs

Post by AltaRed » 11 Jun 2017 12:00

FWIW, my RRSP makes up a very small portion of my portfolio. It's been some form of 5 year GIC ladder (more recently a 7 year corp bond/GIC/unsecured debenture ladder) for longer than I can remember. Without a significant boost in interest rates, it will rapidly deplete once withdrawals start. That is fine with me as I cannot imagine being 88 yrs old and still trying to manage such a beast. At some point, it will be best to just wrap it up, perhaps 12 yrs in, e.g. my actuarial age of 83 or so. I sure don't need the withdrawals but as Taggart says, gotta at least take it out.

OTOH, what I have not yet analyzed is whether to just crystallize the remaining contents of the RRIF 5-10 years in...with an annuity. I'd rather focus my time and energy on the 90% of the portfolio than some nuisance RRIF. Annuitizing might be a good match with my non-COLA'd DB pension, especially if interest rates and inflation happen to double from current levels. Presumably annuity prices would be better then too. So far I have been fortunate that 11 years into retirement, inflation has been so low that purchasing power has not been eroded that much.
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Re: Historical 5 Yr GICs

Post by SoninlawofGus » 11 Jun 2017 16:19

AltaRed wrote:
09 Jun 2017 16:09
But I am pretty certain distributions from almost all bond ETFs will continue to drop slowly for the foresseable future. Short term bond ETFs should be close to arresting further declines in distributions cause there cannot be that many 'long' bonds left in such ETFs. But their yield/TR is really nothing to scream about. An Oaken GIC right now is better.
The one I'm looking is BlackRock Universe Bond Index Fund with an MER of 0.12% (corporate account only), a modified duration of 7.52, and a YTM of 1.85%. The fund has a YTD yield of 3.6%, which surprised me given its low YTM, but rates have fallen of late.

Looking at it more carefully, the fund returned only 1.7% for the 2016 calendar year. During that year, 7-year Canadian bonds yields rose from 1.02% to 1.43% -- a rare up year for comparison purposes.

Sorry, this is also off topic.

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Re: Historical 5 Yr GICs

Post by AltaRed » 11 Jun 2017 16:35

Indeed, market prices and yields with vary with yield curve changes. Many (all?) bond ETFs had a 'low' TR year last year due to the Trump factor on perceived spending (increased interest rates). Calendar returns will always show variability year to year. Hence why one should look at 3, 5, 10 yr returns. The one thing that seems pretty consistent the last 5-10 years is the continuing secular decline in 'actual annual' distributions.
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