Weekend Reading – Inflation falling, now what?

Weekend Reading – Inflation falling, now what?

Hi Everyone, 

Welcome to a new Weekend Reading edition, highlighting that inflation is coming down, so now what?

First up, some reminders:

I shared this dividend income update a few weeks ago…hopefully October will be higher to help fight ongoing inflation at whatever rate it is!

September 2024 Dividend Income Update

In a recent post, I wondered if the RRSP Meltdown Strategy is really worth it?

Is the RRSP Meltdown Strategy Worth It?

And, after another interesting week on the markets, many DIY investors I know are monitoring their portfolios near all time highs. Are you one of them in 2024?

Weekend Reading – All Time Highs

Weekend Reading – Inflation falling, now what?

Source: X/Twitter. Bank of Canada; January 2022.

Headlining this Weekend Reading edition is the news that inflation is coming down. 

Statistics Canada released their latest Consumer Price Index (CPI) numbers and inflation rose at just 1.6% in September, which is trending down.

Year over year, gas prices are down. Food prices are up, rising 2.4% in September – pretty much the same growth rate as August. In fact, from the report, this is the second consecutive month that grocery prices increased at a faster pace than headline inflation.

You might recall that our Bank of Canada (BoC) aims to keep inflation around 2%. So, so far, so good. “Soft landing” and all that stuff for now. 

The challenge is while inflation has fallen to a recent three-year low, Stats Canada notes:

“Canadians continue to feel the impact of higher price levels for day-to-day basics such as rent (+21.0%) and food purchased from stores (+20.7%), which increased during that same 3-year period.”

Given that you and I always to manage and navigate the “big 3” expenses very well in our personal finance budget (home expenses, transportation expenses and food expenses), well, this is not the best news for everyone. 

You might recall there can be two big expenses that distract us from realizing our retirement dreams – and one of them certainly isn’t your $8 coffee at Starbucks – although that is quite expensive now too. (Disclosure: nothing against Starbucks, I just don’t buy that stuff…)

Two expenses stealing your early retirement dreams (that are not coffee)

What does lower inflation, in part, signal to us?

All signs are pointing to more Bank of Canada rate cuts. The BoC’s next interest rate decision is coming up soon / next week and it could be either a 25 or 50 basis point cut – either one means rates are going to keep coming down. 

If you have debt, that’s good. Lower borrowing costs should be good for you. 

If you have no debt (awesome), then consider sticking with your investing plan and consider owning more equities than bonds for higher portfolio returns or higher all time highs if you already have them. 

As a general rule, when central banks raise interest rates, stock prices tend to fall but the inverse, while hardly perfect, is also true. Lower borrowing costs can be good for businesses like indivdiuals too – providing fuel for expansion and growth and spending. Stock prices could rise higher. 

When it comes to our plan, nothing changes. I wrote about that in June. Boring, I know! 🙂

I wrote:

And finally, we continue to be in savings mode for the following in 2025:

1. Own more low-cost ETF XAW for diversification beyond Canadian borders inside our registered accounts.

2. Increasing our cash position such that if we need/want to make any registered withdrawals from our RRSPs in particular, starting in 2025, the cash / cash equivalents will be there for that and we won’t need to sell any equities/stocks at all.

3. Investing in more Canadian dividend paying stocks in our taxable accounts when we feel the time is right to do so.”

Different month, same plan for us. 

In closing, lower interest rates (from where they are today) are very likely to help everyone – individuals and businesses. That said, I also believe many Canadians should consider how to manage their financial affairs almost irrespective of what interest rates might be since you (and I) have no control over that. So, the punchline is, the more you can take financial planning into your own hands; your savings rate, your discretionary spending then the better the outcomes could be.

What about you? What are your thoughts on interest rates coming down? Does that change how you might invest or what you invest in?

The 2024 Canadian Financial Summit is near!

In my recent newsletter, I sent a reminder to register for the Canadian Financial Summit, October 23 to 26, and you’ll get access to the investing and money-management knowledge of more than 35 Canadian personal financial experts, including yours truly. 🙂

Here is my talk and write-up:

A Cash Flow Case Study for Today’s Part-Time Retiree

“Mark Seed is one of Canada’s preeminent DIY retirement planning experts. Since his real-life illustrated case study was such a hit last year, we brought Mark back to look at another case. This case is near and dear to Mark’s heart, as it looks at a couple that is planning to semi-retire at a fairly young age – but as part of the plan, they wish to work part-time until they hit “full retirement”.

We discuss just how prevalent this “new normal” of a gradual transition from full-time employment to “full-stop retirement” is becoming, and visually explain some of the options today’s retirees have when it comes to planning their future cash flow. Tune in to watch how to tax-efficiently plan an early retirement using part-time work (aka: “Coast FI”) and get the most out of a balanced lifestyle earlier in life.”

Too kind! 🙂

With your ticket, the videos are completely free to view for 48 hours. After that you need my All Access Pass, which cost $99 before the event for the ability to stream all interviews and all the presentations—anytime – anywhere.

More Weekend Reading and Links:

Dividend Daddy reviewed the timeless book: Your Money or Your Life. I also provided my review of that book here.

A good interview and some light banter between a current DIY dividend investor and a former DIY stock investor turned financial planner. Question #8 highlighted how Bob/Tawcan and I both invest:

“Q8: Mark Seed from My Own Advisor and I not only invest in dividend stocks but index ETFs as well. What are your thoughts on hybrid investing?

A8: I like the hybrid approach a lot better than simply buying individual stocks. If I understand right, hybrid investors for the most part buy individual Canadian stocks and then use index funds to access the US and international markets.

I think that’s a smart approach, especially if you like the process of stock picking – sticking to your Canadian blue-chippers isn’t likely to get you into much trouble.”

What happens if the Liberals’ capital gains tax changes don’t go through…and the Liberal government falls? (Quite likely in the coming months…)

Rob Carrick, from The Globe and Mail, was asked a question about the TC Energy (TRP) and South Bow (SOBO) shares spin-off. I liked his answer:

“Ask Rob

Q: As one of so many TC Energy shareholders, what do I do with the SOBO shares we just received? Hold? Sell?

A: My colleague David Berman answered this question in a recent story. I have some TC and I’m hanging on to my South Bow shares. South Bow, stock symbol SOBO, was spun off from TC this month. For every TC share they own, investors received 0.2 SOBO shares.”

What are you doing with your SOBO shares? Buy? Hold? Sell?

And finally, a thanks to Rob Carrick for mentioning my real estate post in The Globe recently as well. I always find it interesting to learn what readers own (or do not own) in their personal portfolios! 

Have a great weekend!

Mark