Weekend Reading – Inflation higher and rates to nowhere edition
Welcome to some new Weekend Reading: inflation higher and rates to nowhere edition!
More on that in a bit 🙂
You can check out other recent editions and past popular articles below:
I recently wrote about my plan to fight higher inflation. You should be prepared too and we’ll talk about that below…
Enjoy these reads about inflation, what might fight it (or not), how might our lacklustre Bank of Canada performance hurt us all, and much more of course.
Have a great weekend!
Inflation higher and rates to nowhere edition
Earlier this week, Bank of Canada Governor Tiff Macklem tried to make one thing clear: interest rates are on a “path” higher. Where that path ends remains to be seen. “How far, how fast? Those are decisions we’ll take at each meeting,” the governor said at a recent press conference.
So is inflation, on a path higher Tiff.
Based on a latest article I read, our Consumer Price Index increased at an annual pace of 4.8 per cent in December (2021), as sharply higher prices for food led to the cost of living going up at its fastest rate since 1991.
As just one example, the price of apples has increased by 6.7 per cent in the past year, and oranges by almost as much — 6.6 per cent. I like apples too! Our cost of living is movin’ on up, fast…
Source: CBC News, I have adapted this chart to show the yellow band that our Bank of Canada wants to operate in when it comes to controlling inflation.
Where do rate predictions and where does our Bank of Canada go from here?
Wait and see for the most part.
Certainly, the economics team at Royal Bank of Canada feels good about themselves about the BoC recent decision, since RBC stuck to its guns and said our central bank would wait until April (to raise rates). Potentially. Maybe.
I suspect our central bank is also waiting for the U.S. central bank to make the first move – we tend to follow suit – as Canadians we avoid sticking our neck out historically on any monetary policies.
I’ve personally been calling for some minor rate hikes before the pandemic. I feel historically, prolonged interest rates can and will lead to more overall indebtedness, overvalued assets, and on the flipside underestimated financial risks. I think we are also seeing this play out with our lack of government fiscal responsibility as well. This is not going to be a good recipe for any of us long-term – higher financial risks and higher instability is not great approach for financial success. That’s just my opinion.
Well, regardless, I’m not waiting on anyone to help me with my financial future.
I have a plan for higher inflation, and part of that plan is owning dividend paying stocks. This month, I received the following raises for a few stocks I own:
- BlackRock (BLK) increased their dividend by 18%.
- Canadian National Railway (CNR) increased their dividend by 19% this week.
That should help!
A reminder that it’s not all doom and gloom when inflation runs higher. In fact, I confirmed my thinking that there’s actually a sweet spot for stock returns. A MarketWatch article confirmed my thesis. Since 1871, the sweet spot for inflation is 1.5-3% that delivered the highest, on average, S&P 500 U.S. stock returns.
Source: MarketWatch 2021.
So, like this recent MoneySense article that Jon Chevreau wrote: exposure to our Canadian market, and the U.S. market for that matter, as part of a long-term, diversified stock portfolio, probably remains one of the best ways to fight inflation while keeping it simple, as you embrace a long-term investing strategy.
If they were that committed, why didn’t they raise rates??
What do you make of inflation? What do you make of our Bank of Canada decision to avoid doing anything?
More Weekend Reading!
A financial expert reminded folks that if you want to quit your job (and live your best life) (paywall) that you should continue to work through the following common-sense work:
- Map out your vision – answer the tough questions like “what will make you happy?”
- Save money – since your “start-up” costs to quit your job, change jobs, move, other – might cost more than you think.
- Tidy up your debt – removing major financial barriers can be key to any change.
- Identify your income sources – to realize your new goals or direction.
You can see what goes into a more comprehensive financial plan/common-sense work in this post.
Does your financial plan include leveraging the world? Mine does not but some leverage, when used wisely, can help. Read on in Freedom 35 Blog here.
Freedom 35 Blog spoke about different ways to FIRE on my site, because the FIRE approach can make you miserable if you’re not careful.
Jessica from The Fioneers wrote about a better lifestyle by design.
Another great read this week: are target date funds flawed? In a short answer: yes.
Some conclusions from the article and study:
- “Target-date funds are well-suited for young investors. On average, target-date funds held by employees who are in their 30s hold 89% of their assets in equities. That figure mirrors the authors’ estimates.
- For older investors, target-date funds are too conservative. Target-date 2035 funds, which address 50-year-old investors, are 68% invested in stocks. When target-date funds reach their final date, which presumably occurs when their shareholders reach age 65, they hold an average stock position of 40%. The authors prefer allocations of 80% and 60%, respectively.
- The needs of older investors vary more than those of younger investors.”
My friend The Dividend Guy updated his income report – including selling shares of Apple – gasp!! Read why, in his post.
Speaking of income, check out my current giveaway about how to earn a Salary for Life.
From Of Dollars and Data: are we bullish enough?
“And with the S&P 500 currently at 4,670 and the Dow currently at 36,068, this means that we should see the S&P 500 hit 10,000 and the Dow hit 100,000 before 2030.”
That would be wild…
Don’t forget some fine reading material from Cut the Crap Investing. Dale is always great to find some interesting nuggets from the personal finance blogosphere to enjoy.
Cashflows & Portfolios Retirement Projections
Here is our latest article about the TFSA, including some tips and tricks to get the most out of this account.
Knowing how to save and invest wisely is great but how to get the most out of your portfolio, including what accounts to draw down first in early retirement, semi-retirement or traditional retirement ages is something far more complex but something we can help out with at Cashflows & Portfolios.
We’ve already helped dozens of clients in the last few months alone!
If you are interested in obtaining private projections for your financial scenario, read more about our retirement projections service. We’ve updated our low-cost starting price on that page for you to check out.
More income and retirement content
From the retirement files:
How to invest for retirement when time is no longer your friend?
Looking for free calculators, tools, or even my support? Check out my Helpful Sites page here.
Save, Invest, Prosper!
As always, check out my Deals page.
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I’ve got a new partnership with EQ Bank – just look at the banner in the margin! EQ Bank typically offers the best savings account rates in Canada. I hope to park my cash wedge for retirement there!
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