# Must be heading towards retirement - just bought my first GIC



## Ponderling (Mar 1, 2013)

Bonds have no where good to go in the short term.
I sold about 1/3 of my RRSP bond holdings last Oct and it was sitting as cash. 
Yes in high inflation environment that is not keeping with the current, but instead sliding further downstream.

Today I put 40K into a 2 year GIC at 2.45% so the inflation erosion is slowed a bit.
Nice and easy to do online in my ITrade account. Much better selection than when I was building a GIC ladder for the kids RESP funds about 8 years ago. 

The other balance of the ormer bond cash is sitting as dry powder for any volatility created buying opportunities to likely reinforce existing equity positions when the stock goes 'on sale' relative to my longer term estimation of their value.


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## james4beach (Nov 15, 2012)

Ponderling said:


> Bonds have no where good to go in the short term.


There's no way to know that. For all you know, bonds could outperform stocks and GICs this year. It can't be predicted.

But yeah, GICs are very easy through iTrade and are perfectly good holdings. I hold both GICs and bonds. The GICs should have similar returns to the bond fund in the long term.


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## ian (Jun 18, 2016)

Keep in mind one does not have to buy long term bonds/funds There are short term bond funds. We have been in the same one for just over 10 years. Bought it 11 years ago as we were entering retirement. Annualized 10 year return has been just under nine percent. This fund, plus my DB pension represent the bulk of our fixed asset allocation.


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## TomB16 (Jun 8, 2014)

I'm excited for you that you are closing in on retirement. It's a great time.

We don't have any GICs but I am also considering it as part of sequence of return risk mitigation. That is undoubtedly precisely why you went with your GIC.

I don't buy bond funds, since the principle isn't protected (the entire reason to keep the money near cash). Plus, bond funds distribute less than the weighted, aggregated, coupons they claim to take in.

I have held corporate bonds, in the past. I still would but they were all selling for such a premium during the zero interest days that I sold the entire ladder and put the money into common shares. They wouldn't have converted anyway, and the common shares distribute a bit bit better than the bonds.

Whatever the case, please accept my congratulations on your nearing retirement date.


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## afulldeck (Mar 28, 2012)

If I ever decided to retire, unless something magical like 1982 happens with bonds, I think one year cash keep 100% eq invested- let the chips fall where they may.


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## AltaRed (Jun 8, 2009)

afulldeck said:


> If I ever decided to retire, unless something magical like 1982 happens with bonds, I think one year cash keep 100% eq invested- let the chips fall where they may.


Depends how you define one year cash. Is that one year of gross cash flow needs? Or is it net of the one year annuity and investment income streams to top off one year of gross cash flow needs? If the former, that might be conservative enough. If the latter, I suspect that is insufficient for a 2-5 year "real" bear equity market.

Disclosure: I have a rather thin FI component to my portfolio, and it is mostly in HISA short term cash, but it certainly is more than a one year cushion. I've only experienced the financial crisis of 2008 so far in my 16 year retirement and that was not a bell wringer for what could happen.


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## TomB16 (Jun 8, 2014)

I currently have far more than three years of gross cash spend in near cash. The plan is to invest that down to the three year minimum, at every opportunity.


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## TomB16 (Jun 8, 2014)

Further...

The three year cash number comes from the Dotcom bubble of 2000 when the markets were down for three consecutive years.

We also have about double the distributions we would need to live on, so we are braced for a tsunami of retirement crapulence.

Unfortunately, I require this level of conservative planning at the outset of our retirement to feel ok. We will probably get more comfortable over time and spend closer to the production level of our nest egg.


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## afulldeck (Mar 28, 2012)

AltaRed said:


> Depends how you define one year cash. Is that one year of gross cash flow needs? Or is it net of the one year annuity and investment income streams to top off one year of gross cash flow needs? If the former, that might be conservative enough. If the latter, I suspect that is insufficient for a 2-5 year "real" bear equity market.
> 
> Disclosure: I have a rather thin FI component to my portfolio, and it is mostly in HISA short term cash, but it certainly is more than a one year cushion. I've only experienced the financial crisis of 2008 so far in my 16 year retirement and that was not a bell wringer for what could happen.


Hmm didn't VPW methodology suggest only 1 year cash as the backstop? Perhaps I mis-read that ......

"Monthly portfolio withdrawal amounts will be determined using the new VPW Accumulation And Retirement Worksheet which takes into account current and future pensions (like delayed CPP and OAS), with and without cost-of-living adjustments. Portfolio withdrawals will be taken on the last day of the month and will be divided into 12 equal parts to be deposited into 12 savings accounts named "January", "February", ..., and "December". These savings accounts will be called _monthly silos_.

Monthly silos will accrue interest based on the rates of high-interest online savings accounts (like an Alterna Bank High Interest eSavings Account which currently pays 2.30%)..."


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## AltaRed (Jun 8, 2009)

What you are quoting is the annual withdrawal amount from VPW methodology that one sets aside on Jan 2nd of each year in a HISA for the calendar year such that one draws on that sum in 12 increments for the calendar year. The Alterna HISA is the example of where to put the cash for the 12 monthly payments. It doesn't matter what its interest rate will be. Example: $10,000 divided in 12 payments @ 2.3% interest will simply result in the 12 monthly payments being slightly more than 12 payments @ 1% interest. Put it in a 0% chequing account if one wishes.

How to take annual maximum portfolio withdrawals (which is what you are quoting) is distinct and different from whatever cash reserve one might hold on the side. Every individual needs to use judgement on what that is and why.they would hold it. Could it be for lump sum purchases, endowments, housing change, new sports car not contemplated in an annual budget, or as an additional cushion for a bear market?

For example, if one's portfolio is down 30% on Jan 2nd this year from the year before, the maximum VPW amount for the year will be down 30% as well. How do you cover that in your annual budget for the year? Reduce your expenses by 30% this year, or tap into a separate cash reserve to cover the shortfall? I would much prefer to do that latter if I could.


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## james4beach (Nov 15, 2012)

Thought I'd share, TDB8150 has increased its interest rate to 0.45%

Hopefully going higher when the BoC raises rates tomorrow... if they actually raise rates.

Myself though, I store my "cash" in GICs with the rolling (ladder) approach. The 5 year GICs these days from rock solid banks are 2.8%, far better than any savings account in the country. So the benefit is obvious... better to store cash at 2.8% than 1.2% provided you can tolerate the reduced liquidity.

Also keep in mind that interest rates may not actually higher. For all we know these GICs around 2.8% may be about as good as it gets. There's no way to know.


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## fryman (May 28, 2009)

ian said:


> Keep in mind one does not have to buy long term bonds/funds There are short term bond funds. We have been in the same one for just over 10 years. Bought it 11 years ago as we were entering retirement. Annualized 10 year return has been just under nine percent. This fund, plus my DB pension represent the bulk of our fixed asset allocation.


Am I missing something??? Where did you find a short term bond fund that returned 9% annualized in the last 11 years? Looking at XSB it returned 1.7%.


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## ian (Jun 18, 2016)

fryman said:


> Am I missing something??? Where did you find a short term bond fund that returned 9% annualized in the last 11 years? Looking at XSB it returned 1.7%.


I have been holding PHN Absolute Return Fund (series O) for just over 10 years. It is a combo of short term bonds and alternatives. Annual returns are variable. Anywhere from sub 2 to the high teens.


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## AltaRed (Jun 8, 2009)

Unless you are referring to something else, CAGR doesn't appear to be very strong. At least it does not appear to be that way to me per Barchart - Advanced Private Label A 10 year return isn't yet available on any of the usual sources, e.g. Morningstar, G&M Investor which would suggest an inception date closer to 2014.

Further Series O is not a true return to you. You have to subtract your % of AUM fee from Series O to be comparable.


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## ian (Jun 18, 2016)

Even net of my AUM, which was one percent but for the past few years now less than one percent, I am still happy with the result.


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## james4beach (Nov 15, 2012)

From what I recall, the Absolute Return fund includes equities too. So I don't think it should be compared to fixed income. That would be like comparing VBAL to bonds.

Here's an article on the fund manager. Sounds like a hedge fund that includes all kinds of things including distressed/junk debt (the risk profile is like equities), pure equities, REITs, etc. Just about anything.


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## ElizabethHardacre (Jul 21, 2020)

I totally agree that short-term bonds are not a profitable business, and not promising. And in general, when it comes to providing a stable income in retirement, this is something that needs to be prepared for many years before retirement and bonds are very weak. In addition to the fact that you yourself would like to save part of your salary for retirement, you can turn to income help for seniors. Many retirees are eligible for various health programs but are not aware of the benefits they are entitled to or do not know how to apply for help without spending any money at all. This is where this company helps you.


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## Ponderling (Mar 1, 2013)

As to easing towards retirement I have been working three day weeks, at my asking, for the last 7 months.
I am quite enjoying every weekend as a 4 day weekend, unless I have a Monday or Friday meeting to attend.

My youngest son turned 19 yesterday, and that made me realize he will age out of my company's benefits package in two years. 

So maybe I will work even less in 2 years. At present my 3 days is just to keep dental and other benefits, as well as funding CPP for a few more years. In two years I will be 58, and that is seven years short of 65 as to dropping 7 worst years in determining CPP entitlement.

I just did another 3 year GIC ladder in my LIRA after I sold its bonds stake at a 10% loss 2 weeks ago. 
30K per year 1,2, and 3, and another 39K sitting as dry powder ready for any short term down draft stocks to come onto my radar. 

Good input on this thread - thanks to all for the input. GICs are a bit of a foreign asset for me to hold until recently. Last time was to ease back on risk in the RESP as the kids approached graduating from high school.


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