Wednesday, January 19, 2011

Saving for Retirement

First, with the debate about increasing CPP or using private industry to look after increased pension, no one seems to talk about the cost. By cost, I mean fees or administration costs. We seem to get a good deal from CPP because it is not properly funded and its cost will come from taxes. I understand that CPP is better funded when compared to similar plans from other countries. Lots of countries are on a pay as you go basis for their pensions and these are all in trouble.

I have seen no where that any one looks at the amount of money going to governments compared to what is spend on taxpayers. Everyone seems to agree that government employees get higher salaries and benefits than employees of the private sector. This would lead one to believe that the administration costs of governments are quite high.

My point is that, it may be cheaper for pensioners to have increased pensions run by the private sector than by the government sector. The other thing is that the CPP fund has currently a very big foot print in our financial markets. Should we really give it an every bigger one?

The above are my thoughts on the subject of pensions. But, what I really want to talk about is saving for retirement. Stock, bonds, mutual funds, ETFs etc all cost lots of money. What you buy will determine your future. So, it might just be wise to understand what it is you are buying.

On my blog, I mainly talk about specific stock. Personally, I have learned a lot about investing by doing. I tried initially to read about how the stock market worked, but I really did not pay attention until I bought some shares. So, I read some and did some stock buying to learn. There are investing educational sites on the internet. See Investor Education Fund (IEF) site that is funded by the Ontario Securities Commission called Get Smarter About Money.

One thing that complicated my investing in stocks in the 1970’s was the rising interest rates. I had barely gotten started when I realized that I could make more money in fixed assets than in stocks. This was the late 1970’s and early 1980’s. I had started to buy Canadian Savings bonds on a monthly payment basis to cash them in, in November, to buy stocks. However, interest rates in 1978 were around 9 1/2%. This is probably better than you could make in the stock market. And, to boot, Canadian Savings bonds are almost risk free.

GICs at that time peaked 18% in the early 1980’s. You cannot make that sort of money in the stock market. GICs are also investment vehicles with almost no risk. So, for a few years I mostly bought bonds and GICs. The high interest rates came to an end. The last bond I had was a 20 year CIBC bond at 9.65% in 1994. I sold that a few years ago at a good capital gain. As it gets closer to maturity, the value of the bond would decline and be worth only the $50,000 I paid for it.

Why did I start to invest? My dream was to live off dividends from stocks and spend my time reading. I had a 30 year plan to do this, but I later realized that it was unrealistic as it called for returns in the neighborhood of 10% return per year on average. Well, you never know how life will turn out. I got my dividend income in 23 years, so I quit work. Along the way, I got interested in investing and hence my investing blog. I also worked in IT and developed an interest in computer.

So, I spend my mornings reading and my afternoons working on my computer. I do investment spreadsheets, I read stuff, I do genealogy and I keep in touch with friends and family via my computer. Life does not turn out as you expect. In the same way that life goes up and down, so does the market. So, do not get trapped into buying high and selling low. That is buying as the market is rising and selling when it is falling.

It is not so bad to buy into a rising market, just do not over pay for a stock. But, selling in a falling market can be disastrous. You will lock in any paper losses you have. If your stock falls you should ask your self before you sell – is the company going bankrupt? If not, perhaps you should reconsider selling; a lot of stock movement has to do with P/E ratios going up and down, and not the stock’s intrinsic value changing.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.


  1. Good post Susan.

    So, do you think we're headed towards double-digit fixed income returns in the next few years?

    Even so, I still think dividend-paying stocks are the way to go, for the long-run. Definitely some security amongst all the noise the market continually creates. Dividend-payings stocks aren't the "cure-all" but until I'm proven otherwise I can't think of many other investment approaches that produce such great results over time.

    My Own Advisor

  2. I'm glad your 30 year plan only took 23!

    The hardest thing for a novice investor to do is to fight the natural urge to sell when stock prices start to dive. The first thought people have is to cut their losses before it gets any worse.

    On the opposite side of the scale, people tend to hop aboard a stock that's performing well and find out the hard way that they have just bought in as it approaches it's peak.

    Great Post!