Author: Seun Adeyemi

The Low Interest Rate Fallacy – Part 2: Why Savings Still Matter

In last week’s blog post, we discussed low interest rates and household debt. While the low interest rate environment is encouraging Canadians to borrow money like never before, what about savings? The statistics speak for themselves: savings rates in this country are near a five-year low. Let’s take a closer look at the relationship between low interest rates and savings and why it still makes sense to save. Low Interest Rates and Savings While low interest rates are encouraging us to borrow, the same can’t be said about the sad state of savings in this country. The household savings...

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Market Commentary – A Security Blanket for Your Investments?

We identify with Linus van Pelt, brother to Lucy, and best friend to Charlie Brown, all of whom characters from the innovative mind of Charles Schultz. Schultz didn’t work for peanuts, but Peanuts sure worked for him. But back to Linus: Linus had several quirks, the most famous of which was the security blanket he used to walk around with. But each Halloween night, while the rest of the neighborhood kids were out trick-or-treating, Linus would plant himself in his pumpkin patch, awaiting the appearance of the “Great Pumpkin” who would distribute toys to all the kids present. Meaning, usually, just him. Of course, all of his friends tried to talking him out of it, and indeed the Great Pumpkin never did actually appear. We are not waiting for the Great Pumpkin, but rather for the market to turn into it. It’s not that we don’t think the market can rise from here; we are wondering whether or not any additional upside the market may offer is worth the additional risk the investor is taking on in order to attain it. Indeed equity market have been trading  sideways for most of the year, but with increased volatility, so that by definition risk-adjusted returns have declined. We are, in a sense, looking for our own security blanket. The dominant theme over the first half of 2015, at least from the...

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The Low Interest Rate Fallacy: Why You Should Stress Test Your Debt

How low can interest rates go? Even lower, apparently. Last week the Bank of Canada cut the overnight lending rate 25 basis points to 0.5 percent from 0.75 percent. This is the second time our central bank has trimmed interest rates in 2015. While the rate cut in January caught the general public off guard, it was expected by many in the financial world. 2015 has been quite a turbulent year. With interest rates previously stuck at 1 percent for nearly five years and the toll taken on our economy by the hammered price of oil, the growth prospects for the country seemed fairly dim.   While many would categorize this as just the normal ‘market cycles’, you’re probably wondering how this affects the average person. A weak Canadian economy means low interest rates are here to stay for the foreseeable future. However, before you start using your home as an ATM, there are some important things to consider.   What Interest Rates Mean to Families You may be wondering why interest rate announcements get so much media attention and market reaction. Interest rates affect our lives in more ways than you think. Banks set prime rate based on the overnight lending rate. When the Bank of Canada changes the overnight lending rate, the banks are sure to follow. For example, when the Bank of Canada lowered the overnight...

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Market Commentary: Will The Dow Go Off The Rails?

Apparently FedEx and UPS were engaged in merger discussions. The new firm would have been called “FedUP”. This would have been the biggest fail in the naming of a merged firm since the proposed merger between the two computer giants General Data and Digital. The new firm might have been called…well, you figure it out… What FedEx and UPS have in common is both are components of the Dow Jones Transportation Average, which itself has been a source of concern to market observers. According to Dow Theory—and any market theory that has been around as long as this one...

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Thinking of Dipping into your RRSPs to Pay Off Debt? Think Again!

I recently sat down with a middle aged couple who were debating the best strategy to pay off their debts. This couple are high income earners and have diligently contributed into their RRSPs over the years, so they have a sizable amount. They, however, also have quite a bit of debt they have accumulated and were at a crossroads as to how to tackle it. One party insisted on tackling the debt using the snowball method (which I will explain briefly in a moment), but the other party was adamant on taking out a huge chunk from their RRSPs...

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