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rmorelan

Bank of Canada Rises Rates - again!

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ha, here we are with two increases in about 2 months. The bank is using this period of relative prosperity to readjust the bank rates towards more traditional levels. For those of us with LOCs things are starting to get more expensive (without the recent 0.25 drop in most people's LOCs we would be up about 20% in interest charges over the past summer). As always no one can really tell you where they would be going from here - but further increases would seem possible at least. 

as always be prudent with those lines of credit :) 

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2 minutes ago, shikimate said:

Bad news, the non-CAD hedged US ETF like VFV/VUN lost quite a bit today just because of the exchange rate lol FML

yeah that is probably going to happen a bit - it wasn't stable having the US and Canada at different rates (it depresses the value of the Canadian dollar because supply and demand forces - if our Canadian bonds pay less than another countries, then the demand for them falls which means in turn the demand for Canadian dollars falls as you need Canadian dollars to buy Canadians bonds. I used to find it weird that currency is affected by supply and demand just like everything else, ha). Now things are merging back to normal. The Canadian dollar has jumped quite a bit. Notably the US stock market itself hasn't been doing too badly though. It is mostly currency effects. 

These sorts of 10% corrections happy all the time mind you. Up, down, up, down..... all that matters is the longer term view I suppose for most. Those trying to time things are going to have the usual issues (which is another warning to those using their LOCs to invest in some fashion.)

 

 

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They also suspect a third one next month - it is not unlikely. GDP and economic recovery have been much stronger in pace than anticipated. 

Canadians are loading on too much debt - our leverage has increased over the past 10 years because of the low cost of borrowing. This is a bad habit. This is a message from the BoC to warn Canadians to be responsible and to remind Canadians to be cautious of their debt load. A good move my opinion - de-risking the default potential.

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I'm sure I've posted this before, but not that long ago I was paying 6% interest on my LOC (as was everybody else). 

It's worthwhile having a little sit-down with a spreadsheet and figuring out what your life and cash-flow would look like with increased interest rates.

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1 hour ago, ploughboy said:

I'm sure I've posted this before, but not that long ago I was paying 6% interest on my LOC (as was everybody else). 

It's worthwhile having a little sit-down with a spreadsheet and figuring out what your life and cash-flow would look like with increased interest rates.

that would be wise ha. It is easy to be spoiled by the low rates and not be ready for the eventual jumps. I have been very lucky they have been this low for this long. 

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This mismatch between CAD and USD value and the rapidity of changes in value these past few weeks made me think. I drank the Canadian Couch Potato Kool-Aid big time and I mostly plan to stick with the larger picture of index investing, but I think I will down the road split my foreign equities (US, Int'l developed and Int'l emerging) to 50%:50% Hedged and non-hedged to CAD (only if the hedged version is unexpensive). The reason being that it seems that Forex is a totally different beast and even more volatile that regular stock markets, and frankly I want to reduce my exposure to foreign currencies (to 50%? 40%? less? I am uncertain for the moment). MER for VFV and VSP both are currently 0.08%, and honestly VSP tracks pretty well SP500 index when you look at the historical performance without any significant lag and no added cost. I want to be exposed to SOME foreign currency exposure, but with a 100% equity portfolio (for the moment) and approximately 30% in Canadian equity, my exposure to foreign currency exposure (and its crazy volatility these days) seems to be a bit high and corresponds to 70% of my portfolio. Obviously, I want to live and spend my retirement in Canada using CAD.

rmorelan, what do you think of that and what's your strategy? (I know you love this topic ;))

Edited by Med0123

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See ZLB.TO. You can make money in the stock market or index funds and then be wiped out in foreign exchange. Living in Canada, it is best to stick to investments in Canadian currency. On the other hand, I made a windfall profit by investing in Trez Capital Trust (mortgages for land being developed in Texas) In US currency and made the investment when US & Canadian were almost at par, and when the exchange rate was about 1:1 I made a huge capital gain, however, I was simply lucky. I have since sold these US holdings and replaced them with Trez Capital in Canadian currency, eliminating the currency risk.

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Is there a place I can learn more about these hedge funds, financial investments, etc? I have zero idea about the terms used in this thread and I'm keen to learn..I'm just not sure if Google is the best place to go for this information? Is there a book or video I can read/watch that can help me learn about these things?

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I owe it to this forum for saving me a few hundred bucks a year by recently getting my LOC dropped by 0.25%.  

We are so very lucky that the rates stayed as low for as long as they did. Like you guys, I'm glad I focused on paying down my LOC rather than using my residency salary to invest. Just want to get rid of that damn LOC debt and be done with it!

Edited by leviathan

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On 9/6/2017 at 6:50 PM, shikimate said:

Bad news, the non-CAD hedged US ETF like VFV/VUN lost quite a bit today just because of the exchange rate

I was thinking the opposite :)

US ETFs just went on sale thanks to the exchange rate. 

(spot the optimist in the room ha.) 

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2 hours ago, rmorelan said:

I was thinking the opposite :)

US ETFs just went on sale thanks to the exchange rate. 

(spot the optimist in the room ha.) 

I know its timing the market, but... you think they'll go on more of a sale, or time to buy?

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4 hours ago, jfdes said:

I know its timing the market, but... you think they'll go on more of a sale, or time to buy?

The US market is at an all time high. And then there is the beast of currency fluctuations. There is no certainty of prediction here. Too many variables. Is this prudent investing or gambling?

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5 hours ago, Bambi said:

The US market is at an all time high. And then there is the beast of currency fluctuations. There is no certainty of prediction here. Too many variables. Is this prudent investing or gambling?

Timing the market is always gambling lol

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On 9/15/2017 at 9:07 AM, jfdes said:

Timing the market is always gambling lol

Yes it is :) and you cannot predict it really. I mean the entire point of the two increases being such a big deal is once again the ton of "experts" evaluating the markets and looking at all the signs etc weren't able to predict the back to back increases. It caught them all by surprise which caused the sudden correction. Just like every other adjustment caught them by surprise. Just like the next whatever will catch them by surprise. 

You could decide to keep everything in Canadian stocks etc but there are a few issues with that:

1) the Canadian stock market is really small, and worse is very over exposed in particular markets (financials and natural resources). It is not well diversified and that is a problem. Actually the exact same problem people above are worried about - the rapid correction of a poorly diversified portfolio. This means more volatility 

2) It also under performs the US stock market as a result on average in the long term. Makes sense - you will lose out on opportunities if you are only playing in one corner of the sandbox (like say all the tech companies for example that are US stocks and what they happened to have done over the past 20 years).

Take this year - everyone may be upset at the drop in value of their US stocks but how has the Canadian market been doing this year as a comparison? Since roughly Feb the TSX has been falling and lost about 4.7% of its value - it is in the red. Ok so the can dollar is now up 10% or so resulting in a corresponding relatively loss in value of your US stocks by 10% (give or take on the math) but the US market this year is also up around 11% for the year so basically it is STILL up 4-5% US vs Can fund after the large currency correction (dead even vs a loss - not great but still better ha).

 Everyone wants to time things - but for a lot of reasons that just doesn't really work EXCEPT if you happen to find yourself in a recession and you decide to invest more when the others are running for the hills. Still I a big fan of just investment pretty much blindly to the markets - and having other forms of diversification in play.  Unless you are near retirement then generally my reaction to "loss" due to market corrections or currency adjustments is to just smile, realize it is all just on sale, sell absolutely nothing and carry on. 

I always hope that knowing something about financial planning REDUCES stress, rather than adding to it. Make a solid plan, stick to it, and get on with your life. 

 

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Yeah, definitely agree that its best to just have a plan from out onset, and stick to it. Couch potato investing will my my investment method of choice when I get around to it. Am curious though, does anyone invest during medical school / residency? I would imagine that any extra cash would be better spent on a guaranteed 3% (or whatever prime is now) return paying down the LOC?

 

Also, speaking of gambling, time to buy some cheap Equifax stock?? lol

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Canada added 79,000 jobs last month, blowing past expectations and pushing the jobless rate to its lowest level since 1976. The jobless rate was pushed down two-tenths of a percentage point to 5.7 per cent, Statistics Canada reported Friday. That's the lowest on record since comparable data became available 42 years ago.

The strength of the report also prompted investors to peg the odds of a rate hike from the Bank of Canada this month at about 70 per cent.

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On 1/5/2018 at 9:35 AM, la marzocco said:

Canada added 79,000 jobs last month, blowing past expectations and pushing the jobless rate to its lowest level since 1976. The jobless rate was pushed down two-tenths of a percentage point to 5.7 per cent, Statistics Canada reported Friday. That's the lowest on record since comparable data became available 42 years ago.

The strength of the report also prompted investors to peg the odds of a rate hike from the Bank of Canada this month at about 70 per cent.

yeah saw that which suggests now or very soon another increase. Not exactly great news with those with a lot of debit right now or foreseeing it coming in the future.

Well probably good overall - it does kind of suck for this particular crowd. 

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7 minutes ago, rmorelan said:

yeah saw that which suggests now or very soon another increase. Not exactly great news with those with a lot of debit right now or foreseeing it coming in the future.

Well probably good overall - it does kind of suck for this particular crowd. 

100% agree - always good to be prudent with that loc - and even more and more so.

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On 1/10/2018 at 10:29 PM, la marzocco said:

100% agree - always good to be prudent with that loc - and even more and more so.

and there was the official announcement of the expected rate increase, with possible projections of another one or two increases further this year. 

 

Edited by rmorelan

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31 minutes ago, ellorie said:

That’s going to hurt my monthly interest. Ugh. 

yeah if all it is completed by the end of the year interest payments will be roughly 35% higher on the same debit level. 

Again annoying but I guess we cannot complain too much with respect to the duration it has been so low. Hopefully they will be back pressure on the endless tuition increases happening. 

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