Weekend Reading: Rocky Mountain Edition

We spent the last few days in Canmore / Banff enjoying the breathtaking scenery in Kananaskis Country and the Rocky Mountains. The kids loved Afternoon Tea at The Fairmont Banff Springs and the highlight of our trip was taking the Banff Gondola up Sulphur Mountain to check out the 360-degree observation deck, stroll along the ridgetop boardwalk (2,900 feet above Banff), and explore the Above Banff Interpretive Centre.

It was a good time to visit as we arrived at the end of ski-season but before the tourist season starts to ramp up. That meant getting half price on near-luxury accommodations, which included spectacular views like this:

Rocky Mountain Edition

This Week’s Recap:

Have you considered a no-spending challenge? Marie explains how this exercise could change your spending habits.

From the Boomer & Echo mailbag we look at the role of fixed income in your portfolio.

Weekend Reading:

CBC Go Public told us about the aggressive sales culture that is rampant at Canada’s big banks. Now the investigative team looks into the investment side of the business and reveals how lax laws put your financial interests last.

Maybe you should ask your advisor what’s in their RRSP?

Sure, stocks are overvalued. Now what? Ben Carlson gives five options for wary investors.

Michael James explains how, after an eight-year bull market, your lizard brain might believe that the stock market only goes up.

Pre-retirees seeking safe investments can’t avoid risk:

“The problem with the words ‘safe’ and ‘conservative’ is that they have different meanings to different people.”

The ‘glide path’ is when you wind down your career slowly. Here are the financial implications.

Turning 71? It can be a pivotal year if you’re still working.

If you still have time, you should consider RRSP withdrawals before age 71. Jason Heath explains everything you can do with your RRSP at age 71.

How to become a super-ager: A guide to aging well.

Melissa Leong on how to spend your money and increase your happiness.

This 75-year-old Harvard study found the one secret to leading a fulfilling life. Here’s some wisdom gleaned from one of the longest longitudinal studies ever conducted.

The Retirement Manifesto on how to move your retirement from good to great.

An American focus, but still important points to consider: Retirement planning when there’s an age gap.

Download a free practical guide from CPA that focuses on how to deal with the financial stress and emotional shock of losing a job.

Mark Seed explains how he built his dividend portfolio.

Million Dollar Journey explains where to find dividend data for your portfolio.

Barry Choi gets personal with an in-depth look at how much In Vitro Fertilization costs. Congrats to Barry and his wife, who are expecting their first child in July!

The psychology of a cranky trip to Costco:

“The battle for a parking spot, the lineups outside the store, the oversized carts clogging up the aisles — it’s enough to put even the most seasoned Costco shopper on edge. Yet they are willing to buy a membership just to shop there.”

A useful resource from Jessica Moorhouse who uncovered 14 free chequing accounts in Canada for people who hate fees.

As real estate speculation hits a new peak, some Toronto homeowners are taking their profits and looking elsewhere.

Finally, Westjet is taking the leap into no-frills flying – launching an ultra-low-cost carrier later this year.

Have a great weekend, everyone!

From The Boomer & Echo Mailbag: The Role Of Fixed Income In A Portfolio

Q. I understand that to have a properly balanced account around half of our investments should be in fixed income products. However, most bonds have a ridiculously low return. GICs are an option, as are high interest savings accounts. Are there better solutions?

I know it’s difficult to hold on to low paying fixed income products when the stock market is riding high and producing double digit returns. Every dollar in fixed income comes at a price of reducing your expected returns. Does it still have a role to play in your portfolio? Yes, indeed it does. Fixed income lowers risk, and provides stability, diversification, and a degree of protection when equity markets fall.

Take a look at this chart showing how the stock market plunged in 2008.

The Big Picture Investing Chart

Click for link to full chart

The S&P/ TSX Composite Total Return Index dropped 43%. However, a balanced portfolio of 50% fixed income and 50% equities dropped 20%. Still sizeable, but much easier to stomach.

Related: An investing guide for beginners

That being said, how do you glean a bit more return from your fixed income investments?

GICs

GICs are safe. They are backed by the Canadian Deposit Insurance Corporation up to $100,000 (Credit Unions guarantee deposits from $100,000 to unlimited, depending on the province through their Credit Union Deposit Insurance Corporations.)

Another advantage of GICs is their stable prices – they don’t fluctuate like bonds and bond mutual funds and ETFs.

Disadvantages are their illiquidity and locked in interest rates (should interest rates start to rise). A 5-year ladder, where one GIC matures each year and is reinvested, is a good solution.

Related: Five-year GIC ladder vs. One-year rolling terms

Pick higher yielding GICs offered by small institutions and credit unions. You can compare GIC interest rates here.

Bonds

You can enhance yields with not much more risk by buying bonds issued by blue-chip corporations rather than governments. Individual bonds also provide capital preservation if kept to maturity. With interest rates so low you need to be stingy with any fees you pay. For low cost and more diversity choose bond index funds, or an ETF such as iShares Canadian Corporate Bond Index ETF (XCB).

Preferred Shares

You could also consider preferred shares. Their biggest benefit in a non-registered account is the tax advantage of dividend income as opposed to the interest paid by corporate bonds. Because these are riskier than bonds, limit your allocation to not more than 10 – 20%. ETF options include BMO S&P/TSX Laddered Preferred Shares ETF (ZPR) and iShares S&P/TSX Canadian Preferred Share Index ETF (CPD).

Remember, as you move through these options you’ll be taking on more risk.

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