Comments on: Don’t Ignore Inflation http://www.canadiancapitalist.com/dont-ignore-inflation/ Helping you invest and prosper Sat, 11 Feb 2012 19:27:54 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: Don’t Ignore Inflation :: Newstack http://www.canadiancapitalist.com/dont-ignore-inflation/#comment-13730 Don’t Ignore Inflation :: Newstack Thu, 07 Dec 2006 12:30:51 +0000 http://www.canadiancapitalist.com/2006/11/30/dont-ignore-inflation#comment-13730 [...] Read more: here [...] [...] Read more: here [...]

]]> By: Matt http://www.canadiancapitalist.com/dont-ignore-inflation/#comment-13606 Matt Tue, 05 Dec 2006 21:01:33 +0000 http://www.canadiancapitalist.com/2006/11/30/dont-ignore-inflation#comment-13606 You can't discount inflation, this is a given but what if Mr. Early continued to deposit his $5,000 a year instead of using the money for buying a fancy car? Starting early and continuing the regular contributions to your savings will help you realize the full benefits of compound interest. I've always found it annoying when such examples are given, why stop the investment? Keep going and you'll be able to retire far earlier. You can’t discount inflation, this is a given but what if Mr. Early continued to deposit his $5,000 a year instead of using the money for buying a fancy car? Starting early and continuing the regular contributions to your savings will help you realize the full benefits of compound interest.

I’ve always found it annoying when such examples are given, why stop the investment? Keep going and you’ll be able to retire far earlier.

]]> By: Canadian Dream http://www.canadiancapitalist.com/dont-ignore-inflation/#comment-13284 Canadian Dream Fri, 01 Dec 2006 18:42:33 +0000 http://www.canadiancapitalist.com/2006/11/30/dont-ignore-inflation#comment-13284 Rob - I agree. You have to include something to account for inflation while doing long term planning otherwise you will be in for a shock when you get there. It's still rather funny when you think about it. We can't predict if it will snow on the weekend with anything but a guess, but we still try to predict our retirements over 20 years from now. Chris Hall - Thanks for the support and I'm glad you are enjoying reading my blog, but to be fair I have to give Canadian Capitalist credit for writing a great blog and inspiring me to give it a go. CD Rob – I agree. You have to include something to account for inflation while doing long term planning otherwise you will be in for a shock when you get there. It’s still rather funny when you think about it. We can’t predict if it will snow on the weekend with anything but a guess, but we still try to predict our retirements over 20 years from now.

Chris Hall – Thanks for the support and I’m glad you are enjoying reading my blog, but to be fair I have to give Canadian Capitalist credit for writing a great blog and inspiring me to give it a go.

CD

]]> By: Rob http://www.canadiancapitalist.com/dont-ignore-inflation/#comment-13277 Rob Fri, 01 Dec 2006 16:29:48 +0000 http://www.canadiancapitalist.com/2006/11/30/dont-ignore-inflation#comment-13277 I will weigh in with one comment on inflation. The means by which they calculate inflation tends to understate it (by about 1-1.5%/yr according to pieces I have read). The reason is that CPI gets adjusted downwards to account for the improvements made in products. The best example to describe this effect is computers. Simply put, if a new computer is twice as powerful as the old one, the government says the cost of computers fell by half. According the government, the computer you paid $5,000 for in 1995 is now worth $250 tops and therefore - they reason - the cost of living fell. We all know the real world just doesn't work this way. You can't buy a $250 computer for example and expect it do anything. As a result, CPI is regularly understated, and those planning their financial futures are well advised to add a percentage point or two to whatever the "official" number is. I will weigh in with one comment on inflation. The means by which they calculate inflation tends to understate it (by about 1-1.5%/yr according to pieces I have read).

The reason is that CPI gets adjusted downwards to account for the improvements made in products.

The best example to describe this effect is computers. Simply put, if a new computer is twice as powerful as the old one, the government says the cost of computers fell by half. According the government, the computer you paid $5,000 for in 1995 is now worth $250 tops and therefore – they reason – the cost of living fell.

We all know the real world just doesn’t work this way. You can’t buy a $250 computer for example and expect it do anything.

As a result, CPI is regularly understated, and those planning their financial futures are well advised to add a percentage point or two to whatever the “official” number is.

]]> By: Loki http://www.canadiancapitalist.com/dont-ignore-inflation/#comment-13216 Loki Thu, 30 Nov 2006 17:09:20 +0000 http://www.canadiancapitalist.com/2006/11/30/dont-ignore-inflation#comment-13216 Sure - all of what's in the "basket" referred to above may not apply to all - but all are better served by thinking in terms of worste-case-scenario. Perhaps the "basket" of goods that you personally are subject to may be even more inflated - who knows. Sure – all of what’s in the “basket” referred to above may not apply to all – but all are better served by thinking in terms of worste-case-scenario. Perhaps the “basket” of goods that you personally are subject to may be even more inflated – who knows.

]]> By: Chris Hall http://www.canadiancapitalist.com/dont-ignore-inflation/#comment-13214 Chris Hall Thu, 30 Nov 2006 15:52:02 +0000 http://www.canadiancapitalist.com/2006/11/30/dont-ignore-inflation#comment-13214 I have to agree with Canadian Dream on this one. As Canadian Dream and the book "Your Money or Your Life" by Dominguez and Robin says, the "basket" that is used to measure inflation may not apply to you. Sure a brand new car costs more than it did 10 years ago, but what if you don't buy new cars. Has the price of used cars gone up the same amount? Also, some things actually go down in price (telephone long distance) that may not be included in the "basket". The weighting of the items in the "basket" is significant too. Has the recent rise in gasoline significantly impacted how much you spend each month because you commute 2 hours a day, or do you walk to work and you don't even notice the change? I don't have the answer for how to best measure inflation, but to take the CPI numbers at face value could be a disservice to yourself and your retirement planning. We don't want to work any longer than wee really have to, do we? BTW Canadian Dream - you're website is showing good promise and it's not even a month old. I'll be following along. I have to agree with Canadian Dream on this one. As Canadian Dream and the book “Your Money or Your Life” by Dominguez and Robin says, the “basket” that is used to measure inflation may not apply to you. Sure a brand new car costs more than it did 10 years ago, but what if you don’t buy new cars. Has the price of used cars gone up the same amount? Also, some things actually go down in price (telephone long distance) that may not be included in the “basket”. The weighting of the items in the “basket” is significant too. Has the recent rise in gasoline significantly impacted how much you spend each month because you commute 2 hours a day, or do you walk to work and you don’t even notice the change?
I don’t have the answer for how to best measure inflation, but to take the CPI numbers at face value could be a disservice to yourself and your retirement planning. We don’t want to work any longer than wee really have to, do we?

BTW Canadian Dream – you’re website is showing good promise and it’s not even a month old. I’ll be following along.

]]> By: Canadian Capitalist http://www.canadiancapitalist.com/dont-ignore-inflation/#comment-13211 Canadian Capitalist Thu, 30 Nov 2006 14:48:25 +0000 http://www.canadiancapitalist.com/2006/11/30/dont-ignore-inflation#comment-13211 Phil: Your point on future returns is bang on. Investment returns are always all over the map. You can probably count with your fingers the number of times the market returned exactly the average over the past 50 years. Phil: Your point on future returns is bang on. Investment returns are always all over the map. You can probably count with your fingers the number of times the market returned exactly the average over the past 50 years.

]]> By: Mike http://www.canadiancapitalist.com/dont-ignore-inflation/#comment-13210 Mike Thu, 30 Nov 2006 14:38:08 +0000 http://www.canadiancapitalist.com/2006/11/30/dont-ignore-inflation#comment-13210 Phil you make good points and I feel the same way. A huge part of the equation that is overlooked sometimes is how well you invest your money. Picking quality investments is harder than saving money. Phil you make good points and I feel the same way. A huge part of the equation that is overlooked sometimes is how well you invest your money. Picking quality investments is harder than saving money.

]]> By: Canadian Dream http://www.canadiancapitalist.com/dont-ignore-inflation/#comment-13209 Canadian Dream Thu, 30 Nov 2006 14:30:20 +0000 http://www.canadiancapitalist.com/2006/11/30/dont-ignore-inflation#comment-13209 I've always had a problem with inflation. The government's number always seems high to my personal situation. They base it on a basket of goods, some of which don't apply to me (ie: tobacco). So my personal inflation number is usually in the range of 2%. So I tend to take inflation out of my retirement projections by lowering my rate of return by 2%. To date I've been using an adjusted 5%, since I don't have a good idea of my long term average rate of return is. I’ve always had a problem with inflation. The government’s number always seems high to my personal situation. They base it on a basket of goods, some of which don’t apply to me (ie: tobacco). So my personal inflation number is usually in the range of 2%. So I tend to take inflation out of my retirement projections by lowering my rate of return by 2%. To date I’ve been using an adjusted 5%, since I don’t have a good idea of my long term average rate of return is.

]]> By: Phil S http://www.canadiancapitalist.com/dont-ignore-inflation/#comment-13207 Phil S Thu, 30 Nov 2006 13:20:20 +0000 http://www.canadiancapitalist.com/2006/11/30/dont-ignore-inflation#comment-13207 I've always found these financial projections to be rather hokey anyways. The reality is that your investment returns are never as "straight-line" as in your projections. Some years you get a 25% return, other years you can get a -15% return. I think it is better to stay focused on minimizing your losses by putting money into the market at appropriate times, such as immediately AFTER a major correction and buying QUALITY stocks, meaning ones with a high probability that it will still be around when you retire. I don't believe in making RSP contributions at regular intervals unless it's going into some kind of a cash or money market account, waiting to be deployed at the times when your returns are likely to be higher. Of course, our wonderful government has made investing these days kind of a minefield with all of the unpredictable rule changes. Who knows what's coming down the pike in the next few months? Now is the time to put RSP contributions in T-Bills or something until all these rule changes blow over. Then once we have the new ground rules, it's time to decide where to put it. Of course, I got whalloped on the nightmare on Halloween, which I'm not soon to forget. I’ve always found these financial projections to be rather hokey anyways. The reality is that your investment returns are never as “straight-line” as in your projections. Some years you get a 25% return, other years you can get a -15% return. I think it is better to stay focused on minimizing your losses by putting money into the market at appropriate times, such as immediately AFTER a major correction and buying QUALITY stocks, meaning ones with a high probability that it will still be around when you retire. I don’t believe in making RSP contributions at regular intervals unless it’s going into some kind of a cash or money market account, waiting to be deployed at the times when your returns are likely to be higher. Of course, our wonderful government has made investing these days kind of a minefield with all of the unpredictable rule changes. Who knows what’s coming down the pike in the next few months? Now is the time to put RSP contributions in T-Bills or something until all these rule changes blow over. Then once we have the new ground rules, it’s time to decide where to put it. Of course, I got whalloped on the nightmare on Halloween, which I’m not soon to forget.

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