Spring Surprises

Apr 20, 2018 | Dian Chaaban


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With Mother Nature’s surprise spring storm last week, I’ve noticed that many clients and friends have booked last minute trips to find Spring-like weather elsewhere. Others are grudgingly putting their winter coats back on and finding new motivation to save for their next trip. If you’re on the same page, here is a bucket list of 20 travel spots you must visit in your lifetime.

 

The Bank of Canada didn’t surprise us on Wednesday this week by leaving its policy rate at 1.25%. This was not a surprise, given that Governor Stephen Poloz had sounded far too dovish lately to make a move on rates. But that dovish tone, which came through again in the Bank of Canada’s policy statement, left some economists a little bit puzzled. The central bank has said for some time now that it’s guided by the numbers. So what are these numbers saying? Well, for an inflation-targeting central bank, we’d have to say pretty good. Inflation is running around 2%—right where the bank wants it—and wage pressures are accelerating. Despite some bumps early in the year, Canada’s economy should grow 2% this year. Nonetheless, Poloz is worried that without the current level of policy support, Nafta-related uncertainty and competitiveness challenges resulting from U.S. policy changes will cause Canada’s economy to falter.

 

Taking a closer look at the numbers, Statistics Canada reported this morning that Canada's annual inflation rate has continued creeping higher than last month to hit 2.3% (by comparison, inflation was 2.2% in February and 1.7% in January). Furthermore, seven of the eight components the data agency tracks rose in March. The lone exception was clothing and footwear, which got 0.1% cheaper in the previous 12 months. Gasoline prices were a whopping 17.1% higher in March than they were a year earlier – up 2.9% in the month and they are on track to keep rising. Worth noting that without gasoline numbers, the country's overall inflation rate would have been 1.8%; but we’re in Canada after all, where the energy sector accounts for about ~20% of our index.

 

Earlier this week, the central bank said that due to the temporary effects of higher gas prices and minimum wage increases it has raised its inflation projections. The bank is now expecting the measure to average 2.3% in 2018 before settling back down to 2.1% in 2019. Note the reality check that comes with 2017’s average inflation rate of 1.6%. Click here for historical rates.

 

Inflation isn’t exciting, so no one really talks about it but it is in fact the silent killer of your money – so planning to beat inflation through investing is a big pieces of your future financial success. Warren Buffett, one of the greatest investors of all time, has two rules of investing:

 

  1. Don’t lose money.
  2. Don’t forget rule No. 1

 

Easy words of wisdom like these could make you assume that parking your savings in a bank account (or under the mattress) is safer than investing in the market — especially given the volatility we’ve had these past few months. But, if you think investing in the market is risky, the scary truth is that it’s risky for you not to invest - because of inflation.

 

Inflation is the ‘general increase in the prices of goods and services, and the fall in the purchasing power/value of your money over time’. It affects all of us and no one gets a free pass - even if you’ve been a disciplined saver or have adopted a high-income, low-expense lifestyle. Inflation creeps up slowly and is appropriately referred to as the silent killer of your finances. Putting that into real dollars, what you could have purchased for a $1.00 in 1950 would cost you $10.45 today.

 

So how does one beat inflation? Have a properly diversified portfolio that includes exposure to equities, stay invested in the market through good times & bad, employ strategic income splitting strategies to make your household income & expenses efficient leading up to and throughout retirement, live and active & healthy lifestyle (keeping up with inflation also means keeping up with rising healthcare costs while living longer), and make sure to have a written financial plan in place to monitor where you are going and if you are on track.

 

Now you are in-the-know with Word on the Street.

 

Enjoy your weekend,

 

D.

Dian Chaaban
Investment & Wealth Advisor
416.842.4234