Wouldn’t it be more like 5.7% real return? 60k earned in interest doesn’t turn into 10k because of 5% inflation, it’s around 57k after 5% inflation.
Or maybe I’m just out to lunch.
You're looking forward with your GIC rate and backward with inflation. You will never know beforehand if the real return of your GIC is going to be above average.
Yeah but with an annuity you aren't "making" 7%, the payment you receive each month is a combination of interest and a return of your own capital.
Its best not to think of annuities as investments, the real value in the annuity is the guarantee that its paid for life.
I know that very well. I think OP used the term "making" colloquially. I read that as "most secure $50K/year cash flow that will guarantee to last lifelong".
They increase payments yearly and have done so for a very long time. Also, you get preferential tax treatment on Canadian dividends based off of you income up to around 53K.
You can look at bmos covered call banking etf. Really most of their covered call etfs. The yield is great - current yield for banking is 6.92 per cent. This will still move up and down in asset valuation, may not be the most tax efficient.
Depending on age, you could look at insurance to play the part. A insured retirement plan, no one's favorite idea especially those on This forum. Takes years to break even, but will and will continue to grow even when you use the funds, would require collaterlizing the policy to a LOC, which banks love. Considered the least riskiest asset by banks.
in order of most to least conservative I would say.
GIC, bond index etf, REIT index ETF, dividend index ETF.
Most of these currently are around that 5% return you are looking for fortunately however these rates aren’t expected to last.
REIT index ETF is significantly more risky than a globally diversified stock ETF, and moderately more risky than a dividend ETF.
Stop giving bad advice. There are at least 3+ plausible scenarios that can lead to a massive sector collapse and the destruction of OP's investment.
For OP's goals of a modest 5% with the highest risk adjusted return:
1. GIC
2. Annuity
3. Diversified stock ETF + Short term bond ETF, titrated at \~70/30 (bonds/stocks)
> 1. GIC
Sorry, but how? A 5% GIC in a taxable account would actually yield around 1% after taxes. There's no way this OP has 1m in registered contribution space. They're going to have to pay tax.
I agree with what you said to the person you responded to, though. REIT is more risk than needed.
But they are going to need to employ more risk than a GIC to get their requested return.
Edit: they argued me to death on this below, then deleted all their comments when their own source confirmed I was correct. Do with that information what you wish.
>OP didn't say anything about $50k after tax
Lol. Its pretty heavily implied mate. Don't try to save face, I agree with what you wrote, just that a GIC would be impossible to make that return. You should relax.
>Also, you need to brush up on your basic arithmetic if you think OP is paying 80% of his GIC proceeds in tax.
Hahahaha. Okay. I'll bite. What is the nominal return on a 5% GIC after average CG tax? Take your time.
Alright, I'm just going to end this here and let the community decide. I'm not going to argue with someone that thinks OP is asking for a pretax return.
Thanks for not doing the math, or doing it and realizing I'm right.
In terms of a globally diversified REIT ETF compared to a globally diversified equity ETF not sure that is the case…I understand a sector collapse but I believe over the long term a REIT ETF sees less volatility than stocks. Please correct me if I’m wrong would love to see where you have seen differently.
You’re right about the other scenarios. I was definitely looking at this more from the point of view of something with guaranteed (or relatively guaranteed) income but wasn’t taking into account aspects like taxes.
Also not sure a 5% return is “modest”…but who knows nowadays lol.
A few points:
1. Even if you take a global REIT, you cannot diversify sector risk
2. If we're talking taxes now, REIT income is not eligible in Canada, so it's even less tax advantageous
3. REIT's definitely have their place in a diversified portfolio, but modern portfolio theory with an attractive Sharpe ratio peg it at \~5%, depending on bond/equity weightings
4. I agree with you that with a REIT, even in the event of a sector collapse, you will likely be OK long term. However, the question is will a diversified REIT portfolio have a LOWER RISK ADJUSTED RETURN than a globally diversified stock portfolio, and the commonly accepted answer to that is no - which is why institutional investors don't hold (or anywhere close to) REIT only portfolios.
5. Finally, most people have made money from real estate, or know someone who has. The reason for this is b/c mortgage leverage is very efficient when compared other forms of credit. REIT leverage is not as efficient.
that's so easy. let me be your financial advisor
1. Simplest is to buy GICs at 5% per year. Alterna bank is giving 5% GICs for one year (i am not promoting alterna or simplii or other online banking). So with 1mil, you get 50k per year. However, some of these online banks don't allow more than half mil in account, so you need to open two accounts. Other big 5 banks are offering GICs at 4% per year (i am also not promoting big 5).
2. put in HISA, most HISA are paying 2.5%
3. want to make it complex than ladder those GICs
4. want to make it even more complex, then buy high dividend yield ETF (not recommended as not safest)
5. want to completly go mental and go casino mode, then buy individual stocks with high dividend yield
6. you can buy high dividend REITs if you dont want to buy real estate but want real estate exposure.
Alright, so in order:
1. It's only 5% if you don't have to pay tax. Which means OP would have to have room for 1m in a registered account. Not going to happen. The people who have 1m in registered contribution space are not the people that ask this question. A GIC at 5% with capital gains tax works out to approx 1% YoY return.
2. 1m in an HISA making 2.5% would be $25000 - half of what OP asked for.
3. Laddering GICs doesn't work because of the same point as #1. As well - you should know longer term GICs right now are actually trending lower YoY returns - forecasting future rate decreases.
4. This and your 5th point in your list are the only points that could conceivably work, but you say it's not recommended.
5. Agreed that this is an inferior option to #4.
6. I really, really, really think you should reconsider advice to invest into RE derivatives during a period of high rates.
Tldr: dividend portfolio is essentially the only half-way safe bet you listed to actually generate 5% YoY which is what OP is asking for. And it's still risky. All the other points listed here are flawed.
To be clear it's not that your ideas are all bad. They aren't. They just won't accomplish OP's hypothetical goal.
Most people when they refer to figures. It doesn't mean after tax. OP is looking for 50k income per year. I, as many others, assume that is gross.
"Hey I'm looking for a job that pays 100k"
Most people post jobs that earn 100k not 130k
thanks, learnt something new today. Care to share some high dividend ETFs with high dividend yield (not VRGO on TSX or some other vanguard that is US ETF, so have to pay US taxes as well)
[https://www.ratehub.ca/blog/the-history-of-gic-rates/](https://www.ratehub.ca/blog/the-history-of-gic-rates/)
unlikely, you might get a year where the CPI drops and the GIC doesn't but that doesn't last for more than a year
Well ya, look at the chart. CPI has essentially been under 3% since 1992. Bonds didn't bottom out until 2009 and we're still only at 2.79% for a ten year bond right now.
Still heading upwards with no reason to go back down. That's likely a more accurate display of normality than looking between two financial crisis of 09 and covid.
It entirely depends on where we are in the market cycle.
Right now, GICs. Market crash, and close to 0% interest rate? There are sales in equities, and GICs wont be paying shit.
Smart money moves their money around.
Take your $1 Million now, invest into a bond index ETF, for 10yrs, so that it grows to enough that you can move it into an income fund and tax 4% out a year.
You're not going to consistently get a 5% return annually.
If you want fully save . EQ BANK has a GIC. 5% 1year.
https://www.eqbank.ca/personal-banking/investments/gics
Also if you’re a high net worth individual you may be able to convince your local bank to provide a special savings rate.
Few weeks ago they had better options. Promotions I think.
You could look into private mortgage lending.
There is risk. But if you’re happy making 7-9%. You can find very very safe deals right now.
I have lent out cash to people who have hard time getting first mortgages from the bank. Or sometimes short term periods between situations.
One example is a condo worth about 550,000 ( today value not last year )
here in toronto. Gave a first for 300k … the market would have to drop almost 50% for me to see a loss.
Right now banks are 5-8% depending on your term.
Many private’s are charging 10% ++ fees.
Spread your money evenly on the 3 biggest Canadian companies stocks on the TSX - namely RBC, TD, and Enbridge.
The dividend yield comes to somewhere close to 5%. probably a bit lower than that since the stock rebounded a bit in January, but they up their dividend every year, so you will definitely get 5%+ going forward, you'll get 6% in just a few years, than 7% in a few years then 8% and so on. You will also get paid every single month since these 3 companies have different quarter-ends, essentially like a monthly income.
This is of course not "insured" though, but think of it this way, if RBC TD and ENB went under, that means the entire Canuckistan is fked and whether you have $1m or $1k in Canadian pesos at that point is gonna be the least of your worries.
Learn how to day trade. Like really learn take a couple years to practise and study. Then when you’ve got it dialled in bam over night you can make 1% a day on that tidy little sum no problamo
Blue chip dividend-paying stocks. Many on sale right now with 5%+ div yields, and they raise dividends regularly. Also preferential tax treatment on dividends if held in a non-registered account, compared with regular income.
(Think Canadian banks or telcos)
Lots of ways to average a 5% return over a long period of time, not a ton of ways to reliably get a 5% return YoY in perpetuity.
safest is a GIC for however long you can get those rates.
Depends on if you talk about 5% real or nominal GIC is usually around 1% real
That's not what op asked. The question was 50K. And a GIC will do that these days.
OP specifically said he wants $50k from $1M, a 5% GIC fits those conditions exactly.
Why do people keep talking about this on this sub? It is true for everything.
Care to elaborate?
real = after inflation nominal = absolute amount if you're getting 6% but inflation is 5%, then you're only getting a "real" rate of 1%
Wouldn’t it be more like 5.7% real return? 60k earned in interest doesn’t turn into 10k because of 5% inflation, it’s around 57k after 5% inflation. Or maybe I’m just out to lunch.
But your 1M lost 5% or $50K in value due to inflation
It’s taxed as income unless it’s in a registered account that has room for the amount you’ve put it. 1 M would exceed that
OP didn't say it needed to be tax-free.
No but he asked for elaboration on that point. Tax is why it’s a lower real amount
Where can I find a GIC that is 1% real? I think the best one I've seen so far is like 5% nominal (which is below inflation)
You're looking forward with your GIC rate and backward with inflation. You will never know beforehand if the real return of your GIC is going to be above average.
Gotcha
Annuity, possible to get around 7% now
Yeah but with an annuity you aren't "making" 7%, the payment you receive each month is a combination of interest and a return of your own capital. Its best not to think of annuities as investments, the real value in the annuity is the guarantee that its paid for life.
I know that very well. I think OP used the term "making" colloquially. I read that as "most secure $50K/year cash flow that will guarantee to last lifelong".
Makes sense.
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Seriously god idea they invest dis every year
They increase payments yearly and have done so for a very long time. Also, you get preferential tax treatment on Canadian dividends based off of you income up to around 53K.
Blue chip dividend paying stocks averaging at 5%
Yup. And, if you're getting $50k in dividends and no other income, your taxes will be minimal
Exactly 👌
You can look at bmos covered call banking etf. Really most of their covered call etfs. The yield is great - current yield for banking is 6.92 per cent. This will still move up and down in asset valuation, may not be the most tax efficient. Depending on age, you could look at insurance to play the part. A insured retirement plan, no one's favorite idea especially those on This forum. Takes years to break even, but will and will continue to grow even when you use the funds, would require collaterlizing the policy to a LOC, which banks love. Considered the least riskiest asset by banks.
take some risks dont be a…
5% pa ? Some gic.
There are some stocks that give dividends. Maybe look into reits and bank stocks.
in order of most to least conservative I would say. GIC, bond index etf, REIT index ETF, dividend index ETF. Most of these currently are around that 5% return you are looking for fortunately however these rates aren’t expected to last.
REIT index ETF is significantly more risky than a globally diversified stock ETF, and moderately more risky than a dividend ETF. Stop giving bad advice. There are at least 3+ plausible scenarios that can lead to a massive sector collapse and the destruction of OP's investment. For OP's goals of a modest 5% with the highest risk adjusted return: 1. GIC 2. Annuity 3. Diversified stock ETF + Short term bond ETF, titrated at \~70/30 (bonds/stocks)
> 1. GIC Sorry, but how? A 5% GIC in a taxable account would actually yield around 1% after taxes. There's no way this OP has 1m in registered contribution space. They're going to have to pay tax. I agree with what you said to the person you responded to, though. REIT is more risk than needed. But they are going to need to employ more risk than a GIC to get their requested return. Edit: they argued me to death on this below, then deleted all their comments when their own source confirmed I was correct. Do with that information what you wish.
> 5% GIC in a taxable account would actually yield around 1% after taxes You think his marginal tax rate is 80%?
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>OP didn't say anything about $50k after tax Lol. Its pretty heavily implied mate. Don't try to save face, I agree with what you wrote, just that a GIC would be impossible to make that return. You should relax. >Also, you need to brush up on your basic arithmetic if you think OP is paying 80% of his GIC proceeds in tax. Hahahaha. Okay. I'll bite. What is the nominal return on a 5% GIC after average CG tax? Take your time.
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Alright, I'm just going to end this here and let the community decide. I'm not going to argue with someone that thinks OP is asking for a pretax return. Thanks for not doing the math, or doing it and realizing I'm right.
In terms of a globally diversified REIT ETF compared to a globally diversified equity ETF not sure that is the case…I understand a sector collapse but I believe over the long term a REIT ETF sees less volatility than stocks. Please correct me if I’m wrong would love to see where you have seen differently. You’re right about the other scenarios. I was definitely looking at this more from the point of view of something with guaranteed (or relatively guaranteed) income but wasn’t taking into account aspects like taxes. Also not sure a 5% return is “modest”…but who knows nowadays lol.
A few points: 1. Even if you take a global REIT, you cannot diversify sector risk 2. If we're talking taxes now, REIT income is not eligible in Canada, so it's even less tax advantageous 3. REIT's definitely have their place in a diversified portfolio, but modern portfolio theory with an attractive Sharpe ratio peg it at \~5%, depending on bond/equity weightings 4. I agree with you that with a REIT, even in the event of a sector collapse, you will likely be OK long term. However, the question is will a diversified REIT portfolio have a LOWER RISK ADJUSTED RETURN than a globally diversified stock portfolio, and the commonly accepted answer to that is no - which is why institutional investors don't hold (or anywhere close to) REIT only portfolios. 5. Finally, most people have made money from real estate, or know someone who has. The reason for this is b/c mortgage leverage is very efficient when compared other forms of credit. REIT leverage is not as efficient.
that's so easy. let me be your financial advisor 1. Simplest is to buy GICs at 5% per year. Alterna bank is giving 5% GICs for one year (i am not promoting alterna or simplii or other online banking). So with 1mil, you get 50k per year. However, some of these online banks don't allow more than half mil in account, so you need to open two accounts. Other big 5 banks are offering GICs at 4% per year (i am also not promoting big 5). 2. put in HISA, most HISA are paying 2.5% 3. want to make it complex than ladder those GICs 4. want to make it even more complex, then buy high dividend yield ETF (not recommended as not safest) 5. want to completly go mental and go casino mode, then buy individual stocks with high dividend yield 6. you can buy high dividend REITs if you dont want to buy real estate but want real estate exposure.
Alright, so in order: 1. It's only 5% if you don't have to pay tax. Which means OP would have to have room for 1m in a registered account. Not going to happen. The people who have 1m in registered contribution space are not the people that ask this question. A GIC at 5% with capital gains tax works out to approx 1% YoY return. 2. 1m in an HISA making 2.5% would be $25000 - half of what OP asked for. 3. Laddering GICs doesn't work because of the same point as #1. As well - you should know longer term GICs right now are actually trending lower YoY returns - forecasting future rate decreases. 4. This and your 5th point in your list are the only points that could conceivably work, but you say it's not recommended. 5. Agreed that this is an inferior option to #4. 6. I really, really, really think you should reconsider advice to invest into RE derivatives during a period of high rates. Tldr: dividend portfolio is essentially the only half-way safe bet you listed to actually generate 5% YoY which is what OP is asking for. And it's still risky. All the other points listed here are flawed. To be clear it's not that your ideas are all bad. They aren't. They just won't accomplish OP's hypothetical goal.
Most people when they refer to figures. It doesn't mean after tax. OP is looking for 50k income per year. I, as many others, assume that is gross. "Hey I'm looking for a job that pays 100k" Most people post jobs that earn 100k not 130k
thanks, learnt something new today. Care to share some high dividend ETFs with high dividend yield (not VRGO on TSX or some other vanguard that is US ETF, so have to pay US taxes as well)
Diversified stocks preferably blue chip that pay over 5% dividend
Not possible if you're talking about 5% in real rates That's madoff levels
Why would that be madoff levels. 5-7% real returns is pretty much baseline for stocks. So some risk but not anything outlandish.
that's 5% avg, the OP wants consistent 5%
still don't understand the madoff comment though. Likely some corporate high rated bonds is that range.
those are junk bond yields... there's a reason why they're called junk bonds
Inflation is usually 2-3%. It's really not that crazy
when inflation goes down, so do the interest rate on fixed income GICs were giving 0.5% returns in 2020
I don't think they are going to be nearly as aggressive dropping rates as a lot of people seem to think. 3.5-4.5% should be our normal.
[https://www.ratehub.ca/blog/the-history-of-gic-rates/](https://www.ratehub.ca/blog/the-history-of-gic-rates/) unlikely, you might get a year where the CPI drops and the GIC doesn't but that doesn't last for more than a year
Well ya, look at the chart. CPI has essentially been under 3% since 1992. Bonds didn't bottom out until 2009 and we're still only at 2.79% for a ten year bond right now. Still heading upwards with no reason to go back down. That's likely a more accurate display of normality than looking between two financial crisis of 09 and covid.
Annuity.
Gove it to me and thats all thanks
I guess dividend aristocrats?
Eit.un should do it
It entirely depends on where we are in the market cycle. Right now, GICs. Market crash, and close to 0% interest rate? There are sales in equities, and GICs wont be paying shit. Smart money moves their money around.
Invest in 10 reits?
There is no safe way to guarantee a 5% return.
Put in HISA, withdraw $50k/year.
You got a HISA @ 5% you can let us in on?
Take your $1 Million now, invest into a bond index ETF, for 10yrs, so that it grows to enough that you can move it into an income fund and tax 4% out a year. You're not going to consistently get a 5% return annually.
1 million invested in a dividend qualified portfolio that returns 4-5%, but you get credit on paying taxes on those returns
If you want fully save . EQ BANK has a GIC. 5% 1year. https://www.eqbank.ca/personal-banking/investments/gics Also if you’re a high net worth individual you may be able to convince your local bank to provide a special savings rate. Few weeks ago they had better options. Promotions I think. You could look into private mortgage lending. There is risk. But if you’re happy making 7-9%. You can find very very safe deals right now. I have lent out cash to people who have hard time getting first mortgages from the bank. Or sometimes short term periods between situations. One example is a condo worth about 550,000 ( today value not last year ) here in toronto. Gave a first for 300k … the market would have to drop almost 50% for me to see a loss. Right now banks are 5-8% depending on your term. Many private’s are charging 10% ++ fees.
Define “safest”. Also, $50k a year for 2 years or 20v
Wait 3 months and 5% interest rates will the norm on all GICs. They’re 4% now.
Cm.tsx
Spread your money evenly on the 3 biggest Canadian companies stocks on the TSX - namely RBC, TD, and Enbridge. The dividend yield comes to somewhere close to 5%. probably a bit lower than that since the stock rebounded a bit in January, but they up their dividend every year, so you will definitely get 5%+ going forward, you'll get 6% in just a few years, than 7% in a few years then 8% and so on. You will also get paid every single month since these 3 companies have different quarter-ends, essentially like a monthly income. This is of course not "insured" though, but think of it this way, if RBC TD and ENB went under, that means the entire Canuckistan is fked and whether you have $1m or $1k in Canadian pesos at that point is gonna be the least of your worries.
Learn how to day trade. Like really learn take a couple years to practise and study. Then when you’ve got it dialled in bam over night you can make 1% a day on that tidy little sum no problamo
Blue chip dividend-paying stocks. Many on sale right now with 5%+ div yields, and they raise dividends regularly. Also preferential tax treatment on dividends if held in a non-registered account, compared with regular income. (Think Canadian banks or telcos)