Today’s turmoil in stocks and bonds presents a serious problem for the many people who poured their pandemic savings into investments.
If these intrepid investors hold the line and wait 10 years to evaluate their success, they will almost certainly be happy with the results. But right now, they’re very likely questioning their decision to turn money stockpiled during pandemic lockdowns into stocks, bonds, funds and more.
A recent survey of Carrick on Money readers fleshed out some details on the hundreds of billions dollars that were saved during the pandemic by fortunate household where jobs and incomes weren’t interrupted. Just over 80 per cent of the 1,900 participants said they managed to save at least something.
A little over one-third of those who saved currently have $10,000 or less, while 21 per cent have between $10,000 and $25,000. There are some heavy hitters as well – 14 per cent indicated they built up six-figure savings.
Asked to say where they keep their savings, the most popular response at 38 per cent was in stocks, bonds and funds. It’s worth a note here that if you want to save money, you keep it safely in a savings account. When investing in stocks and bonds, the potential for higher returns comes with the risk of loss. But that’s now obvious, right? Both the stock and bond markets were down by close to 12 per cent as of late September.
Nearly 30 per cent of survey participants said they keep their money in a big bank savings account, while 21 per cent used a high interest savings account at an alternative bank. Nice work if you’ve broken away from a big bank account to get more bang for your buck at a competitor. Almost 6 per cent have their money in guaranteed investment certificates and 1 per cent are holding cash at home.
Pandemic savings were clearly a big win for the investing industry. Four in 10 survey participants who put money away said they used some or all of their savings to invest. The next most popular response at almost 17 per cent was home renovations, followed by debt repayment at 10.5 per cent travel at close to 9 per cent.
We may be down from peak savings, but there are still billions of dollars on the sidelines. Almost 40 per cent of people who continue to hold savings see the money as an emergency fund, while 35 per cent have plans to spend their savings later on. A little over 7 per cent say they haven’t had a chance yet to spend their bucks. The other 19 per cent chose this perfectly rationale answer: “I don’t know what the heck to do with my money.”
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Rob’s personal finance reading list
FOMO turns to FOOP
So much for the fear of missing out on home ownership. Now, buyers are experiencing the fear of overpaying. Check out these numbers to see how sale prices are trending lower. Now for an update on affordability, as determined by prices, mortgage rates and the mortgage stress test. There’s some encouraging news here – affordability remains below March levels, but it improved during the summer.
Where to find free furniture
A list of apps, online marketplaces and other resources where you can find furniture being given away by people.
Three ways to simplify your investing
Suggestions for investors who want to put their money to work in an effective way with minimal fees and complication.
Top ETFs for socially responsible investors
The independent investing research company Morningstar offers its gold, silver and bronze choices for best exchange traded funds holding stocks screened for their performance according to environmental, social and governance – ESG – factors.
Ask Rob
Q: I’d like some cash from my home to help my daughter buy up from her condo. I own my house. What are the alternatives?
A: If you have a home equity line of credit, you could tap that for cash to give to your daughter. You’d have to make minimum payments each month of the amount of interest owing and pay back the principal at some point. A reverse mortgage could also free up some money for your daughter. The amount owing on the reverse mortgage would be repaid when you sell your home. Two caveats on the reverse mortgage – interest is charged on the amount of your mortgage at rates that today range from 6.99 per cent to 8.15 per cent (the HELOC would be around 5.95 per cent). The ever-growing amount you’ll have to repay on the reverse mortgage will eat into your proceeds when you sell your home eventually. Reverse mortgages can be a good short-term borrowing tool, but long-term use can seriously erode your home equity.
Do you have a question for me? Send it my way. Sorry I can't answer every one personally. Questions and answers are edited for length and clarity.
Today’s financial tool
A briefing for newcomers to Canada on the importance of building credit.
The Money-Free Zone
I’m binging on 1972 Canada-USSR hockey summit nostalgia. I started watching the CBC documentary Summit 72, and am about to read Ken Dryden’s new book, The Series. As a kid, I watched in horror when Canada got smoked in the first game, and celebrated as my public school class took a break from math, reading and stuff to watch Game Eight
Listen to this
I talk about retirement planning on the Mastering Money podcast by Chartered Professional Accountants of Canada.
Attention GenZ and millennials
Have soaring prices made dating harder? Got any helpful tips or horror stories about splitting the bill? If you’re dating or in a new relationship and willing to share your story, email the Globe’s personal finance editor and Stress Test podcast host Roma Luciw at rluciw@globeandmail.com
In case you missed these Globe and Mail personal finance-related stories
- We’re heading into a much different world. Investors in stocks, bonds and real estate aren’t going to like it
- What is a robo-adviser? Who should use one to manage their investments?
- Martha wants to provide financial help to her children but worries about leaving herself short
More Rob Carrick and money coverage
Subscribe to Stress Test on Apple podcasts or Spotify. For more money stories, follow me on Instagram and Twitter, and join the discussion on my Facebook page. Millennial readers, join our Gen Y Money Facebook group.
Even more coverage from Rob Carrick:
- 🎧 Catch up on Stress Test: Is the middle class dead for millennials and Gen Z? • Gas prices are soaring. Are electric vehicles an affordable solution? • Crypto is booming, but should you invest? • How are young Canadians dealing with soaring rents? • Inflation is squeezing our finances. What can we do about it? • Is a hot housing market squeezing Canadians out of their small towns?
- ✔️ The housing file: How bad is housing affordability? Even a crash won't help • Sell the family home to lock in profit and then rent? Better not • Why young adults can't afford houses: Hard work got you more in the past than it does now • Five reasons you should not buy a house till you're at least 30 • Now more than ever, owning a house is not a retirement plan
- 📈 Investing: The 2022 ETF buyer's guide: Best Canadian equity funds • The 2022 Globe and Mail digital broker ranking: Does the zero-commission revolution flip the script on who's best? • With bonds sinking, conservative investors are waking up to risks they never saw coming • A five-step plan for dealing with the sad fact that almost every investment is falling lately • The best financial advice in advance of retirement? Work on your marriage • One-year GICs are the best deal in town for safety seekers • What to do if the financial plan you paid thousands for disappoints
- 💰 Your money: Are you prepared for the pandemic wealth boom to blow up in our faces? • This hard-working 24-year-old is nailing it financially. But where’s the happiness? • Who should and shouldn’t worry about the wave of rate increases this year, and what every stressed-out borrower should do right now • Don’t make this potentially costly assumption about the CPP Survivor’s pension
Rob Carrick