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rob carrick

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The idea of saving and earning investment income is dead for now.

Hyperbole? Certainly. But the fact that this statement came from a money savvy 30-year veteran of high finance is noteworthy. Let's call it a shout of frustration about how hard it is to save and invest in today's world. Yes, even high net worth people are worried.

A reader named Murray Eastwood made the comment about saving and investing in an e-mail sent last week. He's 55, he works for a company that organizes and finances large infrastructure projects and he has amassed substantial savings. "I believe I have done all the right things, worked hard, paid off debt," he wrote in response to a column last week on the financial assumptions that go into retirement planning.

The column (read it here) quoted finance professor and author Moshe Milevsky as saying that an after-inflation rate of return of 1.5 to 3 per cent was reasonable in retirement planning. Based on his own experience, Mr. Eastwood wonders about that. "I don't know how other pension fund managers are doing (not well, I understand) but the idea of saving and earning investment income is dead for now," he wrote. "A 1.5-per-cent real return could be a dream."

Mr. Eastwood has a background in risk management and underwriting, which means he's well equipped to understand why the global economy is in such bad shape today. His main points are as follows:

  • Bonds and guaranteed investment certificates offer returns below the inflation rate, and the differential has grown in recent days.
  • People who try for higher yields with longer-term bonds could get hurt if interest rates rebound.
  • The stock market is being pounded by the European banking crisis and a poor global economic outlook that has reduced demand for the resources so important to Canada.
  • Our energy industry is under pressure as a result of rising production of oil and gas in the United States.
  • Tax relief, at least in Ontario where he lives, is unlikely.

"It is very hard to remain positive about the magic of finance with this experience and the current outlook," Mr. Eastwood wrote in his e-mail.

I posted Mr. Eastwood's comment about the idea of saving and investing being dead on my Facebook page on June 7, and it flushed out quite a number of optimists. They said that today's beat-up stock markets offer a buying opportunity, that saving is a virtue even if rates are low, and that debt reduction is never a bad way to deploy money.

Mr. Eastwood is a proxy for everyone who's sick of hearing all that. In a world of near-zero interest rates and unreliable stock markets, he and others are starting to wonder about the long-standing rules of wealth building.

Like many people, Mr. Eastwood is especially peeved about the impact low interest rates have had on returns from interest-paying investments and savings vehicles. Rates fell hard after the financial crisis hit its worst point in 2008-09, and they've stayed low. In fact, the latest round of global economic uncertainty pushed the yield on the 10-year U.S. Treasury bond below 1.5 per cent earlier this week, the lowest point in 60 or so years. Here in Canada, a 10-year Government of Canada bond has a yield of about 1.7 per cent.

Low interest rate are helpful in that they make it cheap for businesses and individuals to consume and invest. But Mr. Eastwood said it looks like heavily indebted individuals and governments are the main beneficiaries, while those who want to save and invest are losers. "It seems like negative reinforcement for managing one's affairs in a responsible manner," he wrote.

Mr. Eastwood has seen financial market upheaval before. Back in 1997-98, a currency crisis in Asia and Russia caused a big stock market crash. There was also the tech meltdown of a decade ago. Today looks worse to him. "I haven't seen a situation so widespread before," he said.

I responded to Mr. Eastwood's e-mail by jokingly calling it the most depressing note I'd had in quite some time from a reader. "I didn't mean to depress anyone," he replied. "But some days you have to wonder where this is all going."


A round up of saving rates and recent investing returns


Top return on a high interest savings account


Typical big bank return on high rate savings


Yield on a five-year Government of Canada bond


Top yield on a 5-year GIC


Typical big bank return on a 5-year GIC


One-year loss for the S&P/TSX composite index


Average one-year loss for the 12 largest Canadian equity funds



*Accelerate Financial, Peoples Trust


**Achieva Financial




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