6% a year low-risk Canadian Corp. Bonds

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TRL654
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6% a year low-risk Canadian Corp. Bonds

Post by TRL654 » Sat Mar 26, 2016 6:33 pm

Hello,

Soon I will have 1.5 million to invest, CDN, with no debt to pay down. I plan upon retiring in 5-7 years. I would like to get 6% a year, pre-tax from this money from a safe low-risk investment. Since equities have been under performing, I want to avoid low cost mutual funds. I am in Canada, so I'm thinking about CDN banks short duration corporate debt. Maturity in 2018, Bank of Nova Scotia, yeild at 6%, and coupon rate at 6. That looks pretty good to me. How can indeed confirm the yield is so, and what calc. should I use. Also is that yeild annual? Any other suggestions, doesn't necessarily have to be corporate bonds, about how to get 6% a year for the next 5-7 years.


http://www.globeinvestor.com/servlet/Pa ... ELD&page=1

Much thanks.

WasabiOsbourne
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Re: 6% a year low-risk Canadian Corp. Bonds

Post by WasabiOsbourne » Sat Mar 26, 2016 7:07 pm

TRL,

i hate to be potential bearer of bad news.... but i can't believe that's a true yield... i see sarnia and hamilton (cities) of similar term around 3% yield.

i am not sure although i used to do something like that for a living. but that yield just doesn't seem right..... i would wonder one of two things: 1) does it really mature in 2018? or can they extend it and they will? although that doesn't really make sense either; 2) is the $100 price correct? suspicious to me that the it's right at par price. could be some sort of "automatic fill" number........

anyway, i would say that yield can't be right.......... also, it's obvious the first yield in the column is wrong and they have picked up on it.

hope i haven't misread. 2018 bond? meaning two years?

WasabiOsbourne
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Re: 6% a year low-risk Canadian Corp. Bonds

Post by WasabiOsbourne » Sat Mar 26, 2016 7:09 pm

http://www.financialpost.com/markets/da ... adian.html

looks like more 1.70% to 2.30% range for a 2 year-ish bond like that.

TRL654
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Re: 6% a year low-risk Canadian Corp. Bonds

Post by TRL654 » Sat Mar 26, 2016 7:29 pm

WasabiOsbourne wrote:TRL,

i hate to be potential bearer of bad news.... but i can't believe that's a true yield... i see sarnia and hamilton (cities) of similar term around 3% yield.

i am not sure although i used to do something like that for a living. but that yield just doesn't seem right..... i would wonder one of two things: 1) does it really mature in 2018? or can they extend it and they will? although that doesn't really make sense either; 2) is the $100 price correct? suspicious to me that the it's right at par price. could be some sort of "automatic fill" number........

anyway, i would say that yield can't be right.......... also, it's obvious the first yield in the column is wrong and they have picked up on it.

hope i haven't misread. 2018 bond? meaning two years?
thats what i was thinking. Thougths on getting 6% year, what shld the portfolio look like? How would you diversify. If short term debt is out of the question. The yeild looked too high. I need 6% a year.

Gill
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Re: 6% a year low-risk Canadian Corp. Bonds

Post by Gill » Sat Mar 26, 2016 7:33 pm

You simply aren't going to find a "safe low risk investment" that yields 6%.
Gill

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reriodan
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Re: 6% a year low-risk Canadian Corp. Bonds

Post by reriodan » Sat Mar 26, 2016 8:09 pm

  • safe low risk investment
  • 6% yield
Pick one.

renue74
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Re: 6% a year low-risk Canadian Corp. Bonds

Post by renue74 » Sat Mar 26, 2016 10:01 pm

Perhaps you should look at your need amount....you think you need $90K per year from this $1.5M.

If you plan to retire in 5-7 years, your $1.5M may increase. Let's say it increased to $1.8M and you're taking 4% out...$72K, which is an $18K/year difference.

Perhaps you can reduce your expenses or save more during the next 5-7 years.

You can get there...but you should probably lower your annual return expectations.

TRL654
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Re: 6% a year low-risk Canadian Corp. Bonds

Post by TRL654 » Sat Mar 26, 2016 10:51 pm

renue74 wrote:Perhaps you should look at your need amount....you think you need $90K per year from this $1.5M.

If you plan to retire in 5-7 years, your $1.5M may increase. Let's say it increased to $1.8M and you're taking 4% out...$72K, which is an $18K/year difference.

Perhaps you can reduce your expenses or save more during the next 5-7 years.

You can get there...but you should probably lower your annual return expectations.
Well my goal is after expenses in 6 years to be at just under 2 million. Mind you, I would be renting for this period of time, buying a property with the 2 million. And having 1.3 left over for retirement. For this to work I need 6% for the next 6 years. What are your picks to do this. I am open to risk and uncertainties, but please how I can I get such an annualized return. Equities is likely to get worse, treasury yield is horrible, corp. bonds are not so good, and I need to stay away from buying and carrying any sort of OP Toronto Real estate. Thoughts?

WasabiOsbourne
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Re: 6% a year low-risk Canadian Corp. Bonds

Post by WasabiOsbourne » Sat Mar 26, 2016 11:48 pm

i will think overnight.....

what about some sort of annuity? obv higher yield but partially getting capital back (the annuity).... i know heirs won't like it but there's no rulevthat your principal has yo be high at death....

where u looking at $2MM property? i'm in vancouver. get u a pretty crappy old house near me :)

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Bogle_Feet
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Re: 6% a year low-risk Canadian Corp. Bonds

Post by Bogle_Feet » Sun Mar 27, 2016 12:10 am

The higher the yield the greater the risk. It's that simple.

Also if you invest in one single security you increase your risk. Better to invest in a bond index fund.

Valuethinker
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Re: 6% a year low-risk Canadian Corp. Bonds

Post by Valuethinker » Sun Mar 27, 2016 8:12 am

TRL654 wrote:
renue74 wrote:Perhaps you should look at your need amount....you think you need $90K per year from this $1.5M.

If you plan to retire in 5-7 years, your $1.5M may increase. Let's say it increased to $1.8M and you're taking 4% out...$72K, which is an $18K/year difference.

Perhaps you can reduce your expenses or save more during the next 5-7 years.

You can get there...but you should probably lower your annual return expectations.
Well my goal is after expenses in 6 years to be at just under 2 million. Mind you, I would be renting for this period of time, buying a property with the 2 million. And having 1.3 left over for retirement. For this to work I need 6% for the next 6 years. What are your picks to do this. I am open to risk and uncertainties, but please how I can I get such an annualized return. Equities is likely to get worse, treasury yield is horrible, corp. bonds are not so good, and I need to stay away from buying and carrying any sort of OP Toronto Real estate. Thoughts?
Whilst I recognize Toronto housing prices are high, I think you want to review that $2m budget:

- there will be significant utilities and property taxes with such a purchase, plus maintenance. $2m is a lot of condo or farm property and even in GTA it's a significant house-- you can probably get something in Leaside for 1.25m (I may be out of date)?

It's far too much of your capital to be tied up in your home in retirement. Now if you are my family (who first bought in 1960) of course the house has just gone up with the market (and they are much older than you)-- so it is a significant proportion of end of life wealth.

6% pa for 6 years you cannot get, as a certainty. The return from a bond will be approximately its Yield to Maturity (for a stripped/ zero coupon bond, it will be exactly its YTM) *not* its coupon (bonds with coupons over say 2.5% tend to sell at a premium to $100 face value, if they are investment grade).

Things that pay high yields (the more extreme REITs, high yield bonds) will come with commensurate risk.

The problem with annuities is:

- inflation indexed annuities are relatively rare in North America, and Canada in particular AFAIK

- you don't get much mortality credit if you are 61, say, unless you have a significantly impaired life expectancy. So what you get really is interest on that money plus return of capital (not much benefit from the fact that the pool of annuitants, who live longer than the average anyways, is shrinking). Annuities are traditionally bought after age 70, when the mortality credit starts to rise sharply

You need to work with a retirement planner who uses reasonable forecasts of future performance (say 5% pa for a 50/50 bond/ equity portfolio) to work out exactly what money you will have at age 61 (if that's your retirement date) and how much you can safely withdraw.

I would say that you can at max safely withdraw 3% pa (capital and income) from the portfolio. 2.5% would be safer. But someone can run the Monte Carlo analysis for you.

Looking at your plans, more like 1.2 million in housing, 2m in investments seems more reasonable. You should be able to take $50-60k gross out of that, plus CPP when you get it (which is inflation protected).

jimkinny
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Re: 6% a year low-risk Canadian Corp. Bonds

Post by jimkinny » Sun Mar 27, 2016 8:16 am

The above but it is also possible a broker is selling these bonds above par and the 6% is actually partially a return of principle. So, maybe you buy at 104, the broker takes a slice and you get back your own 3%.
Allan Roth wrote about this maybe a year ago in ARUP. I am sure others have written about this also.

Read every thing very carefully.

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midareff
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Re: 6% a year low-risk Canadian Corp. Bonds

Post by midareff » Sun Mar 27, 2016 8:31 am

Gill wrote:You simply aren't going to find a "safe low risk investment" that yields 6%.
Gill

and if you do please share it.

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