Page 43 - Sports Energy News, Cornwall, Issue No 104

www.sportsenergynews.com Issue #104 September 2021 43

Neighbourly Advice From Our Local Professionals
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without clear explanations most people 3% inflation, prices double every 25 years.
Max Ming P.Eng. CFP ®
Financial Planner have no idea what that really means. “That means after 25 years the hamburger
Inflation – specifically compounding costs 50 cents… then $1, and after a total
Inflation and Your Income inflation – significantly reduces your of 75 years it is a $2 burger.”
With inflation once again making ability to spend money. Without this Tying this back into an investment
headlines, it seems like a good time to look understanding, you may be vulnerable to context, taking a “safe” investment
at how that impacts investors and look at
thinking your current income is adequate that doesn’t outpace inflation can be
compounding in a way that is relatable for the next 15-20 years, potentially quite misleading. It is important to keep
and easy to understand. According to Stats derailing your retirement. inflation-adjusted growth in mind, even
Canada, inflation rose 3.7% in July, the
We read an interesting article in after transitioning to retirement. Another
largest increase since 2011. It is also the 4th straight month that Investment News that gave a memorable way to say this is, “Since prices double
the increase in the Consumer Price Index (a measure of the costs of
explanation of this cost-of-living increase: roughly every 25 years, and you plan to be
goods and services sold) measured above 3%.
Many financial professionals speak about the power of compound “Remember how your grandparents used retired in at least that long, you’ll need to
to talk about buying a burger for 25 cents? plan for prices to double.” We will put a
interest, and how compounding returns is so important to long-
term investing. While this is surely true, much less time is spent Now a $2 fast-food burger is cheap. That plan in place and work to make sure the
explaining the power inflation has on eroding your real returns/ isn’t a 700% inflation rate, it’s a 3% rate income you rely on can outpace the cost of
savings. Good advisors will adjust their models for inflation, but compounded over 75 years. Simply put at a living.

when prequalifying. They go based on easily get a private mortgage which would
By Michael VanderMeer what the customer tells them and base it have a much higher interest rate.
Real Estate Agent on the limited amount of information they If a buyer offers cash without the ability to
gather at that time. Secondly, the home also purchase and does not include the financing
MAKING A CASH OFFER must meet the approval of the bank. If the
In this sellers’ market, we have been home does not appraise at the purchase clause and the financing falls through, they
experiencing a large percentage of listings price, they will not approve the mortgage will lose the deposit and most likely get
ending up in multiple offers and we are unless the buyer makes up the difference of sued for any damages the seller incurs. So,
seeing a lot of cash offers (no conditions). the appraisal and purchase price. if you are making a cash offer but plan to
A lot of buyers think because they are prequalified at the bank, they The only way a buyer should go in with a finance it, you will want to make sure you
do not need the financing clause in their offer; but this is a grave cash offer is if they can purchase the home have alternative ways to complete your
mistake for several reasons and agents should be informing buyers without a mortgage or if they have a large purchase should your bank financing fall
of this. First off, the bank does not do a thorough qualification enough down payment that they could through.

By Brian Johnston imbalances diminish and the considerable overall re-opening and recovering from the health shock,
slack in the economy pulls inflation lower,” the Bank
Mortgage Specialist but it will respond to more lasting price pressures
said following last month’s interest rate decision. by reducing monetary accommodation,” wrote TD
“The factors pushing up inflation are transitory, but
MAJORITY OF CANADIAN BUYERS Bank senior economist James Marple in a recent
their persistence and magnitude are uncertain and
BORROWING THEIR MAXIMUM APPROVED article. “In the near-term, asset purchases are likely
will be monitored closely.”
MORTGAGE to continue to be pared back, with rate hikes likely
More recently, Bank of Canada Governor Tiff
Canada’s inflation rate came in above expectations to follow late next year.”
Macklem reaffirmed the messaging that everything is
last week, rising to its highest level in more than a
under control in a July 29 Financial Post. “The Bank At the Bank’s last rate decision meeting in July,
decade. If above-target inflation persists, it could
of Canada remains firmly committed to keeping it announced that it was reducing its bond-buying
have ramifications for homeowners in the form of
inflation low, stable, and predictable,” he wrote. program to $2 billion per week from $3 billion. At
shifting rate-hike expectations.
“Even with the gyrations caused by the pandemic, the height of the pandemic, the BoC embarked on a
Canada’s inflation rate came in burning hot at 3.7% for July, according to data inflation has averaged pretty close to target through quantitative easing program in which it purchased at
released by Statistics Canada. That’s the third consecutive monthly inflation the past few years to today. You can be confident least $5 billion worth of bonds each week to flood the
reading that has come in above the Bank of Canada’s neutral range of 1.75% to that we will keep the cost of living under control as market with liquidity, in turn keeping 5-year bond
2.75%, which is the range needed to support the economy at full employment/ the economy reopens.” yields - and by extension, 5-year fixed mortgage
maximum output while keeping inflation under control. But the central bank can only allow high inflation rates - lower than they otherwise would be. Average
The Bank of Canada continues to believe that elevated consumer prices will to persist for so long before a policy response is mortgage rates remain slightly above their all-time
prove temporary and are largely the result of an economy recovering from the required. “The Bank of Canada may be willing to lows reached in December; but the question is, for
pandemic-induced slump. “…[I]nflation is likely to remain above 3% through tolerate higher inflation while the economy is still how much longer?
the second half of this year and ease back toward 2% in 2022, as short-run

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