The squeeze

The price of money is going down. If you hate risk. If you’re retired. If you are a typical Canadian. Then this sucks.

What to do about it?

Central banks in Canada and the US both lowered interest rates last week. Our guys do it again October 29th. Maybe once more in December. There’s even a chance we’ll get a rate cut or two in the spring of next year. Meanwhile the best estimate is the Fed will chop its key rate five more times before settling.

There is no question about it. Monetary policy has changed. Economies are slowing. Debt is piling up. The labour market is stressed. Central bakers are trying to guide interest rates lower on a trajectory that will not make the threat of inflation more acute. Without this added stimulus, they fear, recession could be in our laps with the jobless rate spiking, putting a lot more pressure on governments as social costs rise and tax revenues fall amid ever-growing debt service charges.

And wait. There’s more.

The geopolitical situation is a hot mess. Putin is not backing down on Ukraine. Netanyahu is determined to wipe out Gaza. Right-wing, anti-immigrant, Christian nationalist forces are gaining strength daily (did you see the Kirk thing yesterday?). We also have a global trade war going on with tariffs up nine-fold in the world’s biggest economy and the US$ losing altitude.

Against this cauldron of uncertainty, central bankers have few tools. The biggest hammer is the ability to move rates. After many months of waiting to see what might happen in the world, these guys have decided to act. Complicating the situation is Trump’s desire to control the Fed and influence rates even lower in the second half of 2026, leading up to the mid-term elections. It all means we could be headed – at least for a period of time – back into Covid-era interest levels.

Yikes. Remember that? Yes, mortgages at 2% or less ignited house prices and destroyed affordability. But they also crashed GICs and demolished the cash flow of an army of retirees and risk-averse Canadians. Could we be headed that way again?

Simple answer: yup. Looks like it.

GIC rates will be falling. At the moment the bankers are paying 2.25% on short-term cashable guaranteed investment certificates. Or you can achieve up to 3.6% from the banks (and a little more from some of those dodgy online guys) in return for locking money up until 2030. Inside a TFSA or a registered retirement account interest accumulates tax-free (until the plan pays out). In a non-reg account the growth is taxable annually even if you don’t receive the income.

For context, inflation in Canada is currently just below 2%, so the ‘real return’ on GICs is piteously low. If held in a non-registered, taxable account, the return is closer to sawdust. And if you really want to feel screwed over, consider the contrast with the TSX. It’s up 20% so far in 2025 and ahead 25% over the past twelve months.

However, lots of people love GICs because they fear losses more than they lust for gains. That’s human nature. It’s especially true for wrinklies, since the appetite for risk is inversely correlated with waist size, sex drive and the ability to parallel park.

So, with rates sure to fade away, what to do?

First, don’t be clingy about GICs or insanely afraid of the future. History has shown that over a reasonable period of time (and five years qualifies) investors almost always beat savers. In fact, there has never been a 10-year period in which the equity market finished lower than it started.

But if you cannot stomach any risk, lock in now. The five-year rate is unlikely to stick around past the next rate cut, and that happens in five weeks.

Also consider alternatives. You can get a 2.58% yield from a high-interest savings ETF these days that puts your money in bank vehicles and yet allows full cashability. Preferred shares are currently paying out between 5% and 7%. Yes, their capital values rise and fall like stocks, but the yield is consistent and tax-efficient. Bonds can not only rival GIC yields but also offer the potential of a capital gain if rates fluctuate and full repayment if held to maturity. And, as this pathetic blog keeps yammering about (because it works) the best option is a balanced and diversified global portfolio of exchange-traded funds – to control risk and still deliver growth.

Since this site crawled out of the ooze 17 years ago, the B&D has churned out an average of 7.2% – despite several financial crises, wars, a global pandemic, two Trumps plus Adele and Drake.

Face it. If you retire at 60 or 65 you probably have 20 years more to finance. Unless you start with a few million, the odds of running out of money far exceed the odds of losing it. Investing beats saving. Faith over fear.

About the picture: “I read your posts daily while learning the ways of markets and money in my own leap from the ivory towers of academia to the risk floors of finance,” writes Ogan. “My sidekick in this adventure is Pino, a curious smeller and self-appointed Chief Risk Officer. Here he is, posing impressed with recent rate cuts while staying bullish on belly rubs. Thanks for making market lessons bite-sized (pun intended) and for the laughs—dog knows I need both!”

To be in touch or send apicture of your beast, email to ‘garth@garth.ca’.

Source: https://www.greaterfool.ca/2025/09/22/the-squeeze-5/