Consumer Prices And Your Cost Of Living

Statistics Canada just announced the most recent Consumer Price Index (CPI) data for January increased at 2.4% from Jan. 2019.

Why does that matter to you?

If your cost of living increases by 2.4% (which is going to vary from household to household, depending on what you consume, how much you consume and where you consume it) then that is going to erode your purchasing power (which is what drives your comfortable lifestyle).

In other words, in order to continue your comfortable lifestyle, you best be growing your money by a rate that is better than 2.4% (if, in fact that is your annual cost of living increase), after fees and taxes. For the purposes of our High Rock Private Client Wealth Forecast's, we assume a 2.5% annual cost of living increase (the long-term average increase for CPI in Canada is about 2%), unless our client wants to plug in their own specific number, which of course makes the Wealth Forecast much more accurate. It is an extremely important part of the plan. An increasing cost of living by more than the growth of your savings/investments could erode your comfortable lifestyle and put you at risk of running out of money.

With the risk-free rate of return (before fees and taxes) sitting at or about 1.6% (a 90 day Govt. of Canada T-bill), the likely after fees and taxes return is closer to 1% (or less).

If you want to get better than the annual increase in your cost of living, you need to take risk. How much risk can only be determined by creating a forward looking plan, like our Wealth Forecasts, to determine how and what kind of portfolio growth (and investment strategy) you need and ultimately how much risk you need to take. When we say that we manage risk first, that is what we mean. Taking too much risk can also put your Wealth Forecast (and your future comfortable lifestyle) in jeopardy. So we find the appropriate balance. Maybe it is 60 / 40, maybe not. Every client family has different circumstances and therefore their strategy should be unique to them. Definitely not a "one size fits all" approach.

Do you drive alot? If so, the recent data would suggest that the 11.2% (year to year, i.e. Jan 2019 to Jan. 2020) increase in gas prices would be impactful (if you are driving a gas powered vehicle, of course). Fresh tomatoes cost 10.8% more and all fresh vegetables were more costly by about 5%, driving all food prices up by 3.2%. Non-alcoholic beverages cost 5% more, but alcohol, tobacco and recreational cannabis only cost 0.5% more. And those are just national averages, not considering the "where" you consume variable.

The point being is that your annual cost of living increase is an enormously important factor in your need for the growth of your money. It also will determine the amount of risk you need to take to grow it to get that comfortable lifestyle that you want to last through to the end of your days as well as possibly pass on any inheritance to those you may think are deserving.

Chasing investment returns and portfolio growth without taking all these important inputs into consideration could be a potential recipe for disaster. Make sure that you have the right folks guiding you along the way.