Tess, 31, is a dentist making $140,000 a year. Now she wants to buy a house to start a family — during a pandemic. Is it the right time? + MORE Jul 11th
Much of Canada’s economy has ground to a halt amid the COVID-19 pandemic. One of the effects of this has been a drop in prices for many items. Most notably, gas.
As a result of consumer prices dropping, Canada’s inflation rate went negative to -0.2% in April, according to Statistics Canada, which tracks the cost of goods and services through the Consumer Price Index.
While the world struggles to contain the virus, prices are expected to continue to drop. Unfortunately, so are wages.
Longer-term, though, experts are divided on what happens when the economy recovers. Will it lead to continued low prices, or could we see inflation?
What is inflation?
How does inflation work?
How does inflation affect savings and investments?
How is COVID-19 affecting the inflation rate in Canada?
Propping up your personal finances
What is inflation?
Inflation is a rise in the average price of a selection of products and services, ranging from items such as food and beverages to housing, clothes, transportation and recreational costs…
The COVID-19 pandemic has changed many Canadians’ way of life. Unfortunately, some have lost their jobs or are working on reduced hours and, in turn, have had to rely on government support or their savings to help make ends meet.
According to the federal government’s 2019 Canadian Financial Capability Survey, 64% of Canadians have an emergency fund to cover expenses for three months. However, that means 36% don’t have as much saved. That will make it difficult when the time comes to pay bills over the next few months.
Several financial institutions have allowed customers in need to defer payments on mortgages, credit card balances, and loans for up to six months. On top of this, there are many other payments due in the near future, and you should be planning for when those financial relief measures end.
If you’re a homeowner, your property taxes may already be past due, depending on where you live. In Toronto, for example, the 60-day grace period has already expired…
Opening a margin account
A simple option is with a margin account at a brokerage. Depending on the existing investments in the account, a brokerage will lend up to a certain percentage of the value to an investor, at a specified interest rate.
The amount of “maintenance excess” that needs to be kept in the account as collateral for borrowed securities generally ranges from 30% to 100% of the market value. Larger, established, blue-chip stocks may only have a 30% margin requirement, meaning up to $70 borrowed for every $100 invested.
Margin interest rates generally range from 5% to 10%, but can vary. The interest is tax-deductible when the borrowed money is being used to invest. If stocks fall, a margin account investor could have a “margin call” and need to deposit more funds, or sell stocks to reduce leverage.
Investment and RRSP loans
Investment loans with required monthly principal and interest payments are another option for borrowing to invest…