I hope this will help some of you out. It's a summary of the most important Canadian Personal Finance lessons from my research for all of 2017. Most of these are key posts from The Greater Fool Blog, which I highly recommend as a daily read. Investing Strategy and Advice Random Advice
· Everybody should strive to maximize their TFSAs, then ensure the money stays in there, invested in diversified growth assets like equity ETFs. Remember – a hundred bucks a week invested here for 30 years making 7% will end up being $532,000. That should yield an annual income of $32,000 without depleting the principal and without reducing your CPP or OAS payments by a single penny. So this is job one.
· After that, shovel cash into an RRSP, using the refund to contribute to the TFSA. Unless you have a defined-benefit pension (guaranteed, stable employer-funded payments), this is an excellent way to reduce tax, invest for tax-free growth then support you efficiently when some dingdong CEO destroys your employer.
· Obviously having a cash reserve for an event like this would be a great idea, but establishing a personal line of credit in advance is almost as good. It costs you nothing to set up at the bank, zero to carry and can be tapped only as you require it. Go, get one now.
· The best way to own preferreds is through an ETF, where you can hold a basket of high-qualify assets. An example would be CPD (just an example – this is not a recommendation), which pays investors a dividend yield of 4.3%, which is twice the return of a GIC and it’s still 100% liquid. But there’s more. This exchange-traded fund has increased in value (besides the dividends paid) by 12.7% in 2017 – which far outstrips the 3.8% return of the TSX in general. Since the beginning of last year (when prefs were sooo cheap) the gain in capital value has been 28%. (CPD also went on sale Wednesday after the latest Bank of Canada report. Sweet.)
· But all he need do to effectively slash his long-term interest costs is to switch from a monthly-pay to a weekly-pay mortgage. Over the course of 12 months he’ll make the equivalent of one extra payment (no big deal) and it will end up shortening his amortization by years, saving more than a variable-rate loan ever would. He just needs to ensure he gets the right kind of weekly mortgage, since some of them are bank rip-offs. May 2017 – Current Recommended Weightings
· cash, 5%;
· corporate bond 6%;
· provincials 3%;
· short-term bond 5%;
· high-yield 3%;
· preferreds 18%;
· Cdn equity 16%;
· REITs 5%;
· US equity 21% (some hedged);
· international equity 18% (some hedged). Investment Portfolio Breakdown - Greater Fool – September 20th 2017
· Start with the TFSA. When that’s full split money between an RRSP (to shift tax into other years) and a non-registered portfolio (to benefit from capital gains and dividends). Stick with it, max the tax-free account with pre-authorized debits from your bank account and never, ever listen to [email protected]
, eschewing costly mutual funds and brain-dead GICs.
· Have a balanced portfolio, with 40% in safe stuff and 60% more growth-oriented. Since rates are rising, keep the bond exposure slim (they pay nothing but reduce volatility) but have lots of rate-reset preferreds which swell along with bond yields. Carefully weight Canadian, US and international assets, taking into consideration that we’re currently on fire, Trump’s a time bomb, the US is expanding, Europe’s in recovery and nobody should bet against China. Never hold individual stocks (unless you have seven figures to invest and can achieve diversification – which requires about 60 positions).
· If you have a little money, hold three or four ETFs. If you have a lot, then 17 should be about right. And keep a small cash position, since that’s a defensive asset as well as ammo if an opportunity arises.
· So, 2% cash in a HISA, 20% in a mixture of government, corporate, provincial and high-yield bonds plus 18% in preferreds make up the safer stuff. Put 5% in REITs, then hold 16% in Canadian equities, an equal amount in US markets and 23% in internationals, for the growth portion. Rebalance once a year. Put higher-taxed stuff (bonds) in a tax shelter. Reserve the TFSA for fast growers (like emerging markets). Enjoy a 50% tax break on capital gains in your non-registered. And don’t forget about income-splitting with your squeeze, which can be done through a spousal plan or maybe a joint account. Why TFSAs are the #1 Priority
The long-term growth, free of tax, is epic. Invest $5,500 this year, then add $100 a week for the next three decades in growth assets making 7%, and you end up with $576,338 of which $414,838 is growth. Besides tax-free compounding of investment returns, the real benefit of this thing is that it will throw off income in retirement (or anytime else) which is not counted as income. So in the example just given, forty grand a year could be earned with zero tax payable on it.
Now let’s look at two 40-year-olds who have wisely maxed their TFSAs with $52,000 in each. If they keep their accounts topped up and full of ETFs giving the same return, at 65 they’ll claim $1.26 million, of which almost nine hundred grand is taxless growth. In retirement that amount can provide an annual income of about $90,000, and these guys can still collect their CPP and OAS without having any of it clawed back (assuming no other income source). If they had $1.26 million in RRSPs, the after-tax income would be about $52,000 and they’d have a marginal tax rate of 29.65%. No contest.
For anyone with a good company pension plan, and especially for the Aristocracy Among Us with gold-plated, defined-benefit schemes (teachers, cops, retired finance ministers) investing in this vehicle is far better than feeding an RRSP. At age 71 all registered retirement plans must be partially unwound, with the income being added on top of pension payments, often boosting you into a higher tax bracket. But no matter how much is skimmed off a fat TFSA, nothing is taxed or even recorded as income.
Of course, TFSAs can be used for income-splitting, too. You can gift your spouse or your adult kids money to invest in one. None of the gains will be attributed back to you. You can withdraw money and, unlike an RRSP, put it back the following calendar year. Unused room can be carried forward indefinitely. And a tax-free account can hold almost any investment asset, so keeping a moribund high-interest savings account or a brain-dead GIC in there is a big fail. Why Mutual Funds Suck:
S&P regularly provides its SPIVA Scorecard, which examines the performance of actively managed Canadian mutual funds versus that of their benchmarks and corrects for survivorship bias. Survivorship bias? Yes, mutual fund companies have this habit of discontinuing funds that have poor performance thus, ostensibly, wiping away that unflattering data forever. The SPIVA Scorecard attempts to account for this performance, essentially holding the mutual fund companies’ feet to the fire. The data reveals, unsurprisingly, that the vast majority of mutual funds underperform their benchmarks—with high management fees being the main reason. The table below shows their dismal long-term track record. S&P, by the way, also does a scorecard for US mutual funds with similar results.
📷No doubt, there are financial advisors who have a careful and highly effective system for identifying the 9% or so of equity mutual funds that actually do outperform their benchmarks over the long term. More power to these advisors. However, what I’ve seen more often is a less rigorous due-diligence system of simply selecting the funds that are ranked highest by Morningstar, the industry’s most widely known mutual-fund evaluator. However, as a recent article by The Wall Street Journal has shown, chasing the best star ratings has its drawbacks. The Journal pointed out, after examining the performance of thousands of funds, that only 12% of 5-star-rated funds maintained this rating after five years. Basically, the Journal highlighted that the Morningstar five-star rating is not a good indicator of future outperformance. Source: The Wall Street Journal
Here are a few things to remember. First, on mutual funds (since most people own them): fees are significant, and buried in the cost of ownership. The person selling you these animals at the bank will tell you s/he doesn’t charge anything to perform that charitable service. In reality, the funds turn out trailer fees so every month you stay invested, somebody gets paid. To Rob’s point, mutual fund fees aren’t tax-deductible. So if you own a fund with a 2.5% MER and you’re in the 40% tax bracket, that’s actually costing 3.5%. Ouch.
The same principle applies to ETFs, all of which have embedded fees which are not deductible. The big difference is the average fee across a portfolio made up of exchange-traded funds might be 0.2% – or one tenth of the cost of owning a mutual.
What about other fees and investment costs?
Management fees, charged by fee-based advisors, are 100% deductible from taxable income on non-registered accounts. With RRSPs, the money taken to pay an advisor is not counted as taxable income. That means you got a tax break for putting that in, but there’s no tax when it exits – so the government is also subsidizing you. Fees on TFSAs, however, are non-deductible. Somebody in the top tax bracket, then, with accounts run by a professional offering tax advice and portfolio management who charges 1% will end up paying closer to 0.6% – while the poor single Mom with a few grand in the bank’s funds will shell out 2.6%. Unfair? You bet. But that’s the law.
So, fees are deductible. Commissions are not. MERs are embedded, invisible and can kill returns. If you remember just those three facts, they’ll serve you well. More on Mutual Funds – Dec 11 2017
What’s a mutual fund? It’s a pot of money made up of contributions from many investors that a manager then uses to buy stuff. Like stocks or corporate and government bonds. Managers charge big money to do this job (they have Porsches, too) which is charged back to the investors, and in return try to add ‘alpha’. That’s financial speak for ‘special sauce’, which means they attempt to get better returns than you’d achieve just buying the same assets and holding them. In doing this job they buy and sell frequently, often generating capital gains taxes, which the unitholders also pay.
Trouble is, most of these cowboys fail.
Last year, for example, the number of Canadian mutual funds which focus on US stocks and which outperformed the index was… zero. Nada. Donuts. Not one. In the States almost 70% of fund managers investing in large-cap stocks failed to match the index and yet charged big bucks to do so. Over the last 15 years, the failure rate among managers is 90%.
Ouch. Makes you wonder what you’re paying for. What also hurts is that the fees these non-alpha dudes charge are buried within the funds themselves, unseen by investors who cannot even deduct them from any gains they might make for tax purposes. Meanwhile the so-called advisors who collect the trailer fees from selling funds do not actually engage in any investing themselves and often collect an extra upfront fee for selling them to folks, or create a seven-year mutual-fund prison that penalizes anyone trying to get out. Difference between Mutual Funds and ETFs
Simple. ETFs are like Teslas – they drive themselves. There is no manager, so there’s no fat management fee for investors to pay. They don’t compensate some fancy guy to try and beat the market, then have to explain why he didn’t. They just pace the market itself. What the S&P 500 does this year, for example (up 18.4%), is what an ETF holding those 500 companies does. Plus, they’re traded on the stock market, which means you can buy or sell with the click of a mouse and get instant liquidity. Try doing that with a mutual fund (you can’t). In fact, most funds have the ability to halt redemptions, so if a crisis emerged you might not be able to sell when you wanted (just like Bitcoin).
ETFs are not free, however. Across a balanced portfolio you can expect to pay an embedded cost of about 0.2% – which is a hell of a lot cheaper than 2.0%.
Now, mutual fund salesguys, for obvious reasons, hate it when they hear such talk. And being in sales, they are daunting adversaries, able to woe naive investors with tales of giant, throbbing Alpha and heaving bosoms. (I may have exaggerated there.)
Jane, in fact, encountered exactly this schtick after she told her mutual fund guy she was leaving to embrace ETFs.
“I talked to him today for the formal “thank you and best of luck” nicety and needless to say he thinks I’m making a huge mistake. I feel quite defenceless when it comes to talking to financial advisors. My boyfriend tried to do his best to help explain it and then reverted to “Ask Garth.” For ease I will just lay out what was said by mutual fund guy in bullet form and hopefully you can help me out
- ETFs are cheaper but that is because they have a much lower rate of return. So if you compared mutual funds to ETFs, Mutual funds are far better.
- Fee-based advisors are cheaper because they do not actively manage my account, unlike mutual fund account managers. He said the MER is to pay for someone to manage my account. ETFs don’t charge this because no one is managing anything.
- ETFs are for old people in their 50’s that can’t absorb a loss.
- In 2008 ETFs took a much harder hit than mutual funds (50% compared to 20%)
- Young people should be aggressively investing and diversity is for old people and wusses
“Can you shed some light on this for me? My mutual fund guy did make me feel a touch uneasy. I would appreciate the insight just for building my own knowledge and confidence.”
You betcha, Janey. ETFs are cheaper because they don’t come attached to some Bay Street smartie with three kids in private school. They are pure reflections of a transparent market. The rate of return for nine out of ten has been higher than an actively-managed mutual fund, at a fraction of the cost. Fee-based advisors (who should collect a fee of no more than 1%) actually build and manage client portfolios. They all shop at Costco and recycle their socks.
ETFs for old people? Did he mention dwarfs?
As for the 2008-9 crisis, a balanced ETF portfolio declined 20% while the stock market slid 55%. It recovered all lost ground in a year, then advanced 17%. It’s not the structure of the asset that is owned (active or passive fund), but the weightings between various asset classes that will protect you in declines. You can be as conservative or aggressive as you want with either kind of funds. But if you like paying more for less, mutuals are for you. (He was really zooming you on that one.) The benefit of Bonds in a Portfolio
Bonds help reduce volatility
One common way to measure volatility is using standard deviation, which measures the variability of returns around the long-term average – the higher the number the higher the volatility. Over the last 10 years, the TSX has exhibited price volatility of 14.1%, meaning that TSX returns have been 14.1% above/below the long-term average return over the last 10 years. Volatility (standard deviation) has been 11.4% for the S&P 500 over this period. And for the average Canadian balanced portfolio, the standard deviation has been much lower at 8.3%. So, we prefer balanced portfolios to an all-equity portfolio since the ride is much smoother and with more consistent yearly returns.
📷Volatility of Different Investments
The other important reason we like balanced portfolios is because bonds often zig when equities zag. This dynamic is why a balanced portfolio exhibits lower volatility.
In good economic times corporate profits rise and investors feel more optimistic about the outlook that they are willing to pay higher multiples (e.g., P/Es) for stocks. This combination of rising corporate profits and valuations pushes stock prices higher.
Central banks in turn tighten monetary policy by hiking interest rates. This helps to push bond prices lower (prices move inversely with yields). So stocks go up and bond prices go down, generally, in a strong economy.
📷Conversely, in a weak economy stocks typically decline and central banks lower interest rates to help spur growth which leads to higher bond prices. Again, bonds zig when equities zag. This is perfectly captured in the chart below which shows the relative performance of Canadian bonds and the TSX. Note how bonds will outperform stocks over certain periods (in green) and underperform stocks in other periods (in red). This chart captures the essence of why a solidly constructed and well-managed balanced portfolio works!
Bonds/Equities Out/Underperform Over Time
Finally, how should investors structure their bond holdings in this rising interest rate environment?
First is to focus on lower duration bonds. Duration measures a bond’s price sensitivity to changing interest rates. If a bond (or in our case a bond ETF) has a duration of 8, it means the bond will decline approximately 8% for every 1% increase in interest rates, or rise 8% for every 1% decrease in rates; the higher the duration the higher the price sensitivity to rising rates.
Given our view that rates are going to continue to slowly rise, we are positioning our balanced portfolio with lower duration bond ETFs so as to minimize the impact of rising rates. Later when interest rates are higher we’ll look to reverse this call and shift into higher duration/yielding bond ETFs.
The other key strategy for bonds in a rising rate environment is to overweight corporate bonds versus government bonds.
With the Fed and BoC now hiking rates, government bond yields are moving up and prices lower. This of course weighs on all bonds but corporate bonds tend to outperform when rates rise. This happens for a few reasons. First corporate bonds offer higher coupons (yields), which help lower the duration relative to lower yielding government bonds. Second, because investors are feeling more optimistic about the economy and financial markets they are more willing to buy corporate bonds, which pushes up their prices relative to government bonds resulting in compression of the yield spread over government bonds.
Below is a chart comparing US investment grade corporate bond yields to comparable US government bond yields. Currently with US corporate bonds yielding 4.25% and US government bonds yielding 2.35%, this results in a “spread” of 190 bps. As the economy picks up this spread compresses which results in corporate bonds outperforming government bonds. We believe this spread could compress a bit further resulting in additional outperformance from corporate bonds. We’ll look to reverse this trade as we start to believe the economy is rolling over.
US Credit Spreads
📷We get it. In a raging bull market like we’ve been in for some years, bonds can be disappointing and cause us to deviate away from a balanced portfolio, focusing more on equities. But as we’ve shown, the benefits of including bonds in a portfolio are to reduce volatility and provide more consistent returns. And we’re not always going to be in a bull market so you’ll need protection against this inevitability. I feel confident that our client will call me up to thank me for our recent portfolio adjustments, likely when that dreaded bear market rears its ugly head. How are you positioned for this eventuality? Well, here are ten of my fav ways to reduce your tax bill thanks to two simple words – income-splitting (as opposed to sprinkling).
10 Ways to Reduce your Tax – Oct 29
- If you make more money than your spouse (in a higher tax bracket) take your piteous crumbs and use them to pay the household expenses. Have your spouse devote all of his/her take-home income to investing. Because your squeeze has a lower marginal rate, your family will keep more of the investment gains.
- Open a spousal retirement plan for a less-taxed partner. The full deduction comes off your bigger income but the other person gets the money. Wait three years, and it can be withdrawn at the lower spousal rate. Can result in big savings.
- Swap stuff. She gives you her departed mother’s irreplaceable jewelry (for God’s sake, don’t lose it) and you give her a bunch of ETFs. Now the financial assets are still in your family, but taxed in her hands at a lower rate (assuming there’s an income disparity between you).
- Take the beefy monthly cheque T2 now sends you for having kids and invest it in growth assets in their names. Capital gains made here will not be attributed back to you. If they grow up and become rock stars, you keep it.
- If you’re a wrinkly, split your CPP or pension with your spouse.
- Give money to your adult children. No, not for a condo down payment, but instead to maximize their TFSAs – on the understanding they give it all back (with gains) when they turn 50 and leave the basement.
- Loan your spouse a whack of money to invest. You will need to collect a tiny bit of interest annually on the loan (the rate is just 1%) but all the money the other person makes will not be attributed back to you. So if your partner’s in a lower bracket, it’s a big win. Plus the interest paid is tax-deductible.
- Max your RRSP, of course. Not so much for retirement, but for tax-shifting between periods of your life. Layoffs, job losses, mat leaves, sabbaticals – there are many times when regular income drops and tapping into money which grew tax-free can save your marriage.
- Stick the max into an RESP for your kids. No deduction for doing so, but the money will grow without tax and the feds will send a grant worth up to 20% of what you contribute annually. Open a family plan, not singles. And beware the hospital-stalking baby vultures with their crappy offerings. Go self-directed.
- Hire your spouse or your kids to labour in your small business doing useful things. Yes, this is exactly what Bill Morneau is throwing a hissy-fit over, but you’ll get the immense satisfaction of watching some CRA goon burn up hours of time only to conclude that, yes, your wife is actually a productive, contributing human being worth being paid. Plus, she’s deductible. What a turn on.
- You can get free money to educate your children simply by opening an RESP using cash the government sent you because you have children. The guaranteed return on investment is 20%, which beats buying a semi in Toronto. The rules allow you to go back and make up missed contributions (collecting the grant a year at a time), and if your kid becomes a rock legend instead of a dentist most of the tax-free growth can be wrapped inside your RRSP.
- If you think income-splitting is kaput, you’re mistaken. You and your lower-income squeeze have a plethora of ways to starve Mr. Socks. If you make more money, pay your spouse’s taxes so s/he can invest at their lower tax rate. Ditto for the household expenses. You can certainly open a spousal RRSP, writing off the contribution against your high taxes but making the money the property of your less-taxed spouse. Open a joint investment account, splitting taxable gains instead of paying them at your fat rate. And lend your spouse money to invest at the CRA’s proscribed and silly rate of 1%. So long as s/he pays you interest (tax-deductible) no money made by the investments will be attributed back to you.
- Don’t forget the registered retirement account, either, which is actually more of a tax deferral device than a way to fund your later years. RRSP room jumps with your income, so it’s of greatest benefit to those old, rich, high-earning guys that everyone currently hates. Revenge. Sweet. Having a ton of RRSP room sure helps if you get a retirement package or a pension to commute, so bear that in mind. Meanwhile you can borrow money to invest, then use the refund to pay down the loan, ending up with free equity. Or just transfer assets you already own into an RRSP (called a ‘contribution in kind’) and Justin will send you money for selling yourself something you already owned. There are no words.
- Borrowing to invest increases risk, but it sure is tempting. A secured line of credit against your house costs 3.7% and the interest is 100% tax-deductible. Meanwhile a balanced portfolio in 2017 returned 11%. Last year it was 8.5%. Looks like more is coming. So you can keep all that equity sitting in a house doing diddly, or put it to work. Just promise me you will not buy Bitcoin.
- Do you and your squeeze both work? If one earns more than the other, have the chief breadwinner pay all of the regular expenses – mortgage, rent, food, daycare, weed, insurance, booze, clothes, rehab. Make the lesser-monied spouse the chief investor in the family, so the returns (capital gains, dividends, interest) will be taxed at a lower rate.
- Ditto for registered retirement savings. If you earn considerably more than s/he does, or have a defined-benefit pension, use up all your RRSP room for a spousal plan. You write the contribution off your higher taxed income while your spouse gains control of the money. After three years it can be withdrawn at their lower rate – so you’ve just sprinkled!
- Here’s another one, if there’s an income disparity between you: loan your less-taxed spouse a bunch of money for investment purposes. S/he puts it into a nice little non-registered account and starts collecting dividends and earning capital gains in a tax-efficient way. Even though it’s your money, none of that income is attributed back to you – so long as this is set up as a loan at the CRA’s prescribed rate of interest which is, believe it or not, just 1%. Interest must be paid annually by the end of January but all of that is tax-deductible. Yes, your spouse can write it off the investment returns. This works for kids over 18, too. More sprinkling!
- Also with income-splitting: if you are a wrinkly collecting CPP (everybody should start taking it at 60, no exceptions), this can also be split with your less-taxed spouse.
- If you didn’t listen to the advice on this blog, bought individual equities and were handed your rear end by Mr. Market, sell those dogs before Christmas in order to realize a capital loss which can be used to reduce taxes on capital gains. Losses can be used to neutralize gains not only in the current tax year, but going back three more years. This can help you recover taxes that you paid as far back as 2014.
- You can also take crap assets that dropped in value and dump them on your kid. Another great reason to have children! Investments can be transferred to a minor child and that will also trigger a tax loss in your hands which can be used to offset gains. Now your spawn has an asset that, when it recovers in value, will be essentially tax-free with none of the gain attributed back to you.
- Fill up your TFSA, obviously. Also that of your spouse. And your kids over the age of 18. Gift money to all of them with no gains TFSAs attributed back to you. Remember, $5,500 a year for 35 years earning 7% will result in $819,000, of which more than six hundred grand is compound growth. So ensure these are not savings accounts, but investment accounts – no GICs, HISAs or other dorky stuff. Also when you retire, a $819,000 TFSA will give you about $50,000 a year in taxless income which will not reduce your CPP or OAS by one cent.
- If you’re 71 and have to convert an RRSP to a RRIF, be thankful you robbed the cradle and married a babe younger than you. Your mandatory retirement fund withdrawals can be based on the age of your spouse, keeping them to a minimum and allowing your nest egg to grow larger, longer.
- Obviously put money into a RESP for your kids. The feds will give you an automatic grant equal to 20% – so for a $2,500 contribution you receive $500, up to a lifetime total of $7,200. Free money. Duh. Why would you not do this? If your kid grows up to be a rock star or a high-net-worth, Mercedes-driving plumber you can fold much of the RESP money into your RRSP. Remember to buy growth assets. Establish a family plan for multiple kids, not separate ones. And, for God’s sake, avoid the RESP-flogging baby vultures that skulk around hospitals. Go self-directed.
10.And, yes, use RRSPs. They’re still the best tax-shifting vehicle around, allowing you to write off up to $25,000 in taxable income a year. You can borrow money cheap to contribute, then use the refund to pay much of it back. Or open a plan, shift in assets you already own, and get paid money by Bill Morneau for selling yourself stuff you already own. That should make his head all splody. Legal aspects of selling a house
If you’re selling a house – with more market declines ahead thanks to the new stress test – make damn sure the deal is solid. No long close. A mother of a deposit (ask for 10%). No buyer visits prior to closing. Deposit held in your lawyer’s trust account, not that of the listing broker. No condition on the buyer finding ‘satisfactory’ financing. And a clause giving you a day or two for legal approval of the offer.
Also do something radical – find out who the buyer is before you enter into a contract with them. Job? Circumstances? Background? Can they afford it? After all, you’d never rent your cheapo condo to someone without a credit application, references, credit check and income/employment verification. Why sell a $1.5 million house to a stranger and make huge life changes based on a closing months away that may never happen? HELOC & Risk Investment Strategy – August 7th
So he wrote me with an idea and a question:
I’m curious to know if you’d recommend pulling out 100k in equity in a house NOT to buy a rental house but to invest in a diversified portfolio and hopefully make a 6% to 8% yearly return only to turn around and put it back down onto the mortgage to pay it off faster? I’ve been contemplating on things to do to pay down the mortgage and create some income, no good having this equity just sitting here when it can be working for us! Seems starting a corporation is out of the question now thanks to T2 and his finance guru.
Given that real estate’s fat days are behind us but debt isn’t going anywhere, does this make sense? Maybe. Let’s roll it around.
Millions of people have, collectively, billions in real estate equity. When house prices stop going up, this becomes dead money. The only value you can really ascribe is what it might save you in equivalent rent. For example, a $1.5 million house can normally be rented for $3,000 a month. The family with a $500,000 mortgage and $1 million in equity is spending $2,400 (monthly) on the mortgage plus about $600 in property tax, insurance and utilities (water, sewer) that renters never pay. So they ‘own’ a home for the same monthly outlay as the family who rents it.
But they have put down $1 million to live there. If that were conservatively invested, and returned 6% annually, it’s $5,000 a month. So the house actually costs $8,000, and could yield a non-deductible capital loss as easily as a non-taxable capital gain.
In other words, in a declining, flat, comatose or normal housing market, the cost of ownership when real estate has climbed to these levels is insane. Renters who invest win, ten times out of ten. If interest rates creep up and mortgages renew higher, the economics of owning get worse. In the current environment, a lot of people have to be asking themselves – like Kevin – if there isn’t some way to use that dead equity which is no longer supporting a rising asset.
Yes, a HELOC is one way of unleashing equity. It’s a line of credit secured by real estate, which means the debt is registered against the property but also that it comes with a preferential rate of interest. That’s normally prime + 0.5%. These days that equates to 3.45% (and it may rise to 3.7% in October). The line’s rate is almost always variable, so it will increase along with the bank prime. And HELOCs are demand loans. If real estate prices truly collapsed or another credit crisis hit, the bank could ask you for the money back in, oh, 30 days.
The good news is all of the interest is deductible from your taxable income if the money is used to generate more money. Yup, that could be real estate paying you rent or (wiser) a balanced and diversified portfolio of financial assets. So, if you earn $120,000 and live in BC, for example, you effectively reduce the loan interest rate by 41%. Now the HELOC costs you just 2%.
Given that well-managed, non-cowboy, globally-balanced and diversified ETF portfolios have pumped out an average of 6.5% over the last seven years (two of which were market stinkers), this mean a spread in the 4% range. Last time I checked, that was better than the 0% home equity is currently paying.
So to Kev’s question. If he borrowed $100,000 on a HELOC and invested it for a 7% return, then used the cash flow generated ($7,000) to pay down his existing mortgage faster, would it make sense? Well, interest-only payments on the line would cost $3,450, but he’d reduce his income tax by $1,400 (if he earns enough). So he’s up five grand. That’s cool – it can be used as a pre-payment on the amortized mortgage. But wait. Kevin now owes another $100,000. But wait again. He has a $100,000 liquid investment portfolio.
By removing equity and borrowing, the Harley dude has (a) diversified his net worth, (b) reduced his income tax bill and (c) accelerated the mortgage payments, saving a whack of interest.
This is not a slam-dunk strategy for everyone. If rates rise and the payments get hard to make, you lose. If the world goes to crap and the loan is called, you lose. If your house craters and the bank finds out, you lose. If your job fades, you lose. If you invest in the wrong stuff (like gold, bitcoins, weed stock or junior oil & gas), you lose. If the feds drop the hammer on HELOCs again, you lose.
Debt is debt. The world’s soaked in it. Most people would be unwise to shoulder more.
The best strategy, history will show, is to trash debt by selling high. This is high. Complex home buying tax strategy, courtesy of Derek Holt – the chief economist at Scotiabank
· Make a $19.2k RRSP contribution just three months in advance of buying a home… • …assuming a 30% tax rate, deposit $6k tax refund back into RRSP… • …then withdraw the allowed $25k maximum under the HomeBuyers’ • …to be repaid to the RRSP in equal installments over 15 years starting 2 years after withdrawal with no interest penalty and the payments are not counted in mortgage serviceability calculations… • …at, say, a 4% rate of interest, this equals $8k in interest savings over 15yrs… • …which means the initial $19.2k RRSP deposit has been parlayed into an effective down payment of about $33k, or an extra 70%+ • No restrictions on the source of the original RRSP deposit (can borrow for it, ‘gift’, etc). • ie: the zero-down mortgage can still theoretically exist • If a couple, and both are first time homebuyers, double all of the math above (ie: turn $38k from liberally allowed sources into a $65k down payment)
· If a major bank’s showing clients how to take $38,000 and game it into $65,000 through exploiting the system, it might indicate we’ve all hit a tax wall. And this is even before T2 Hoovers out the savings of small business operators, vets, docs and the local John Deere dealership.
submitted by Looking to see if i can find someone to gift me this full manga bundle here for a few games
Caveblazers - Arena Mode
Crusaders of the Lost Idols - Elite Starter Pack
Gangs of Space - Yogscast Jingle Jam 2017
Idle Champions of the Forgotten Realms -- Celeste Starter Pack
War for the Overworld - Yogscast Worker Skin
Cally's Caves 4
Spiritual Warfare & Wisdom Tree Collection
Goosebumps: The Game
Star Vikings Forever
The Last Door: Season One
The Political Machine 2016
Crazy Machines 3
A Tale of Caos: Overture
Battle for Orion 2
Bear With Me - Collector's Edition
CAT Interstellar (Early Access)
DreadOut: Keepers of The Dark
Freedom Force vs. The Third Reich
Legends of Eisenwald
My Personal Angel
Railroad Tycoon 3
Reroll: Back to the throne
Ripped Pants at Work
Super Rude Bear Resurrection
Sweet Volley High
The Bureau: XCOM Declassified
The Girl on the Train
AI War: Fleet Command
Alien Arena: Warriors Of Mars
Black The Fall
Crazy Machines 2
Defend The Highlands
Defend Your Life
DISTRAINT: Deluxe Edition
Draft Day Sports Pro Basketball 4
Endless Legend™ - Classic Edition
Endless Space - Collection
Fault milestone one
Fix Me Fix You (& Soundtrack and Director's Commentary)
Fractal: Make Blooms Not War
Frankenstein: Master of Death
Galactic Civilizations II: Ultimate Edition
Girls Like Robots
Gold Rush! Anniversary
Grim Legends 2: Song of the Dark Swan
Guns of Icarus Online
Hot Tin Roof: The Cat That Wore A Fedora Deluxe
House of 1,000 Doors: Family Secrets Collector's Edition
IL-2 Sturmovik: 1946
Layers of Fear: Masterpiece Edition
Mirage: Arcane Warfare
No Time To Explain Remastered
OCEAN CITY RACING: REDUX
Odallus: The Dark Call
Offensive Combat: Redux!
One Finger Death Punch
Over 9000 Zombies!
Planet Ancyra Chronicles
Poker Night at the Inventory
Realms of Arkania: Blade of Destiny
Running with Rifles
Shadows: Price For Our Sins Bonus Edition
Sid Meier's Civilization® III: Complete
Spoiler Alert Collector's Edition - Includes Bonus Content
Star Story: The Horizon Escape
Stories: The Path of Destinies
Sunrider: Liberation Day - Captain's Edition
Super 3-D Noah's Ark
Super Rude Bear Resurrection
Table Top Racing: World Tour
Tank Operations: European Campaign
Tesla Effect: A Tex Murphy Adventure
The 39 Steps
The Emptiness Deluxe Edition
The Flame in the Flood
The Orphan Dreams
The Reject Demon: Toko Chapter 0 — Prelude
Thirty Flights of Loving
Toy Odyssey: The Lost and Found
Twisted Lands Trilogy: Collector's Edition
World of Mixed Martial Arts 3
You, With Me - A Kinetic Novel
Greed: Black Border Arcana Heart 3 LOVE MAX!!!!! Forward to the Sky Heart and Seoul Tacoma The Agency: Chapter 1 The Bard's Tale The Norwood Suite Warhammer: Vermintide Dwarf Helmet DLC Primal Carnage: Extinction Rusty Lake: Roots Dungeon of the Endless Hand of Fate Knight Squad Blackwake Face Noir HIVESWAP: Act 1 Moekuri: Adorable + Tactical SRPG 12 is Better Than 6 Aporia: Beyond the Valley Dark Train Hue Space Run Galaxy The Walking Dead Season 1 Cooking Witch MagiCat School of Talent: SUZU-ROUTE Bad Dream: Coma Mini Metro Beholder Désiré Steamworld Heist Crimsonland Has-Been Heroes JYDGE King of Dragon Pass Shadowrun: Dragonfall - Director's Cut Shadowrun: Hong Kong - Extended Edition Husk Beastiarium Bonbon Garfield Kart INK Psychonauts Furi Outlast 2 Portal Knights Shadow Tactics: Blades of the Shogun Sleeping Dogs: Definitive Edition Yooka-Laylee Poly Bridge Mad Dojo Overgrowth STRAFE: Millennium Edition GoNNER - Press Jump To Die Edition Tropico 4: Collectors Bundle This is the Police Jalopy Crazy Machines 3 Action Henk KINGDOM NEW LAND Shoppe Keep THOTH Lethe - Episode One Silence Lethal League HunieCam Studio Hotline Miami Pizza Connection 2 HuniePop Luvocious Shadowrun Returns The Turing Test UAYEB Stay Dead Evolution Yooka-Laylee ABZU Ken Follett's The Pillars of the Earth Ruiner Potatoman Seeks the Troof Slavistan Nongunz Seasons After Fall Monster Slayers Road to Ballhalla SEGFAULT Zero Reflex: Black Eye Edition KARAKARA Hack_me 2 Rituals Rakuen Spaceship Looter Spaceport Hope Whispering Willows Warden: Melody of the Undergrowth AIDEN Mushroom Wars PUSH Timberman The Warlock of Firetop Mountain Wuppo Lovely Planet Midsummer Night SanctuaryRPG: Black Edition Mr. Shifty Gloria Victis Getting over It Getting Over It with Bennett Foddy Warhammer 40,000: Regicide Earthfall Hotline Miami Space Ribbon Battle Bruise The Mooseman Goblins and Grottos Mainlining The Norwood Suite Planar Conquest Acceleration of SUGURI 2 Metrico+ Worlds of Magic Song of the Deep Grand Theft Auto Episodes from Liberty City Morningstar: Descent to Deadrock Police Quest Collection Age of Gladiator Domina SanctuaryRPG: Black Edition Street Racing Syndicate Stronghold Crusader 2 Owlboy Saints Row 2 Space Farmers Freedom Force Volgarr the Vikings Wasted Car Mechanic Simulator 2014 Car Mechanic Simulator 2015 Rise of the Triad Holy Potatoes! A Weapon Shop?! Space Hulk Ascension Sonic CD
Lower tier bundled games. 1:1 others i dont have/120gems
Pixel Space Battles
BLOK DROP NEO
Sos i Pie Sos
Galactic Lords OST
Super Ultra Monster Smash!
Lost jumping frog
Ninja from Hell vs. Reptiloids
Sad City 42
Old School FOTD
Kama Bullet Heritage
Kama Bullet Heritage 2
Solenars Edge Rebirth
Christmas Race 2
Clash of Castle
Burst Into Soundtrack
Fantasyland - All Heroes
My Super Tower 2
All Guns On Deck
Blackjack In Space
Blood of Old
Memories of a Vagabond
Doodle God Blitz - Greatest Inventions
Happy New Year Clicker
Home Alone Girlfriend
Wyatt Derp 2
Withering Kingdom Arcane War
Winged Knight Penetration
Lotia® Forbidden Clicker Party Gravity Light Solenars Edge Heroes God Vs Zombies Midnight at the Red Light : An Investigation Taco Gun God of Failure Starting The Game Twist of Destiny M1: A Death in the Desert (+M1 Soundtrack) Burst Into (+Burst Into Soundtrack ) Splatter - Zombie Apocalypse Sins Of The Demon RPG Zoop! - Hunter's Grimm Hidden Object - Sweet Home Gravity Quest Bug Killers Guardian's Oath Violent Vectors Half Past Impossible Square Head Zombies - FPS Petrichor Nogibator: Way Of Legs Neoncers Necroarmy RollingBall Zombie Murder Zombie Murder Hell Arrives Store Simulator 2018 The Binding Of YOU Qvabllock Fly Destroyer Reaching for Petals: VR Edition ClickBit Pukan Bye Bye The Rare Nine Symbiotic Overload Warp Ride Crankies Workshop: Grizzbot Assembly 2 Crankies Workshop: Whirlbot Assembly Crankies Workshop: Zazzbot Assembly Crankies Workshop: Lerpbot Assembly Crankies Workshop: Bozzbot Assembly Crankies Workshop: Grizzbot Assembly Cyber Fight Keep Rollin! NYAN DESTROYER Simple Story - Alex Army of Squirrels Hunahpu Quest. Mechanoid Walls in Dead TARGET ArcBall CRASHBOT Old School FOTD Hooligan Vasja: Christmas Little Adventurer III SK8 The Cube The lost joystick Rampage Ragdoll Hot Pool The Evil Party TRYON Why So Evil Headache ISEE Mumps Petrichor Pixel Space Battles Spaceguy The Exorcist Lawnmower Simulator The Final Take Pixel Shooter Railroad Lines Gravity puzzles Business clicker JUMP STOP Exowar Icky Lopp Space Hit Let's Zig Zag Survival driver 2 Heavy vehicles Terra Lander Unite Cell Break into Zatwor Inferno Puzzle Blitz Breaker Pain Train Phantom Soldier Dungeon Creepster LOVE Die With Glory Pixel Puzzles: UndeadZ Journey to the Center of the Earth Zombie Quarantine The Deed: Dynasty Litil Divil Sleengster Triple Otakus Puzzle True Bliss SurvivalZ Roulette Simulator Lawnmower Game NeoBoom2 Achievement Hunter: Cromulent Fight desserts Clash of Castle BattleQuiz Night Fly Pain Train 2 Pain Train PainPocalypse Big Surprise Bit-Boom Christmas Race 2 Hooligan Vasja: Halloween Last Heroes See No Evil Borealis LocoSoccer Out There Somewhere Gun Metal House of Caravan Infection: Humanity's Last Gasp Marble Mayhem: Fragile Ball [Want]
Wishlist or Offers
Some missing humble bundle/monthly games:
ARMA 3 Apex
Ark Survival Evolved
The Jackbox Party Pack 2
Homeworld Remastered Collection
The Long Journey Home
SNOW: Pro Pack
Sniper: Ghost Warrior 2
Sniper Ghost Warrior 3
Mercenary Kings Reloaded Edition
Arma 3 Karts
Arma 3 Marksmen
Arma 3 Helicopters
Deponia Doomsday Soundtrack
Combat Wings: Battle of Britain
Chronicles of Mystery: The Scorpio Ritual
Compare2Steam if want to trade low tier games or what i don't have
Trade link for if want to send a steam offer
SGS Rep Page
SGS Rep Page 2
IGS Rep Page
IGS Rep Page 2
IGS Rep Page 3
GT Rep Page
GT Rep Page 2
Steamtrades Rep Page
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