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ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

August 17, 2015 | Horny No More

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

“I was a bit house-horny before finding Greater Fool,” Christina admits, “but that has definitely changed. My husband and I are so thankful we found it.”

See? Some people are actually happy they come here, unlike the nimrods who want me to promote gold, trash the Chinese, praise Norway, pity the Americans, stroke realtors, forgive Kia and Costco, or pretend that Dippers are not evil. The world needs more Christinas, as naïve as she may be.

“I am wondering if you could give us some advice about where to park our money,” she says. “Also, I contacted an independent financial advisor – would you recommend one? Do I need someone like this?

“We’re both 31, debt free and are both self-employed.  I have RRSP mutual fund with $12,000 in it; a TFSA mutual fund with $17,000; and together we have $11,000 in Tangerine account for emergencies Our financial goals right now include: in 1-2 years, subsidizing a mat leave for me (having 6 months of living costs saved); replacing my husband’s car; and putting money away for retirement. Can you help?”

Of course. Personalized financial service is included in the hefty annual fee you pay to read this pathetic blog.

First, explain this house-horny thing to me. Your total assets amount to just forty thousand bucks, so unless you live in Timmins or god-forsaken Lillooet how would you propose buying a house, financing closing costs and have any money left? Just because you can score a five-year mortgage for 2.4% doesn’t mean you should. House prices are historically high while the economy is fading fast, imbuing real estate with risk. Glad you’re taking a pass.

Where to put your money? Not in mutual funds, for a start. The MERs (management expense ratios) are likely far higher than equivalent ETFs, or exchange-traded funds because you’re paying some manager you’ll never meet to try and beat the market. It rarely happens. So just buy an index using an ETF. I’ve given sample portfolios here in the past, so look ’em up. Sixty per cent growth and 40% safe stuff is a good mix, with two-thirds of the equity funds being US and international. Go light on maple.

You can’t do this at the bank, Chris. So open a discount brokerage account, transfer your funds over and make the changes. Also, why do you have $11,000 in a silly savings account with the fruit people instead of invested in growth assets inside a TFSA? Not only are you earning peanuts, but it’s all taxable. Bad idea.

If you want money for an emergency, go to the bank and arrange a line of credit. The interest rate isn’t really relevant, since you’ll only draw on this in the event of a calamitous event – then quickly pay it off from savings. LOCs cost nothing to set up or keep in place, letting you access thousands of dollars just by writing a cheque. Every person with a pulse should have one.

Your financial goals are modest, now that Greater Fool has fixed you. Regarding the potential mat leave in a couple of years, don’t hoard money in a savings account but rather chunk it into your RRSP, reinvest the tax refund in your TFSA, and put it into those large-cap ETFs. When you take time off you’ll be in a lower tax bracket and can collapse your plan. Take it out in hunks of $5,000 or less to minimize the withholding tax.

And if you can wait three years to have a kid, have your husband open a spousal plan now and contribute to it. He enjoys the deduction, but after three years the money is yours, presumably taxed at a rock-bottom rate. The car? It’s the last thing you should raid your accounts to purchase. Cars depreciate. They’re tools, not investments. Lease one or take advantage of existing cheapo dealer financing. Never, ever pay with cash which you could grow.

Finally, retirement is a long way off, so it’s cool you’re thinking about it 30 years in advance. If you started with $23,000 in your combined TFSAs today and maxed them for thirty years ($1,600 a month – learn to live on KD), investing in a portfolio giving 7%, by 61 you’d have $2.2 million, with $1.6 million in pure, untaxed growth. That would provide an annual income of $150,000, also tax-free – still allowing you to collect full government pension benefits.

Yes, rich. Millionaires.

Or, you can buy a house, ending up with no cash, a mortgage and babies. Tough choice.

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August 17th, 2015

Posted In: The Greater Fool

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