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August 25, 2015 | Sleepless

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.

DOG COFFEE modified

Enjoying the latest flash crash? Read the comments in the steerage section yesterday? So much wasted moaning. So many needless quick heartbeats. Such misplaced fear. And while volatility will continue, there’s no collapse. There never was. Nothing has changed, except lots of cool stuff costs less. Doomers, 0. Blog, 1.

Okay, let’s climb down from the esoteric into the world of traps, compromise and seriously confused relatives.

“My name is Maria,” she says. “I and my husband following your blog for last three years. I understand you are receiving tons of e-mail during the day. I would love to be one of those who never need an advise, but apparently we are. Unfortunately my parents situation effects ours and gives me sleepless nights.

“Our family is first generation immigrants, living mostly beautiful 20 years in Canada. Now my parents are turning 65 and here comes not so easy financial decision we have to make.”

Here’s the deal with Maria and her folks: The own a Mississauga townhouse worth $450,000 with a grand total of $50,000 in liquid (pension) assets, living off CPP and OAS. Not good.

“At least we managed to convince my parents to sell townhouse, but they are horrified of renting idea,” Maria adds. “We came to compromise and my parents agreed to rent condo for 1 year and then I promised they either love the idea of renting, or we are going to look for other living arrangements. I totally understand that my parent cannot afford to buy even small condo, it will eat 50% of all money they have.”

This is the cry for advice: M and her hubs have a kid, a dog, a half-million-dollar mortgageless house, $150K income and about two hundred grand in investments. (And so many people here dis immigrants…).

“Should we buy condo, and let our parents live in it paying us only property tax and condo fee  (if they will be able to afford even that) and we will pay mortgage?, or should we sell our house and buy bigger one with additional live in unit, so my parents will become dwellers? Obviously it will require big mortgage for us. Or should I hope my parents will live independently in rented condo unit owned by some “investor”.  And will they have enough income if I convince them (again not so easy task) to invest money from selling their home in very conservative monthly income generating portfolio?”

“I hope my family situation will be case study on your blog, this way I can have an advise from you and the blog dogs can ridicule for their pleasure.”

Well, this is simple. Let’s assume the geezers are collecting $560 each in OAS and $1,000 between them in CPP. That’s about $25,000 a year. Not enough to pay $15,000 in annual condo rent and still eat. But if they invested the $450,000 in a 40-60 portfolio (that’s sixty per cent fixed income, the rest growth assets) and collected about 6% a year, that would double their income – with the principal remaining for future needs.

No parentals in the basement. No seeing them buy a little skybox, and eating Alpo. A sense of independence and achievement on their part. No property tax, condo fees, maintenance, snow shoveling or financial stress. Just a monthly ‘paycheque’ from their investment account, most of it being in the form of return of capital. That way they don’t even report the additional income and it doesn’t chew into their OAS money. And, natch, a big chunk of their capital should be TFSA’d.

Now why would they refuse this?

Because, Maria, they’re chicken. They confuse the risk of losing money in investments they don’t understand with the bigger risk of running out of capital. After all, they’ve two decades left to finance. Besides, why should your family shoulder a bigger mortgage burden so the old folks can stay mired in their ignorance and live beside the laundry room?

Go find a nice fee-based advisor and drag them over there. Let him/her explain how great assets like preferred shares are on sale and yet will pay then 5%; how having some investment exposure to the economy is their best bet as long-term (twenty year) investors; how earning money tax-efficiently through dividends or capital gains, or unreported as ROC is way better than interest; how events like those of this week should be utterly ignored; how buying a condo in Mississauga is a disaster waiting to happen thanks to over-building and slap-dab construction; and how they can live with dignity, not forcing their daughter into the questionable arms of a pathetic, vaguely horny, blog.

Tough love, Maria. Like Donald Trump says. Be a man.

Tonight's conference call: the correction

Where are markets going and why did all this stuff happen? You might be interested in hearing what Portfolio Manager Doug Rowat and I think about things. We host a weekly conference call, and here is a link to tonight’s (August 25) . Parental discretion is advised.

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August 25th, 2015

Posted In: The Greater Fool

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