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January 2, 2017 | Trending

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.

Millennials – at least 87% of them – have a smart phone with them 24/7. Two-thirds say they’d try a product recommended by a YouTube clip. Half trust social media more than the traditional kind, where people get paid to be accurate. A third get 100% of their news from blogs (now, that’s scary). Almost 80% would rather purchase an experience than a product. And there are now more millennials than Boomers, displacing that cohort for the first time in sixty years.

Social media played a massive role in convincing UK voters to dump Europe. It was pivotal in helping elect a 70-year-old populist crustacean in America. Now everybody knows Mariah Carey lip syncs and globalism is bad. Surveys show people are massively influenced (93%) by what anonymous ‘peers’ say online about… anything… while being deeply suspicious of institutions.

It’s a revolution in knowledge, for sure. Just a shame so much of the info sucks. I may not know that much about the Kardashians, but I know finance (which seems vaguely more important). The ignorance is appalling. And growing.

So, kids, here are a few facts worth remembering as this shiny new year gets rolling.

The first and best thing you can do for the future (and you have a lot of it coming) is put money into a TFSA. This is a type of investment account. It’s not a thing, or a product (nor is an RRSP). It is not for saving money, but holding investments with long-term growth potential.

Don’t open your TFSA at the bank, but rather with an online brokerage or even one of those robo jobs, because in the branch [email protected] will guide you into a brain-dead GIC, comatose ‘high-interest’ account or mutual funds with fat fees. Instead invest your dollars into equity-based exchange-traded funds, then forget about them. This is not money to be used for a trip to Cuba or new shoes.

The contribution limit this year is $5,500, and since 2008 (if you were 18 at the time) the accumulated room is a whopping $52,000. You can make that up anytime, and replace any money you withdraw the following calendar year (but don’t).

After the TFSA, contribute to an RRSP since this results in a tax refund but (most importantly) it shifts taxes from a working year to a non-working one when you might be laid-off, taking a break, pregnant or studying. If you’re married and planning a family, consider making the contributions to a spousal plan so you can finance the coming mat leave in three years or later. If you’re working for dirt as a barista, then save the RRSP for later when a decent salary materializes, because the more income you make, the sweeter the deal.

But remember RRSPs are not necessarily for retirement since they don’t eliminate tax, merely kicking the can down the road. Every dollar coming out will be taxed (unlike a TFSA), which is why you get a break for putting it in. And eventually every RRSP has to be turned into cash flow, which could push your old, retired, wrinklie butt into a higher tax bracket.

Also understand how you’re taxed. Most people don’t. If you collect interest from a GIC, work for a paycheque or collect a rent cheque from a condo, every dollar is exposed to tax. A working guy who rents out a property, for example, must add the net rental income to his regular income and then pay tax on the total, perhaps at a higher tax rate. This is in contrast to owning an ETF (for example) where profits are 50% tax-free. So your usual tax rate drops by half. Ditto with collecting dividends, which come with a fat tax-reducing credit.

Speaking of tax brackets, the feds charge 15% up to $46,000, then 20% on the amount to $92,000, then 26% on the amount to $142,000, then 29% to $203,000 and 33% on the bit above that. Provinces jump on top, so a Mill earning a hundred grand in BC pays $24,000 in tax, then hands over 38% of everything extra. (That’s called the ‘marginal rate’.) In Ontario the tax bill is $25,000 and the marginal rate jumps to 43.4%. Ouch. At $200,000 you start handing over 51% of all your additional income to the man (but he has tats and likes weed, so it’s all cool).

Anyway, you can see why rich people like RRSPs, since this year up to $26,010 can be contributed, which means a big tax refund in a big-taxed country. Of course you also have to shell out for CPP, which runs up to $2,564 for employees and $5,128 for the self-employed, plus EI premiums, adding $836 more a year.

The point is that after-tax income is so decimated for most people – especially the young – that Millennials who choose to avoid risk and save their money (instead of investing it), or play it safe and buy a condo, choking down a big mortgage (then face recurring fees) are likely to regret it. Savers are falling behind every day as deposit rates languish, and nobody can make money renting out an apartment.

The social media meme about investing? Corporations are pariahs. Markets are rigged. Financial guys are vampires. 1%ers are the problem.

Eat-the-rich sentiment may be trending, but it’s a diversion from what matters. The problem is that we don’t have too many wealthy, but too many ignorant. Who would have thought that people who sleep and pee with their smart phones could end up so naive?

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January 2nd, 2017

Posted In: The Greater Fool

One Comment

  • Andrew says:


    Quick question for retirees. You talk of dividends and preferreds so often but what are the tax implications for living abroad(capital gains/dividend tax credit)? What happens if you become deemed a non resident? I assume in an RRSP/TFSA one is clearly ok but in non-registered accounts? I believe with so many living abroad that this is an important subject for your blog. Thanks

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