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April 25, 2019 | Crusty Thinking

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.

The Doctor is IN, ready to deal with your financial stress and real estate anxieties. Here, lie on this couch and let it all gush out, Alexa.

We are a married mid 30’s couple with 2 kids and renting a house.  We have made poor financial decisions with home buying and we’re feeling stuck and seeking advice…

My husband went to University for pharmacy, working full time with no pension since then. I worked, then stayed home with kids.  Purchased townhouse in 2009 and sold within 2 years for $5k less than paid for it…plus fees

Purchased large house soon afterwards and promptly sold within 2 years as it was sinking us monthly and wanted to get out before it was too late….then sold for $5k less than paid for it….plus fees. We decided to rent for a couple years to save and figure out what’s next…then the housing prices skyrocketed and now we’re stuck…

We’re currently paying $1500 rent for a full house with HUGE backyard for kids to play and a block from grandparents for support (although not common to pay so little we are grateful!!)

Investments total $130k between RRSPs, TFSAs, RESP and joint account. We’re saving $1500 monthly right now which is going towards debt but planning to save once all paid down by, our calculations, should be by next July

What should we do!? Should we buy? Move? stay renting?

We aren’t sure if draining our investments is smart…or want to have a $500-$600k mtg which won’t leave us with much more than about $200 monthly for extras…..we have 2 growing athletic boys… Thanks for all your guidance and suggestions.

No brainer, Alexa. Rent. First, you just don’t have enough money to buy without (as you know) killing your investment portfolio and sucking up a lot of debt. Second, you have great lease, a good house and a perfect location. Why move? Third, your greatest responsibility is the children you brought into this world. Owning a house (as opposed to renting one) is pointless as far as they’re concerned. If buying means you save less for their futures, that would be a selfish, misguided move.

Finally, this isn’t your first rodeo. You’ve done it before. Twice. You lost money on both occasions. Real estate was a net drag on your net worth, plus it caused you stress and tension. Why would things be any different now? Unsubscribe from HGTV and stop talking to your parents. That should help.

Now here’s Ryan, who reads this blog and actually thinks hard about the drivel it contain. Good boy, Ryan. Whazzup?

I’ve been a long-time reader of your daily affirmations, which have helped give me the confidence to make good financial decisions. It really is empowering and I will be forever grateful. That said, I read your last post about GICs and it rattled me. Here’s the thing…

My wife and I are on the cusp turning forty. We just sold our condo and will be walking away with $650,000, free and clear. We have an additional $100k in cash (I know, I know), TFSA’s maxed out (~$60k each), and about $40k each in RRSPs, with some room to spare. We both work for big companies with DB pensions, assuming we stick around that long (unlikely, but who knows?). No kids, just a furry pooch.

We’d like to get a house when things in the market settle down a bit, so hopefully in a few years. We’re going to rent in meantime, as per the Turner plan, despite the agonizing GTA rental prices. Given our short-ish time horizon, we had figured our best plan was to put the money into a GIC while we wait things out but your post on this made us question it.

With what timeline should you not consider a 60/40 portfolio? Are GICs ever the answer? Is there something better for those of us with shorter time horizons? Thank you so much. Always grateful.

To recap. GICs suck. They pay barely more than inflation. The interest is fully taxed. You must declare and pay tax on the money before you receive it. The best rates are paid by the dodgiest outfits. In short, you’d actually be as far ahead staying in cash.

But to your question: is investing for a couple of years too short-term? Well, weigh the risks. Not investing could cost you roughly $40,000 over the next couple of years if a balanced portfolio delivers the same average return as over the last eight. That’s enough to pay the land transfer tax on a new place or buy a load of furniture including one of those fridges with a built-in TV (how can you eat breakfast without one?).

The point of a balanced and diversified portfolio is growth with stability. That’s why there are bonds, preferreds, REITs and equity in various markets and countries. Can this ever go down and give a negative return? Of course. In 2018 Bay Street gave up 12% and a B&D portfolio lost 3%. But down years are the exception, since 70% of the time growth is the norm. Moreover, when financial assets fall it’s usually because of a slower economy, which also weighs on real estate.

There is no correct answer to the question. It depends on you. Your tolerance for change. Your emotions. But realize that you now have close to $1 million liquid. The odds of that becoming $3 million in 15 years – at age 55 – are damn good if you invest, instead of going for another house. That should churn out about $200,000 a year in tax-efficient income, allowing you to retire and live in comfort – forever.

Or, you could GIC, buy a house, embrace debt and hope for the best.

Some choice. Ask the dog.

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April 25th, 2019

Posted In: The Greater Fool

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