Six Investing Do’s & Dont’s
An article was published in the Financial Post defining six “Do’s & Dont’s” when it comes to your investing habits.
I found this article to be a great read and would recommend it to anyone. Of the six points that Duncan Stewart makes, the one that stands out the most to me is “Do #1″. He talks about the importance of proper asset mix and diversification and says that “More than 50% of the variance in portfolio returns among all investors is determined by the mix between bonds, equities and cash — so get it right.” Those are pretty powerful words and I couldn’t agree more with his stance that simply throwing paint on the wall will not give you the masterpiece you are looking for, or in turn, the return you want or deserve.
Your Take-Away: It is always enticing to jump into the hottest stock, buy an investment property when you know you are getting a good deal, or even backing down and converting your equities into cash in a market down turn, but there is much more to consider then a quick buck. You have unquestionably met investors who have struck it rich through a hot stock or some other investment vehicle, but don’t think they are the norm. Take the necessary time to review your entire financial situation before making any significant portfolio changes, and always ensure that your “hot” or “new” investment is properly diversified with the rest of your portfolio.
Risk in and of itself is by no means a bad thing, and is necessary for those of us looking for substantial returns on our investment. Just don’t forget to make sure your risk is properly balanced with its potential reward and the rest of your existing portfolio.
Happy Investing!
Chris
Is Your Home an Investment?
An article was published today in the Financial Post making the statement that “Your Home is Not an Investment”.
We agree with this statement for two specific reasons. The first is that an investment will generally have a “tangible value that can be exchanged for cash”. Although it can be argued that this is true for your principal residence, the only way you can “access” that cash is to sell your home and then buy a less expensive home and thus bank the difference. The second reason is that most investments are “held with the purposes of generating a gain, creating cash flow or both”. Despite the growth that most homes will generate, that cash is rarely accessible until or unless the next purchase is smaller then the value of your current home, thus creating a surplus.
Your Take-Away: In our opinion, your principal residence is the place you call home and where you create lasting memories with your family. Relying on your home as your primary investment is not a wise decision as your liquidity factor is minimal if not entirely non-existent. If you want to pay your mortgage off early for the purpose of becoming debt free to create additional cash flow which can then be redirected towards your investment portfolio, great. Just consider the benefit of making your annual lump sum deposit towards your mortgage into your RRSP first, and then using your tax refund towards your annual mortgage pre-payment privilege.
Again, each situation is very unique and this is not a “one size fits all” strategy. Talk to a Professional before deciding if this makes sense, but definitely take a serious look at whether the above points make enough logical sense to consider viewing your home as an investment in a different light.
Until next time, have a great day!
Chris
Use Your Home Equity to Invest in Real Estate
Thanks to the appreciation in real estate over the last 5 years, owning an investment property may be closer to reality then you think.
This may be common knowledge to some potential investors, but there are a number of key benefits to owning an investment property. To name a few, you can a) create a predictable monthly cash flow b) enjoy capital appreciation on the entire value of the home and not only on your initial investment c) have someone else pay down your mortgage for you d) enjoy the tax deferral of your capital appreciation over the long run while taking advantage of tax write offs each year. When compared to a retirement vehicle, you can see how real estate has similar characteristics and can be used very effectively in conjunction with your current retirement plan.
Your Take-Away: Using the equity in your principal residence is the most cost effective method of borrowing money to invest in Canada, and the recent market fluctuations have given otherwise cash strapped Canadians the opportunity actually own their first piece of investment real estate. However, don’t throw caution to the wind and forget that there is a level of risk involved in owning real estate. Make sure you ask yourself if you are someone who is capable of dealing with the possibility of disgruntled tenants, or the ongoing maintenance that rental properties require. If so, then you may just be the next person who takes the leap of faith and buys their first real estate investment.
Your mortgage for a property is an entirely different discussion, so please ensure that you talk with a Professional Mortgage Consultant before you make a decision of this nature.
Until next time, happy investing.
Elisseos
Canadians Retirement Savings Inadequate
An article published in Report on Business states that Canadians retirement savings are not adequate.
According to Fidelity and most investment firms and Advisor’s, the average Canadian will need approximatley 70 to 80% of their current income to live the life they want during their retirement years. Sadly, the reality is that a Fidelity based “survey of 2,200 people aged 25 and older says that Canadians on average have saved enough to generate only 50% in retirement income”. Keep in mind that this retirement income goal is not a one size fits all formula, but our experience tells us that it definitely represents an accurate need for the majority of Canadians.
Your Take-Away: We have all heard the saying “If you fail to plan, you plan to fail”, and I think the above statistics are a clear indication of exactly that. Knowing what your retirement needs actually are is the first step towards ensuring that you have the retirement savings you need to provide the income you want. An “RRSP Calculator” can be found on many sites, including our own, and it would be wise to at least determine for yourself if you are on track. If not, something as simple as a monthly investment plan can be the answer you are looking for to make sure you end up where you want to be.
In the words of the now famous David Bach, “Anyone can become an Automatic Millionaire”.
Happy Planning.
Chris
Miller Has NEW Land Transfer Tax Passed
As of yesterday it became official that David Miller’s new land transfer tax proposal has been passed.
As of January 1st, 2008 second and subsequent home purchasers will be forced to pay a larger land transfer tax from between 0.5% and 2.0% depending on the purchase price of your new home. The only exceptions are families who are buying their first home up to a maximum of $400,000, and a 1% cap on the tax of residential and commercial properties valued between $55,000 and $400,000.
What’s worse is that the original proposal was that this new tax would replace the need for a raise in property taxes throughout the GTA. However, as the Globe & Mail reported late yesterday, it appears that we can still expect a raise in property taxes sometime in 2008. It seems to just keep getting better, doesn’t it?
Your Take-Away: If you are looking to buy and close on a home anytime after January 1st, 2008 you will be forced to pay this new land transfer tax. What that means for someone looking to buy their second or subsequent home is that you could lose up to an additional $10,000 in land transfer tax on a $500,000 home. If you have the chance to buy and close sooner, it may just be something to seriously consider.
It’s not too much fun when writing about new taxes and the reality of our bottom line shrinking, but knowledge is power and hopefully this information will prove to be beneficial for those of you considering a new home in the near future.
Enjoy the rest of your day!
Chris
Canadians Debt Load Reaches New Highs
An article was published in the Toronto Star this morning talking about the growing debt of Canadian families.
This article stated that “Household debt has been rising by nearly 5% a year for the past 30 years, outpacing gains in personal disposable income, in assets and in the economy, to hit a record $1-trillion last year” as reported by the Certified General Accountants Association of Canada. What’s even scarier was the claim that only “25% of households do no saving whatsoever, not even for their retirement.” In fact, “The personal savings rate has plunged to just 1.2% of income from 20% in the early 1980s.”
Your Take-Away: This is a perfect time to take a look at your own personal spending habits along with your current debt ratio to determine if you fit into one of the two categories above. If so, don’t fret. You don’t have to complicate your situation further to actually fix it properly. You could consider creating an automatic debt repayment and savings plan, or even consolidating your current debt by refinancing your existing mortgage.
Rest assured that in most cases there is always a solution. The only question you have to answer now is whether you are willing to take the necessary steps to make sure you correct your current situation.
Enjoy your weekend!
Chris
CI Investments Announces NEW T-Class Funds
On Monday October 15th, CI Investments announced the launch of their new T-Class Mutual Funds.
CI has recently thrown themselves into the ring of mutual fund providers who have created a solution primarily focusing on the Senior and Baby Boomer market, or those looking for tax efficient income producing vehicles. This type of fund structure is currently available through most mutual fund firms such as Franklin Templeton, AIM Trimark and Mackenzie, and has been often been referred to as Return of Capital (ROC) funds, T-SWP funds or T- Series Funds.
CI’s Chief Executive Office, Peter W. Anderson stated on Monday that “After-tax income is the critical issue for investors since many traditional interest-paying investments offer both low yields and high tax rates. As one of the most tax-efficient investments available, T-Class is an important option for retirees and other Canadians planning for their retirement.”
Your Take-Away: This type of non-registered investment vehicle is almost a no brainer for anyone who is looking to:
- Create steady, predictable, tax efficient income
- Minimize their annual tax bill on the income they earn
- Protect their Old Age Security (OAS) from being “clawed back”
- Have liquid access to your investment in the case of emergency
There are all kinds of investment products available to Canadians, and it can sometimes be a bit overwhelming when trying to decide what product or strategy makes the most sense for your specific situation. In my opinion, this truly is a concept and product that can make a lot of sense to a lot of investors.
Enjoy your day!
Chris
BoC Leaves Lending Rates Unchanged
The Bank of Canada met earlier today and decided to leave key interest rates at a stand still.
According to the current market conditions we are seeing in both the US and Canada, the Bank of Canada believes “that the current level of the target for the overnight rate is consistent with achieving the inflation target over the medium term.”. That’s good news for those of us looking to borrow money in the next couple of months, but that doesn’t mean that staying on top of our current mortgage strategy is not necessary either.
Your Take-Away: Variable rate discounts from a variety of lending institutions have been decreasing over the past week or two. Although key lending rates are not on the rise as of today, it may feel like they are to those of us who believe in the value of a variable rate mortgage. If you are looking to restructure your current mortgage or are purchasing a new home within the next few months, this would be a very good time to take a serious look at whether a variable rate or fixed rate mortgage would be best for your current situation.
Enjoy the rest of your day.
Elisseos
Canadians Like To Save
An article was published this morning stating that HSBC says “‘we’re generally a country of savers”.
HSBC expanded on their claim by saying they found that “70% of Canadians have some savings, whether it be in investments or in or outside of RRSPs, while 30% are on a schedule of pre-authorized deductions”. HSBC also said that ”55% of people will save money before buying something so they don’t have to use credit”.
On the surface that sounds like great news, and it is on all accounts. However, I would raise three of many basic questions that both you and I should be asking ourselves regularly:
- What would happen if you lost your ability to earn an income?
- Do you have at least three to six months in an emergency account?
- Will you have enough savings to provide the retirement income you want?
I ask these three basic questions (there are many more or course) because “being a good saver” is not the only component of having a proper financial plan in place. There are a number of components that will come in to play both now and in the future like a sudden loss of your job, disability or the need to support your aging parents on a financial level, to name a few. Unless your whole plan is working together like one well oiled machine, you may run into a couple of snags if you aren’t properly prepared.
Your Take-Away: Kudos to those of you that are savers. That is unquestionably an amazing start and an essential first step, especially if you are “automatic savers” and have a monthly investment schedule already in place. My only suggestion is to not stop there. Step back and take a good look at where you are, where you want to be and determine if there are any gaps that should be looked at more seriously. A good Financial Advisor could help you streamline this process and get you where you want to be sooner.
Live balanced.
Chris
Fixed Mortgage Rates on The Rise?
Based on employment data released a week ago today stating that Canada’s jobless rate is at levels not seen in decades, there has been increasing market pressure to increase interest rates on Fixed Term Mortgages. Some of the major banks, specifically TD and HSBC to name a couple, have already begun to increase their posted rates by approximately 25 basis points on their five year fixed rate.
The new jobless levels have renewed fears of inflation, and investors who thought the Bank of Canada would be either decreasing rates or remaining neutral, now believe the Bank of Canada might be considering an interest rate increase to keep inflation in check. This possible rate hike is by no means fact at this point, but all signs at least point toward the possibility of fixed rates being raised across the Country. Next Tuesday’s meeting by the Bank of Canada will shed more light on the direction of variable rate products and the Prime rate specifically.
Your Take-Away: With five year rates being in around the 5.79% area, it would be prudent to at least obtain a pre-approval if you are looking to buy or refinance within the next six months. Don’t forget that a pre-approval is in no way binding and there are no fees or charges incurred if you decide not to move forward.
Enjoy the ride!
Elisseos
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