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Dear Garth

Sunday, March 12, 2017 16:09
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(Before It's News)

Party on. The doctor is IN.

Hi Garth: I see sometimes you post emails people have sent to you. Suppose I should start off with the whole “love your blog, been following for years…..and all that stuff”(true,btw). I have a question about the best way to invest (if you can call it that) a very small amount of money for my children. We are a typical Albertan family that got caught up in the downturn of oil. The difference being that we had (key word-had) a fairly decent savings for our age. We were very lucky to sell our house and at this point have zero debt and are renting. Unfortunately after two years of either no employment of employment that pays very little, we have no savings left and are barely making rent let alone enough to invest. I am not entirely optimistic about my husband’s and my future retirement but we would like to try to do something, however small, for our children’s future. At this point it is not looking very likely that we will be able to help our children out financially when they were older so we would like to invest/put away at least a small amount that could hopefully turn into more when they are older. We cannot commit to a monthly investment. As I said earlier, just paying the monthly bills is the priority at this point. Is there anything worthwhile that we could put, say $2000, towards that would make any sort of difference for them in 10-15yrs? Thank you, Pam.

Hang in there, Pam. At least you had the foresight to get out of your mortgage and trash debt. As for the kids and your future… If they’re 18 or older, open TFSAs for them and invest the cash in a growth ETF or two (I’d pick one that paces the S&P 500). You could buy a strip bond, but rates are dismal, so no joy there. If they’re minors then why not simply invest the money in your own TFSA in a similar ETF and let it grow for the next decade? Or you can put it into an RESP, investing the same way, and receive a 20% free top-up from the feds. Free money. Take it.

Or just take the two grand, get in the car and drive to southern Ontario or the Lower Mainland, and get jobs. Your province is pooched.

Dear Garth: I am an avid reader of your blog and love the photos! I am wondering if you could give me any tips on how to improve my financial situation.

I am a 26 year old laboratory technologist earning $53k/year in Victoria, BC.  I have 120k, 80k of which is stuffed into my RRSP and TFSA in a 60/40 portfolio of ETFs. I keep the other 40k in my savings account as my RRSP and TFSA are maxed out. My rent is $900/month. Other expenses include things related to my vehicle and life in general.

If you could write about non-registered accounts, I would find that very helpful. I do not seem to understand how taxes work around investments in a non-registered account and that is the only thing preventing me from investing most of the money in my savings account. Thank you, Olivia.

Wow, O. Twenty-six, and you have three entire years’ worth of take-home pay saved. Impressive. But forty grand sitting in a savings account making 0.25% or less is a crime. Get it invested, girl! A non-registered account is merely an investment vehicle which holds the same stuff as you put into your TFSA or RRSP, and everyone should have one. Remember that RRSPs defer tax – not eliminate it – so all withdrawals will be taxed as income. TFSAs are great, but you’re limited to about five thousand a year in new money, which is no match for Olivia. So a non-reg account should provide hugely better returns than a savings account and still be tax-efficient. ETFs that rise in value are untaxed unless you sell them. When you do cash out, half the profit (at least for now) is tax-free and the other half is taxed at your marginal rate, which is 28%. So on a $1,000 profit the tax is a mere $140. Ditto for dividends – they qualify for the dividend tax credit, so the amount payable is also seriously reduced. The interest you’re making now, by the way, is taxed at twice the rate.

Uh, wait… Apparently there are about 400 young blog dogs who would like your email…

Hi Garth: I am a 32 year old male with a wife and two children under 2. I make about $70 000 a year, my wife is not working now and won’t be for the next couple of years. We have a $130,000 mortgage left on a house we bought in North Oshawa for $235,000 5 years ago. We don’t have any debt we own our vehicles and have only some TFSA balanced mutual fund accounts for about $20 000. Our house could sell for somewhere around $600,000 if we put the sign on the lawn today, and we would have $400 000 left. We would want to put the $400,000 in a balanced ETF for 3 years as we plan to rent and after when interest rates rise and house prices drop we would plan to buy a house after the market settles off hopefully cash and have no or very little mortgage. Do you think it’s a good time to cash out? My wife is nervous about renting but I feel that we could cash out now and buy again later and hopefully live mortgage free in a larger forever home. Thanks, Andrew

So, 95% of your net worth is in your house, and you have only twenty thousand liquid. Not good, balanced, diversified or safe. Sounds like you’ve saved nothing for the kids, either. Irresponsible. As for the house, it could realize a huge tax-free capital gain, and completely transform your situation – from an indebted, illiquid young father with three dependants and no resources, to a family with over $400,000 in growing assets and more choices. Invest it properly for five years (not three) and it should be $600,000. The danger you face? That she’s right. You sell. Houses all go to $3 million. You never own again and she never forgets. If that happens, we never talked.

Dear Mr.Turner: I quite like reading your blog not only because of your witty remarks and often hilarious pictures, but also because of your willingness to give advice when asked. I live in Calgary and am a part owner of a townhouse (my brother being the second owner). Our neighbors are for the lack of a better word trailer trash that managed to buy a property purely on the basis of low interest rates and leveraged real estate system. I would love to sell the house to someone similar to them so they can enjoy each other’s company but the real estate in Calgary is not doing well at the moment and I would lose money. Is there any chance that some of the Toronto’s real estate frenzy may come back to Calgary once the province of ON has implemented some sort of a real estate tax? Thanks, Max.

No, Max. Not gonna happen. Regarding the row house, this is real, common and almost-unsolvable problem for people who buy duplexes, semis, townhomes or condos. You can never repel the deplorables who may end up living out their irritating lives one wall away from you. This is one of the most compelling reasons for securing a detached property. Or a farm with guard cows. Maybe you could tell them there’s a Trump rally in Red Deer, then change the door numbers while they’re away.

Garth: “I read your blog everyday. I am finally moving out of my mom’s basement this summer (August). I am a full-time teacher and have been for 3.5 years now. I have just over 50 thousand in savings  + whatever is in that luxurious teacher pension I have been contributing to. I clear about $3,850 a month.
What is my next move? Should I be renting a condo close to work or buying a condo close to work? There are some pretty good deals out there. I do not want to pay condo fees and I do not want to pay lawyer fees and closing costs and whatever fee is associated with buying. I am a single guy and do not spend much time at home. I do not mind living in a 500 sq. ft place. I am in desperate need for some help and advice. Thanks, Max.

Huh? You’ve been taking home almost $48,000 for more than three years, still live with Mom, have saved only fifty grand and are writing a pathetic blog saying you’re desperate, asking if you should rent your own place? And they let you be a role model for children? Next!

Hi Garth: First of all, I love your blog, reminds me buying a house is not the meaning of life.

Stats: Age-32, Salary-50K, Savings-60K. I, like many others grew up in a haze of house horniness, determined to give away all my savings for a slice of K-W. Luckily I was out-bid once, and soon after found your web oasis. Shortly after, I opened a brokerage account under the supple tax shelter of a TFSA, and balanced it in the manner you suggested.

The problem I’m having now; some of my juicy dividend producing ETF’s have gained 14 – 20%! I bought these with the intention of holding for a number of years, at what point should you solidify these gains? Or is it better to hold and maintain the balanced dividend stream? Thanks! James.

Good boy. Now remember that while ETFs can be purchased and held for years in the same configuration (just ensure you get the weightings correct when you start) you need to rebalance periodically. Once a year is enough, or twice if you’re anal. Markets move, cash builds up from interest and dividends or you may contribute more capital – all reasons to rebalance. The idea is to bring assets back to your target weightings, which will often mean selling off portions of the winners and adding to some (or all) of the laggards. It’s counter-intuitive, of course, since most people are incapable of crystallizing gains (‘this baby’s goin’ to the moon’) or forcing themselves to buy losers. Failure to sell or buy at the correct times is the No.1 reason most Canadians fail. Other than not coming here. Or being humble.


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