Geezernomics

So Arlene has $17,000. Lucky girl. “But where do I put this money?” she asks me in an email. “In my retirement plan, or my tax-free savings? I’m so confused. And the bank is no damn help.”

This question arises more times than you might think. More than I thought. So as we near the RRSP deadline (Tuesday at midnight), here are some facts to bear in mind – followed by my conclusion.

First, an RRSP is a registered retirement savings plan. Who’s it registered with? The government. Why do we have it? Because we suck at saving money, so this is supposed to be an irresistible incentive to change that. Funds put into an RRSP net you a tax rebate. Plus, money earned inside is untaxed until it’s removed, so stuff grows faster.

An RRSP is not a product. Not a thing like a GIC or an ETF. Instead it’s just a way of investing – an empty box into which you place various assets like stocks, mutual funds or your mortgage. This is also the same for the TFSA, which is definitely not a savings account despite its dumb name.

Now the RRSP has two major problems. First, it doesn’t eliminate or reduce taxes. It just shoves them off into the future. This is called tax deferral and for many people it’s not cool. Especially young people. That’s because all the tax you save by investing in an RRSP needs to be repaid when you retire and withdraw, at current tax rates. And where do you suppose tax levels will be in, oh, thirty years?

You bet. Sick. After staggering through years of giant health care bills for the resource-sucking Boomers plus endless government deficits, there’s every reason to believe marginal rates could be far higher on RRSP cash you withdraw than the tax break you got going in. This is also a big deal for people closer to retirement who have investment or pension income that will give them a solid income after working. By age 71 the feds force you to start cashing in RRSPs and adding the money to your income – which can kick you into a higher tax bracket, or tax the poop out of your state pension payments.

RRSP problem deux:  all the money coming out of an RRSP is taxed the same way. Viciously. It’s simply added to your taxable income in the year it is taken, and subject (as I said above) to your marginal tax rate. That also sucks because it wipes out a lot of the advantage of investment income.

Here’s what I mean. If you invest in, say, ETFs or preferred shares outside of an RRSP the returns they generate for you are taxed as either capital gains or dividends. That means you’ll have a tax rate of maybe 20% – with the other 80% free. This is delicious, and one reason why these assets beat the pants off pathetic GICs whose interest is 100% exposed to tax.

But when you put preferreds or ETFs or stocks inside an RRSP this tax advantage is totally lost. All the gains are nailed the same way – as earned income – when they’re taken into your hands in retirement. This, by the way, is an investing mistake made by untold numbers of do-it-yourselfs who think they’re smart to stuff their retirement plans with hot stocks. It’s that flinty little F who gets the last laugh.

Now, life inside a TFSA is totally different. With this vehicle (it, too, is not a product but a way of investing) taxes are actually eliminated, not just deferred until you need Depends and help putting your pants on. This means there ‘s no deduction against taxes granted when you put money in, but neither is there tax when you take it out.  Every cent you contribute, and all the growth earned over the years, is yours to keep.

Also nice is the fact you can take money out of a TFSA and replace it later, hold all kinds of investments inside (but never in the Orange guy’s shorts, please), and open one for your spouse and kids over 18 to split investment income within the family. Profits earned here do not even show up on your tax return, so they result in no claw-back of government pension income nor do they goose you into a higher tax bracket.

The downside is only $5,000 a year can go into a TFSA (or $10,000 with your spouse), compared to $22,000 a year in the RRSP (if you make over $120,000). But with both plans, unused contributions from past years can be saved up and dumped in at any time. Check out your Notice of Assessment for unused RRSP contributions (called ‘room’), while everyone is allowed to put $15,000 in their TFSAs, since the plan is now three years old.

Of course, smart people make use of both. And let’s not forget that new homebuyers can suck off $25,000 from an RRSP for a house downpayment (although there’s only one reason to do so – using the refund to increase your deposit. Otherwise, bad idea.) Plus you can get an RRSP loan at the bank and then use the tax refund to repay it. And, of course, people with investment assets but without cash can simply shift those things into either a TFSA or an RRSP, which is called a ‘contribution in kind.’

The bottom line? Should be obvious. The first five grand you can find every year goes into the TFSA, and into growth assets – not some pantywaist GIC. The next money goes into an RRSP, in an amount sufficient to offset any current-year tax liability. (Unless you plan on having a pregnant spouse in a few years, then money into a spousal plan now can net you a tax break while she can withdraw it at a cheap rate later to finance mat leave.)

Or, you can pretend you’ll never retire, embrace hedonism, spend your money on tats and women, buy a Hummer and start a finance blog.

306 comments ↓

#1 mab on 02.25.11 at 10:39 pm

Why Isn’t Wall Street in Jail?
http://www.rollingstone.com/politics/news/why-isnt-wall-street-in-jail-20110216

#2 walter safety on 02.25.11 at 10:49 pm

Of course if your 65 you get the pension income tax credit and a higher personal exemption . So your not going to pay higher taxes on the first $4000 to $ 5000 you takeout– your not going to pay any taxes . At a withdrawal rate of 5 % that will take care of the first $100,000 you have in a RRSP. So RRSP’s are not a tax bomb for most people.

#3 Mojo on 02.25.11 at 11:14 pm

First !

#4 Zarathustra on 02.25.11 at 11:19 pm

Left Coast squirrel soup recipe

4 small tender young squirrels (free range)
1 onion
3 cloves garlic
2 carrots
3 Tbls olive oil
2 quarts organic vegatable soup stock
1 bay leaf
4 grams compassion club herb mix
6 ounces glenmorangie single malt

Saute squirrrels, onion, garlic, and carrot in the olive oil untill tender. Add the rest of the ingrediants except for 1 ounce of herb mix, and the 6 ounces of single malt which you can enjoy while simmering the soup.

Serves 2

#5 i.am.1st on 02.25.11 at 11:20 pm

me 1st

#6 Robo Monkey on 02.25.11 at 11:22 pm

… and retire on an MP’s pension while all the time complaining that you didn’t have enough hair to take better advantage of free MP haircuts. Just kidding, Garth.

#7 Kurt on 02.25.11 at 11:25 pm

Question: seeing as you’re the guy who got us the TFSA, what was the name you suggested for it? (It’s ok to say “TFSA” – you’ve got enough hats already to be forgiven for not wearing the “advertising/marketing genius” hat too.)

Just lose the ‘S’. — Garth

#8 Confused and a little crazed on 02.25.11 at 11:27 pm

Hi Garth,

I preferr to do RRSP first then use The tax return to add onto the TFSA. I know you mention that the RRSP upon my retirement will be taxed heavily but we cannot be certain as to what the rate that is or what the Can pension will be at the time ( probably pathetic) ….so I maxing out both

Right now I do not see anything I like to buy for either TFSA or RRSP because I loaded up during the 2009-2010 already. I sold some stocks already to keep the gains.

It’s going to be a very tumultous 2 years and the possibilities to buy good value stocks will be plentiful. :)

#9 SBartnik on 02.25.11 at 11:30 pm

Can you clear up your comment on TFSA contribution limits? If a person opened a new account in 2009, I would think that the amount of money that could be deposited would be $5K only. Just because the plan has been around for three years now, a new account should only allow $5K in the first year it is opened, right?

All unused contribution amounts can be carried forward. — Garth

#10 rental monkey on 02.25.11 at 11:33 pm

@zarathustra:

slight problem with your recipe, your ingredient list is 24 grams short of an ounce. We left coasters tend to know our grams and ounce comparisons. That would definitely short change a few squirrel chefs. However if you are buying that much compassion herb, you likely won’t be eating squirrel.

#11 Fools buy houses, wise men live in them on 02.25.11 at 11:37 pm

RESP – anybody heard of these? Is this another box which can be held with TD WH or RBC Direct Trading to buy preferred shares and ETFs?

Thanks to Mr. Turner and some good luck my TFSA is now worth 18K. If I withdrew say 7K in 2011, please let me know how much can I put in next year? 12K or 5K?

Twelve. — Garth

#12 TheBigLebowski on 02.25.11 at 11:38 pm

Get use to the phrase QE3 because its coming by september of 2011. Make sure you have your assets in inflation protected assets because the next push in hard assets will be driven by inflation. The first phase was driven by a flight to quality and a move away from paper money. Stage 2 of a 4 or 5 stage bull market is beginning.

#13 David on 02.25.11 at 11:45 pm

Garth perhaps you could ask economist Jim Stanford to be a guest blogger on this topic. His comments would certainly be short (‘go out to dinner instead’) but your comment board would set a new record.

#14 Devore on 02.25.11 at 11:47 pm

#9 Fools buy houses

Thanks to Mr. Turner and some good luck my TFSA is now worth 18K. If I withdrew say 7K in 2011, please let me know how much can I put in next year? 12K or 5K?

Any money you withdraw you can put back in next year, plus the $5000.

#15 Cato on 02.25.11 at 11:50 pm

Hi Garth, nice explanation of RRSP pitfall.
Being in my mid-30’s I’ve found concept of RRSPs a bit of a gamble due to probability of bracket creep & marginal tax increase.
As a business owner I’ve found RRSP useful in tax strategies to even out income – use the deduction in high tax year then raid RRSP in low year, thats about as far as my participation goes.
Most in my social circle don’t have a clue, parking money in RRSPs out of habit while ignoring TFSA. Most gen X & Y’s have everything tied up in a house anyways so RRSPs are an afterthought. TFSA is great, hate to look a gift horse in the mouth. Have to wonder how long we’ll have this free gift before it gets the axe. Banks certainly aren’t getting the message out about its advantages – I doubt many in my generation would raise a wimper if powers that be quietly did away with it.

#16 Makes Cents on 02.25.11 at 11:51 pm

Garth, may I please request a brief list of what is in the orange guys shorts? God I hope you give me a straight answer since I am really walking right into this one.

Flaccid returns. — Garth

#17 Andrew on 02.25.11 at 11:54 pm

So what should we be putting in our RRSPs??

The fixed income portion of your balanced portfolio, with assets yielding capital gains and dividends in non-registered and aggressive growers in the TFSA. — Garth

#18 LH on 02.26.11 at 12:09 am

Before buying ANY fixed income assets, consider prepaying low leverage (e.g. 50%) mortgages (if you have any). It’s tax free and risk free, and returns more than government bonds (and risk adjusted, better than almost any corporate or preferreds out there). Of course, Garth would rather suggest that you sell your house, but that’s another story…

#19 Utopia on 02.26.11 at 12:18 am

For those enjoying the recent quick rise in oil prices that have come about as a result of revolutionary fervour in North Africa and the Middle East I have a few words of caution.

Keep in mind that the circumstances that have led up to the current revolts have been building up for decades. Like a volcano building pressure, nothing happens for years and years on end. Then, in an instant, there is an eruption and it is all over.

That is exactly what we have seen in Egypt and Tunisia.

And so that also serves as an analogy to how quickly excessively high oil prices will certainly respond as the turmoil ends and prices return to more modest levels again.

We have just witnessed dramatic changes in two countries that brought down multi-decades long entrenched governments in the blink of an eye. Likewise, there have been incredible gains made in oil and related energy plays on speculation over fears supplies may be restricted. But it will not last.

The Libyan crisis is almost over in my opinion while a resolution to the revolts in Yemen and Bahrain also look to be coming to a swift conclusion. With them will go the threat of serious regional instability and oil fears.

The speculative forces that are driving oil prices higher will not therefore be sustained on the basis of crisis and there may even be better opportunities on the horizon to short oil as the autocrats leave the scene one by one.

The wild card, Iran, could easily percolate for years to come exactly as it has done for years already. All I am saying is that it is not realistic to go long oil on the anticipation of 200 dollar barrel costs because that is a low probability event and one that would almost certainly bring on a collapse of most markets anyway.

You do not win by losing in other words and so I do not anticipate the worst case scenarios ever materializing.

They will not.

What is much more likely is that some incredible investment opportunities are about to appear in the countries currently in turmoil and there is some tremendous upside potential to owning select companies there (especially as stock values are now low due to all the discord).

You may be buying oil on fear now but never forget to sell on the advent of stability or invest on easy opportunity that is not noticed by everyone else. That means watching for when the price is right. Right now, betting on huge sustained energy price appreciation is really a fools game.

It is also one that is populated by herd mentality investors as the newswires are filled with the same one-dimensional story.

I am very optimistic about the future of North Africa and most of the Middle East incidentally. It may not be the “new” China exactly but the growth potential there is tremendous and the profitability of some investments could well be above average if democratization advances as anticipated.

I believe what is now taking place there is a key step in the ongoing process towards globalization that will bring on resurgent global economic growth and that it will be a significant departure from the current regime of economic supression.

I would therefore suggest caution in speculating on oil companies and related investments. The current turmoil is going to come to a conclusion a lot sooner than many think. And as it ends, oil prices will again sink to sustainable levels.

#20 Devore on 02.26.11 at 12:20 am

Damnit Garth, upstaging me with your ex post facto editing powers!

And thanks for taking a break from bashing horny 20-somethings and wrinkly boomers, and getting all financial on us.

#21 Cookie Monster on 02.26.11 at 12:21 am

Garth, I have to apologize for insulting you the other day and instead ask why you don’t or won’t support people like me and others on this board who understand the theft and inflation that’s going on and who want a return to a gold standard in some form?

I’m guessing you’re an honest guy with integrity, so why won’t you join our side and advocate a return to honesty and integrity in our money?

I’m not a gold bug at all, I own no gold, but I understand sound money and that’s all I want, honesty and integrity. What say you?

It would be the fastest route to depression. — Garth

#22 shanks on 02.26.11 at 12:25 am

Don’t forget Pigeon a la King… another tasty dish. Remember to get lots of excercise and fit up yourselves, otherwise you wont be catching much to eat or live long enough to enjoy your money.

#23 Aaron on 02.26.11 at 12:26 am

I know this is off subject but this morning an interesting article in the MTL Gazette: Montreal condos are less affordable than in Toronto, avg condo price/income = 232k/48k = 4.8 times income VS 4.5 times in TO
MTL affordability index = 34%
TO affordability index = 31%

Garth I noticed you don’t cover Montreal very much in general.

full details: http://www.montrealgazette.com/business/Condo+ownership+more+costly/4343657/story.html

#24 Tsrif on 02.26.11 at 12:27 am

Can I be just 4:20 th for Ounce;))

#25 Utopia on 02.26.11 at 12:28 am

#7 Kurt

“Question: seeing as you’re the guy who got us the TFSA, what was the name you suggested for it”?”
———————————————————-

For anyone new here who wonders what the hell Kurt is referring to, the official name on this site for the TFSA is the “Turner Free Savings Account” as it was a program developed by our dear leader (the Host).

This is still a cult, right Garth?

#26 Crash Callaway on 02.26.11 at 12:31 am

The caption for the above pic
“You’re never too old to buy a house
or
Start a Family”

#27 Dr. WAYNE on 02.26.11 at 12:32 am

i.am.1st … not the brightest bulb in the chandelier … how obvious can you get dude? Me 1st … amazing power of financial thought.

#28 Ignorance Is Bliss on 02.26.11 at 12:32 am

If an employer matches my RRSP contribution, would I be stupid not to take advantage of that no matter what the circumstances?

#29 Anti-First on 02.26.11 at 12:37 am

Garth, could your webmaster start numbering comments from #3 please? So there never will be 0 comments?

#30 Michael on 02.26.11 at 12:46 am

Honestly, naming it the Tax Free SAVINGS Account has been the biggest con by the con men in Ottawa yet. Several friends of mine have set them up and filled them up (apparently mostly with the guy in the orange shorts) and they ALL do not / did not know that it’s not just a savings account.

If the goal was to not have people use it they’ve accomplished the job.

#31 Cookie Monster on 02.26.11 at 12:46 am

Speaking of honesty and integrity, it seems the CRTC has given up on it’s bid to change their regulation for allowing faux news. Finally, one for the good guys. Like it should have even been an issue. I swear, a sure sign the world today is so mixed up and convoluted.

CRTC ditches bid to allow fake news
http://www.theglobeandmail.com/news/politics/ottawa-notebook/crtc-ditches-bid-to-allow-fake-news/article1921489/

#32 tiger baby on 02.26.11 at 12:47 am

“in the orange guys shorts” = “into ING direct dude’s pocket” = any “high interest” savings account

#33 Patz on 02.26.11 at 12:57 am

The hypothesis that Chinese buyers are propping up Vancouver’s insane real estate price levels is untested and unproven with any data. There has been anecdotal evidence, some of it ludicrous, some compelling. Now out of the UBC hospice controversy comes an insight into the possible nature of the mythical Chinese buyer.

A man named Jim Taylor was hired (by UBC I believe) to do a report to aid the decision on whether or not to re–site the hospice. He profiled the population of The Promontory, the condo tower in question, and found that almost half of the families, 41 in all, fit the profile of mother with children and father absent. While they may be well–to–do by our standards they are not rich. The husband brings his family to Canada and once settled he returns to Asia, because he can not make a living in Canada. Many professionals and entrepreneurs cannot transfer their money making ability to Canada so this is the life they choose. It is very hard on the the women and children left behind in Canada.

And it is not a recipe for a healthy real estate market. These people do not have deep pockets and should things go sideways in China or in the market in Canada they can (and probably will) be hurt badly.

Something for us, and especially the smug pumpers, to think about.

You can find a story on his report here:
http://tiny.cc/msddc

#34 stealthhunting on 02.26.11 at 1:00 am

Thanks Garth, very good posting.

#35 T.O. Bubble Boy on 02.26.11 at 1:00 am

US Dividend Stocks/ETFs, ad many REITs should also go in the RRSP, since the distributions are taxed similar to income.

#36 nonplused on 02.26.11 at 1:04 am

Good, strait forward advice today Garth.

My company pension consists of them putting 8% of my salary in an RRSP and that is my only potential pension. If I put another 5% in myself they match it with free shares so I take the free money. But the TFA (note I used your proposed name, TFIA for Tax Free Investment Account would work too) will also be topped up soon. Why not use both, I figure.

I do not believe my RRSP will be drawn at much faster than about $60,000//year in today’s dollars so not much will be in the top bracket. So the only big risk tax wise would be if I die and the RRSP gets cashed out all in one year. That could suck for my kids, but that isn’t what that money is for. They’re supposed to inherit the house and other assets, the RRSP is so I don’t have to beg them for money.

I do not believe tax rates can go much higher, because there isn’t anything left out here in the real world to tax! Attempting to raise the marginal rate on the middle and lower class beyond 50% could very well lead to riots right here in Canada. It won’t happen. If we do get appreciably higher taxes, it’ll be the GST, property taxes, and user fees that go up and then the TFA doesn’t save you either.

Even in feudal systems of the past the tribute paid by serfs never exceeded 50%. It can’t. At 51% commerce and labour shuts down. Its suicide for any government to attempt higher tax rates for any other reason than a national emergency, and then only temporarily. Plus all the immigrants would probably decide to just head back home, and then how are we going to get anything done? Everyone who keeps my building running is an English as a second language student, so I don’t see us keeping the building clean and lunch served in the food court with large tax raises on that population, especially as their home economies are all booming.

The adjustments are going to come on the service level and user fee side. There will be less provided for free in the future. Boomers like you are just going to have to wrap their minds around that fact sooner or later Garth. The free ride your generation voted itself and put on the charge card isn’t going to be paid back by your kids or anyone else. The charge card has your name on it. You will pay it back, and in full. And the form of the payback will be drastically reduced services and freebies just when those freebies were all you were counting on. It was a nice trick though, thinking that if you forced the state to look after your parents on borrowed money that not only would you not have to look after them but that the state would also be obligated to look after you. But the state is not infinite, and we will see the limits of the state shortly. It’s already starting. Do you think Wisconsin can meet the demands of the teachers by raising taxes? No, they can’t. They either cut back or default, and default is not considered an option.

If I were the governor of Wisconsin, I would close all the schools, buy every student a $300 netbook, put the curriculum online in a form similar to “Jump Start”, and call it a day. PS evolving technologies and efficiencies like this will actually help mitigate the resource scarcity that’s coming, so things won’t be as bad as one would think if one does the math based on current dollar consumption.

#37 OnlyTheBankersLaugh on 02.26.11 at 1:16 am

#17 OK, orange guy shorts is ING’s save your money guy who offers you bo didley squat for your hard earned cash. Put it in a bank stock for cripes sake instead of getting what banks pay to us plebs.

#15 Good job on RRSP mgmt with an up and down biz. In terms of TFSA’s, banks won’t promote them as place to invest in anything. The name is there for a reason as we save the most % in tax on least return due to miniscule risk. So, they want you to believe in GIC savings if that’s what your grandfather taught ya and they take your money and abracadabra, multiply it in a big way.

#38 realpaul on 02.26.11 at 1:17 am

Ughh ! What a thought you have imposed on us. We save in an RRSP and have it all stolen back under a regime of escalating taxes…conversly we don’t use the RRSP and have the money stolen immediatley in direct taxes in an escalting tax regime. This is one auro boro of a conundrum you place us in…..a logical vortex of doo doo. Next you suggest ( as many do) that one shouldn’t keep dividend paying issues in the RRSP and yet the risk on the non dividend issues are as high as the tax folly you have eluded to. Either way the saver gets screwed…with a varied degree of certainty.

Whole Life products segregate income and so skirt the Income Tax Act by resting in other legislation but….life products skim 95% of the investment and so act like a tax scam under a differant name….annuities ditto.

The only way to beat the Canadian system is to have a fully indexed government pension stuffed with perky escaltors and tax free medical….the rest of us are well and truly screwed.

#39 OnlyTheBankersLaugh on 02.26.11 at 1:21 am

Correction, put any money that you would ever think of puttin into ING GIC (aka Orange Dutch guys shorts)and put it into the preferred bank stock and have your inheritance sort it out.

Does anyone else miss DA? He must be so busy selling many properties to young bucks that we’ll see him Mar 19th.

#40 Subversive on 02.26.11 at 1:23 am

Garth, can you write off interest expenses if you borrow to invest in a TFSA?

No. — Garth

#41 Master Chief on 02.26.11 at 1:24 am

“All unused contribution amounts can be carried forward. — Garth”

So if a minor is now 15 yrs old, when he or she turns 18 they can put in about 30K right off the bat?

#42 Crazy on 02.26.11 at 1:39 am

Ok!

I am surprised with today’s entry. Thank you.

#43 nonplused on 02.26.11 at 1:40 am

Oh and I forgot my dad’s advice to me years and years ago, before he stopped venturing opinions in his wisdom that a closed mouth gathers no feet:

“If you aren’t paying any taxes, you aren’t making any money!”

So growth in your RRSP is still acceptable if you are young. But you transition to safer securities as you approach retirement.

Heck, if you had CEF in your RRSP over the last 5 years, you really haven’t had to contribute! (Gold mining stock have lagged considerably, XGD is up only 50% compared to CEF. Might be a bubble but so is RIM and Apple. And everything else since the crash, including preferreds and government bonds.)

The rules of investing are as follows, and simple really:

1. Don’t loose money.
2. See rule number 1.
3. Hold investments that are rising.
4. Sell investments that are falling.
5. If you get a double, sell half so the position is free and then exercise rules 1-4.
6. Dividends matter. Evaluate all mature stocks and bonds based on yield. If it’s less than real inflation, buy crates of Spam instead. Heck, buy anything.

On the inflation note, check out the MIT “Billion Prices” project. They are no where near a billion, but might be in the millions. The idea is to monitor inflation by looking at online pricing by scraping the internet retailers. As expected, the Bernanke is lying to us, and technology is sweeping his lies aside. Inflation is now already out of control. Happy motoring as you fill up this weekend. Check it out before the government shuts it down, that is.

#44 macduff on 02.26.11 at 1:41 am

Garth in a future post could you remind us about the RRSP meltdown plan and how a TFSA could be used in this instance?

#45 Anon on 02.26.11 at 1:42 am

Garth, I guess you studied math in the pathetic Canadian education system? I hope we have some MPs with better math skills. One can dream, right?

Here is a clue: you said “But when you put preferreds or ETFs or stocks inside an RRSP this tax advantage is totally lost.” That statement is wrong and you need to edit your post before you confuse too many people. As long as the income tax stays the same in the year of RRSP contribution and in the year of RRSP withdrawal the actual tax on dividents or capital gains while held inside of RRSP is exactly 0%. So the tax advantage of dividends and capital gains is not “lost” as you claim, it is instead improved to the minimum sustainable tax!

Be a big boy- admit your mistake and edit this post! People come here for pictures anyway so you won’t hurt your popularity by admitting you are human and occasionally you screw up like the rest of us..

All RSP withdrawals are taxed as income. For almost all taxpayers this results in a higher tax rate on those assets than when held outside the shelter. My statement is correct. Next time just make your point without being a dickhead. — Garth

#46 Anon on 02.26.11 at 1:46 am

“The fixed income portion of your balanced portfolio, with assets yielding capital gains and dividends in non-registered and aggressive growers in the TFSA. — Garth”

When growers turn into losers aggressive growers turn into aggressive losers. What happens to your precious TFSA then?

If you really have aggressive growers that you trust to keep growing you should instead stuff it all into RRSP, let it grow like crazy then stop working and withdraw proceeds from RRSP at lower income tax rate than what you paid while working. The result is that you get much more money in your pocket than if you do the same with TFSA, plus you get free time.

Are you a comedian? — Garth

#47 Jeff Smith on 02.26.11 at 2:09 am

Lol, I would too.

#48 Paul on 02.26.11 at 2:16 am

David, get over it. $1000 going back into the economy might keep your kid employed at that restaurant.

#49 Devore on 02.26.11 at 2:16 am

For those who do not follow Pension Pulse, an interesting article today on California Pensions, with generic commentary applicable to many public pensions. I also learned that Quebec’s pension plan has nearly recovered its losses from 2008. Go Quebec!

http://pensionpulse.blogspot.com/

#50 beaker on 02.26.11 at 2:19 am

Nice to know the CRTC is still going insane: CRTC drops plan to allow fake news.

http://www.vancouversun.com/news/CRTC+drops+plan+allow+fake+news/4350608/story.html

Netflix comes to canada and UBB is imposed… and now this? I guess we will be seeing more fake housing hysteria in the news as the market corrects.

#51 Scalgary on 02.26.11 at 2:20 am

Thanks a lot Garth for the timely info…

Cheers…

#52 BPOE on 02.26.11 at 2:41 am

TFSA do not allow one to claim losses in bad years. Investing outside a TFSA allows this opportunity

#53 Deliverator on 02.26.11 at 2:46 am

Of course, smart people make use of both. And let’s not forget that new homebuyers can suck off $25,000 from an RRSP for a house downpayment (although there’s only one reason to do so – using the refund to increase your deposit. Otherwise, bad idea.)

By this do you mean:
a) deposit $25k into your RRSP
b) withdraw the $25k for your down payment
c) use the $25k and the refund to increase your down payment
?

Because it doesn’t make any sense, since the previous contributions would have resulted in tax refunds that would have (hopefully) been saved in some form, adding to funds available for down payment.

Or am I missing something?

#54 Tkid on 02.26.11 at 2:50 am

Walter safety,

$5000 tax free withdrawals from an RRSP is a piddly amount. Compare that to TFSA where all of my withdrawals are tax free and my preference is for TFSA contributions. My generation won’t be getting fat CPP and OAS cheques it is already obvious there isn’t enough monies in the kitties to keep both schemes alive for another 25 years.

Which makes me wonder; if I won’t be getting the CPP can I have my contributions back? My generation will need all the pennies we can save up for retirement, not a ton of deferred tax bills.

#55 Patz on 02.26.11 at 3:08 am

Look at the post above and below yours. They were posted by another blog dog right? Maybe not. Especially with some of the comments lately, they may have been written by a software bot designed to create the impression that a lot of people disagree with the thrust of the blog.

A very disturbing story from George Monbiot at the Guardian, especially when there’s little in the MSM that’s trustworthy.

http://tiny.cc/sjg5u

#56 Taking stock on 02.26.11 at 3:19 am

Can I move product from my RRSP
to my TFSA without paying tax on the RRSP product?

No. — Garth

#57 Signpost in the bushes on 02.26.11 at 3:45 am

Allowable TFSA contributions for 2012-2016 will be $5500 per person (Canadian citizen 18 years old or older). Make use of this program—it may not last(?).

#58 Peter on 02.26.11 at 3:50 am

Garth provides the blueprint but so few follow it. Try and find better free advice… No chance. I’ve always found it interesting that people will take advice from ( hair dresser) add who you want, on important issues as long as they match there own but disput knowable info from respected sources that don’t . Silly.

#59 Ripa on 02.26.11 at 4:11 am

This from the land down under, but change a name here & there it couls be everywhere. FYI: A Bogan is a crass unthinking person.
http://thingsboganslike.com/2010/02/15/85-residential-property-investment/

#60 Ripa on 02.26.11 at 4:12 am

Could. Typo. Im crass but thinking.

#61 Jojo on 02.26.11 at 4:50 am

Please,Correction about years;

Well Garth and Company!
I’ve been follow your blog since 2008:(, and I’d had hope that you have a clue about DEFFLATION ,NWO,Politics and Economics. But you can’t understand the Real Problem, and market timing etc. Real problem is Inflate or die,NWO,corruption and we’ll DIE very soon as a middle class in Western Countries,all wealth and power in the world would be in the hands of less than million people Banksters,
Big corporations and thousands billioners.Rest of us are Peasants,mortgage slaves or broke people.
Like Real problems in middle east are NOT Egypt,Libya,Iran,Yemen,Bahrain,Afganistan or Palestina-
Real problems are Kings and “Royal Familes” of Saudi Arabia and Kuwait those countries exports Terorists and they are real threat and troublemakers of democracy in that part of the world.
The Worst Brutal Dictatorship with NO ANY HUMAN RIGHTS, in the world history ever is Saudi Arabia. Those “goverments” ruled by hundered “Royal” members, should going in International court immediately. PERIOD.
However ,TSX index hit 14,160 points and Oil price $105, Gold over $1,400/oz and avg.home price in GTA hit $438,000. Well WHERE IS DEFLATION from January/2009 when I’ve missed the biggest oportunity for buying of home for avg.price $ 332,000 and TSX was 8,200 points. That time I was alone and worst enemy of your blog,many of you had Predictions RE CRASH and Oil will going $25 or Gold $300/oz.
Well Now YOU”LL see what is the REAL BUBBLE in RE and stock market.
Did you see from founding of NEW G-20 in
April/2009 in London/UK all Goverments had responded with massive spending and max. defficits.
Well you should know that this cirkus will last about 2-4 years and after that will see “Recovery bull sh.t”.
When this sh.t hit the fan and bubble burst, god help us.
I’ve told so,since 2009 that timing of CRASH-and begining of Depression should be between Sep/2010 to end of 2014. I still don’t know when the CRASH will occur, but the BEST scenario is when Oil price hit over $200 than you’ll see the last and final bubble of GREEN Energy and massive production of Electric cars.
After that game is over, We’ll see the worst Economic Depression much worst than 30′s, and I’m possitive that will see it to 2014. Maybe the big guys (NWO Banksters) will pull the trigger even in 2011, if they want a global war.
We have 3 solutions:
1.Debt forgivnes if we protect the Fiat money?
2.Hyperinflation like Zimbabwe.
3.Global war where Goverments will bancrupt and our savings or RRSP,Bonds and many banks and financial shares will going in toilet.

#62 Brian1 on 02.26.11 at 5:56 am

Yesterday I noticed the Dow Jones chart jumps from 12,050 to 12,150. Can anyone explain why that would occur?

#63 chanman on 02.26.11 at 5:58 am

Speaking of geezernomics, having had fewer kids than their parents, who wants to bet that a larger proportion of baby boomers are going to end up in managed care facilities once they start ailing?

I wonder when we’ll see the effect of their old houses being put up for sale once they’ve all moved into the old age homes.

#64 Brian1 on 02.26.11 at 7:11 am

Fractional Reserve: Friedberg is an optimistic cat, maybe contrary to Shilling(still reading).”Economy will find a way to grow” makes me view economy is like a single human being; always seeking to improve. Nice insights for free for a change. However it all conflicts with my opinions of demographics. I don’t really believe that the stock markets are not manipulated and syncronised by the G7 or G12 crap, but I don’t believe in Armeggedon either, just a big correction. If it doesn’t happen in two years then – not at all, but 2% growth over the next few years will be nothing to crow about either.

#65 Fool me once... on 02.26.11 at 7:26 am

Garth,
I’m confused on the part where you mention using the funds in you RRSP as a down payment. My understanding is that you must repay it within a specified time. Any contributions made to your RRSPs until that amount is repaid does not net you a refund as you’re simply replacing the borrowed money. So I don’t understand the concept of borrowing money from the bank to replenish you’re RRSP and using the refund to pay the loan back. There shouldn’t be a refund until the money borrowed from your RRSP is repaid.

At least that’s the bill of goods I’ve been sold by the bank rep, I’ll wait to hear where where she’s wrong :)

#66 House on 02.26.11 at 8:01 am

How are you going to be bumped up to a high tax bracket unless you are a CEO. Isn’t that what deficits are for? So companies and governments can tell there employees that they can’t aford to give them a pension!

#67 David on 02.26.11 at 9:04 am

#20 Paul – I don’t read this blog to find out how to save the economy.

For someone with your attitude, you should take Jim Stanford out for lunch…it would be fun to see how long you both sit there waiting for someone to come along and pay the bill for you.

#68 Joethebruce on 02.26.11 at 9:18 am

Garth, can you dedicate a post to IPPs.

#69 In the Maritimes on 02.26.11 at 9:25 am

Use the TFSA while you can. Someone commented above that it might not last. I think it is not sustainable.

50 years of maximum contributions could easily become a $1,000,000 to maybe even $2,000,000 or more when all the gains are compounded.

Will any government give up the ability to tax the income from that?

In the meantime – max it out.

#70 ballingsford on 02.26.11 at 9:47 am

#11 Fools buy houses, wise men live in them on 02.25.11 at 11:37 pm
RESP – anybody heard of these? Is this another box which can be held with TD WH or RBC Direct Trading to buy preferred shares and ETFs?

Thanks to Mr. Turner and some good luck my TFSA is now worth 18K. If I withdrew say 7K in 2011, please let me know how much can I put in next year? 12K or 5K?

Twelve. — Garth
*********************

Interesting, I thought the answer was 5K. For example, if I put 5K in on Jan 2010, withdrew 3K in June 2010, then put the 3K back in on Oct 2010, Revenue Canada would apply a penalty on the 3K because their reasoning is I put in 8K that year, 3K over the 5K limit.

So, if buddy put 12K in, as in his example, wouldn’t he get a penalty on the 7K?

You may return to the TFSA what you withdrew, but in the next calendar year. In addition, you are allowed $5K new per year. — Garth

#71 Herb on 02.26.11 at 10:01 am

David #13 (+ 67),

“… your comment board would set a new record.”

OK, I’ll bite: you, realpaul … and who else?

#72 Herb on 02.26.11 at 10:06 am

Wot happened? Did that snapshot of DA and his wife make our usual picture commentators speechless?

#73 kw on 02.26.11 at 10:06 am

Want a good laugh?

http://exclusive.bellaliant.net/MediaOnDemand/?contentid=24929727

#74 Alister on 02.26.11 at 10:07 am

#54 TKID

You forget the Feds own the printing press. They will print your fat OAS and CPP and hand it to you.

You will probably be broke and the money will be worthless, but you will get it.

#75 OttawaMike on 02.26.11 at 10:51 am

#36 nonplused on 02.26.11 at 1:04 am

The Wisconsin shortfall for education is 32$/yr per adult state tax payer.

That issue is about breaking the unions and their generous entitlements. I won’t defend the unions but coincidentally the states with the lowest educational rankings are: N. Carolina,S. Carolina,Georgia and Mississippi. All those states have no collective bargaining for teachers.

So when you pay people minimally to do something, they don’t do it very well. Cause and effect?

The public sector remuneration pendulum swings back and forth. Right now the pendulum is at maximum and cutbacks will bring things back in line. It has happened before and will happen again.

Did anybody listen to the tape recording of Wisconsin Governor getting punked by a comedian impersonating one of the Koch brothers?
The Koch brothers are the money men for the Tea Party, slightly right of Attilla the Hun on the political spectrum and devout union bashers. The governor is drinking the same Kool Aid.

#76 Onthesidelines on 02.26.11 at 10:55 am

Just one other hint on how to avoid taxes on investments in Canada. But this is only for non residents of Canada. Buy crown backed national bonds… the interest payments on these are tax exempt for non-residents.

Very good for expats working and living out of the country.

#77 AM on 02.26.11 at 11:05 am

I think this topic needs some examples rather than general statements about RRSP vs TFSA. You generally have three groups of people when it comes to retirement savings: those that don’t save (or put money into RRSP’s and withdraw cause they realize that they need to survive), those that make a decent wage (largely known as the middle class) and scrape up a few bucks to save for retirement, and those with bags of extra cash that need to find a way to avoid paying taxes.

I’m going to dismiss the first group, for obvious reasons, and the third group because if you’re worried about how much tax you need to pay on retirement, you need not worry about survival after age 65.

Now let’s look at the second group. For those that manage to put a few bucks into retirement savings, be it RRSP or TFSA, what is your realistic goal…$1 million at age 65? Sound reasonable? As an example, if you start at age 40 (which is typical these days) and put away $22,000 a year (RRSP limit), that’s only a principle sum of $550,000 at age 65; with appreciation, you would be lucky to make it to a million. Assuming no growth during your retirement years, that would give you $50,000 a year for 20 years. Split that with your spouse and you will not be paying much income tax, if any, even if you throw a little Canada pension on top.

I realize this is a very simplified look at retirement savings, but individuals need to look at their own circumstances and expectations when deciding on RRSP vs TFSA.

RRSP’s allow you to grow your savings faster because of the tax deferral benefits, but look at how much you expect to have at retirement and how you might be taxed on the annual income from your savings. From the above example, you might be better off with the RRSP.

If you are lucky enough to be able to do both, TFSA’s have no tax deferral benefit, but if you’re the savvy investor, you can top up your annual income nicely during retirement.

#78 john m on 02.26.11 at 11:16 am

Sorry a little off topic but it sure sounds familiar…As freedom blooms in the East, it’s withering in the West
Elizabeth Renzetti | Columnist profile | E-mail
From Saturday’s Globe and Mail …….Republican governor, Scott Walker, is attempting to severely restrict the collective-bargaining rights of public-sector unions. He says the measure is necessary to patch over the state’s deficit; the thousands of people protesting in the streets of Madison say that he has created the deficit himself through unnecessary tax cuts to corporations

#79 Daisy Mae on 02.26.11 at 11:26 am

James A Bacon Jr, Washington Post, January, 2011:

“Look what’s not happening in Canada. There is no real estate crisis. There is no banking crisis. There is no unemployment crisis. There is no sovereign debt crisis. Recent reports suggest that consumers are loading up too much debt, but Canada shares that problem with nearly every other country in the industrialized world.”

WHAT….?!

#80 Daisy Mae on 02.26.11 at 11:32 am

REFERENCE: James A. Bacon is author of the book “Boomergeddon” (Oaklea Press, 2010) and publisher of the blog by the same name.

Above-mentioned article was posted Jan.4/11 in the Washington Times, not Washington Post.

#81 Wrinkle on 02.26.11 at 11:34 am

? When trading WITHIN a TFSA: Stock A, increases X%. You re-invest that X% in the same, or another stock. Can that be classed as an input (contribution) and thus invoke a penalty?

No. — Garth

#82 Daisy Mae on 02.26.11 at 11:38 am

By the way I received the above info from a friend who thinks Harper is wuuuuunnderful……

#83 unbalanced on 02.26.11 at 11:41 am

Just a question to Garth or the other dogs. In a TFSA what would be considered a growth assest ? Thanks in advance. Remember be gentle, I’m learning.

Assets with capital gains potential. — Garth

#84 thecomingdepression on 02.26.11 at 11:42 am

I don’t get it. Buy a LIFE INSURANCE POLICY on the geezer and make yourself the beneficiary. You make the payments. It’s tax free and a MUCH better investment than any Government sponsored SCAM.

#85 Smug-R-Us on 02.26.11 at 11:42 am

@65 Fool me once…

The advice you were given by your bank representative is very wrong. The amount borrowed from your RRSP plan pursuant to the home buyers plan has to be paid back within 15 years after withdrawal, in regular installments. Failure to pay 1/15th of the amount each year means that that amount gets added to your taxable income for that year. For example, if you withdraw $15,000 from the HBP, you will have to pay back $1,000 each year (once the repayment obligation begins), or $1,000 will be added to your taxable income.

This will be monitored in a separate HBP account. You are at complete liberty to separately contribute to your RRSP at any time independent of whether you have paid back all or any of withdrawn HBP funds, and to obain a tax refund (provided you have contribution room).

#86 thecomingdepression on 02.26.11 at 11:50 am

“..others on this board who understand the theft and inflation that’s going on and who want a return to a gold standard in some form?”
It would be the fastest route to depression. — Garth

ALL TIME WORST misinformed statement of the year! Garth learn economics before you spout such stupid statements. Lets just keep printing to infinity, sort of like shorting billions of shares of a stock that doesn’t exist. It all ends worse than a DEPRESSION!

BTW, how is that depression working out for you? — Garth

#87 ballingsford on 02.26.11 at 11:53 am

I just looked into my question a little more and yes, your response is correct. As long as he has the room, he can put more than the 5K in. Sorry for questioning you!

http://www.theglobeandmail.com/globe-investor/personal-finance/tfsa-confusion-leads-to-costly-penalties-for-70000/article1604046/page1/

#88 Fools buy houses, wise men live in them on 02.26.11 at 12:13 pm

Thanks Garth for answering my question on TFSA withdrawals.

RESP – most discount brokerage houses allow you to hold RESP account for your kids so that you get 20% from Ottawa in the 1st year and buy ETFs, Bonds, Preferred with the money.

#89 Don’t loose money. on 02.26.11 at 12:16 pm

#43 nonplused on 02.26.11 at 1:40 am

The rules of investing are as follows, and simple really:

1. Don’t loose money.
2. See rule number 1.
3. Hold investments that are rising.

============

I think you mean “lose”.

http://theoatmeal.com/comics/misspelling

#90 Mister Obvious on 02.26.11 at 12:21 pm

#63 (chanman)

“Speaking of geezernomics, having had fewer kids than their parents, who wants to bet that a larger proportion of baby boomers are going to end up in managed care facilities once they start ailing?”

Do you think that “more children” is the key to staying out of managed care facilities? That is a seriously misguided view. Previous generations kept their aged and infrimed at home mostly because no other options existed.

Try caring for a person with demetia 24/7 for a few years and see what tune you sing. Then consider the fact that the children of boomers are even more self centered than their parents. That’s how they were raised.

Gen-X will not be coming to the rescue.

#91 rj on 02.26.11 at 12:26 pm

The strategy of taking out RRSP funds during maternity leave or when out of work does not always make sense if you are in a two income household.

If one person is out of work and earning zero for that year the other person gets a spousal amount non refundable tax credit of $10,382. Because of this the RRSP withdrawal and any income earned that year (up to $10,382) by the withdrawing spouse is taxed at the OTHER spouses marginal tax rate.

I am not saying it is never a good strategy, but you should play with the numbers to see if is worth it for your particular situation.

Also if you are doing the RRSP meltdown early in life you are giving up the RRSP tax deferred space which you may have used for 30 + years.

This is no big deal if you don’t maximize all of your tax preferred contributions (TFSA, RRSP, mortgage), but if you are a big saver you may regret losing the RRSP space for ever.

In our case my wife has not returned to work yet after having three kids and only has a small personal RRSP so it has not made sense to withdraw it an be taxed at 36%. In fact we are making a final contribution to my wife’s personal RRSP and getting a 25% refund on the amount contributed even though she earned no taxable income.

Note it would have made more sense to withdraw when she was on maternity leave, but then she was receiving EI and benefits top up that placed in her in a tax bracket that was only slightly lower than when she had contributed in the first place. For us the few percent of guaranteed tax savings at that time was not worth giving up the tax deferred space.

#92 doctore on 02.26.11 at 12:32 pm

What about DRIP’s, can preferred shares be used for dividend reinvestments, or do you have to use common shares only?

#93 The Analyst on 02.26.11 at 12:32 pm

Garth, I do not understand your comparison between the taxes on TFSA’s compared to RRSP’s. For example:

$10,000 invested into an RRSP makes 100% in 8yrs:
Total amount is $20,000
Taxes at withdrawal at 20% (due to reduction in income from 39% to 20%) becomes $16,000 at withdrawal

$10,000 invested in into a TFSA makes 100% in 8 years:
After tax amount at 39% is $6,100
Eight years that amount becomes $12,200
Taxes at withdrawal are 50% of $6,100 x .20 tax rate = $610 tax reduction
Total is $12,200 – $610 = $11,590

RRSP = $16,000
TFSA = $11,590

You are better off investing into an RRSP as long as you are taxed at the higher rate when you add to an RRSP and are taxed at a lower rate when you remove.

My wife and I are 32yrs old. We invest $2,500 a month into an RRSP between the two of us take part of the RRSP tax refund ($420 each month each) and invest in a TFSA with higher risk investments.

Therefore, we have the best of both worlds!

Except you don’t know how they work. — Garth

#94 ballingsford on 02.26.11 at 12:33 pm

Now my 2nd response isn’t going to make sense. I submitted that before you posted my first response. I looked into it before you gave the explanation.

#95 Daniel on 02.26.11 at 12:39 pm

To continue my story of a house sale in Calgary….

A recap – my wife’s mother died and the house was in rough shape, needed new carpet, paint, updating.
It is a 1300 sqft house in NW Calgary. Originally looking to do a few upgrades and sell for about $320k.

Did a few extra upgrades, new kitchen floor, tile in bathrooms in addition to the paint and carpet. Total in 13,500.

Calgary market seemed to be having some momentum, because of rule changes I think. So, after all was said and done I listed for $359,900 and hoped for the best. 6 showings in first 2 days, offer after 6 days and sold for $350,000.

Now the market can crash – just hope the buyer doesn’t read this blog.

#96 Cowboy on 02.26.11 at 12:39 pm

Utopia, #19

God, you’re good,
you really should have been a politician, no offense,
you just seem to really know what you are talking about.
Or perhaps you are a prof?
I look forward to more of your posts,
any tips on any particular stocks, I’m listening!

#97 Cookie Monster on 02.26.11 at 12:43 pm

It would be the fastest route to depression. — Garth
———-
So, stability in the money supply and a steady or rising value of money relative to other market goods, raw materials, production equipment, labour and other services would cause business to misallocate funds and error in their accounting. A steady unit of account is what’s necessary for long term business planning and projection, investment and construction over the means of production requires a stable unit of account and sound money.

I don’t see by what rational monetary stability, honesty and integrity could cause a depression, hence I believe it’s exactly the opposite that’s true.

#98 T.O. Bubble Boy on 02.26.11 at 12:50 pm

Not sure if anyone posted this yet… but it is a telling article: Top 25 Grants and Rebates for BC property buyers

http://www.vancouversun.com/business/grants+rebates+property+buyers+owners/4345075/story.html

Didn’t the U.S. prove that the goal of “home ownership for everyone” is highly flawed? Do we really need 25+ government incentives for home buying in a country where we already have 70% home ownership???

#99 Tkid on 02.26.11 at 12:55 pm

74 Alister, if the money is worthless then the CPP and OAS cheques are hardly fat. Yes, I am being sarcastic when I refer to ‘em as ‘fat’, but thank you for perfectly demonstrating the Boomer mentality that the government will/should always look after you. Gen Xers are not so delusionary.

#100 OttawaMike on 02.26.11 at 12:56 pm

For those without RRSP’s, pensions or TFSA’s:

Best 4 Geezers

#101 first on 02.26.11 at 1:07 pm

OH DAMN IT….i am not first!

#102 Pig without Lipstick on 02.26.11 at 1:18 pm

The TFSA accout is perfect for those of us in our thirties with low income, whereby 10,000 per couple represents about atleast twelve percent of our annual income. Invested in a precious metals fund for the next three to four years with an average of 50% return this will be the backbone of my retirement planning and make the RRSP almost irrelevant.

Not if you put it in one fund, it won’t. — Garth

#103 Question on 02.26.11 at 1:23 pm

What do the dogs think about “flow throughs”, 44% tax back, 15% tax credit, and only 50% taxed when redeemed. LLP in mining. Last year I bought 50K of these, only paid 8k income tax on 140k on income, thus saving approximately 24k income tax, still going to bet a tax credit of 2.5k from that year, the flow throughs even made 4k in a year. Was a very good experience, but I hear some bad things about them sometimes, nothing specific. Anyone with opinions on these shelters? Would love to hear them?

They’re tax shelters because nobody would buy them otherwise. Ever wonder why? — Garth

#104 cool on 02.26.11 at 1:23 pm

ppl are talking about squirrel and pigeon recipes.

what about vegetarians?

#105 David on 02.26.11 at 1:40 pm

Oh Herb!! I see what you did there…you attempted to make humour out of a ridiculous premise at my expense. Good one!

Okay, okay!! Let me try….

You need a map to find your own bum, and you smell from your bum.

#106 Dark Sad Monster Bunny on 02.26.11 at 1:55 pm

54 Tkid – I think Walter has addressed the situation for most people – they simply dont have enough in their RRSP for it to be a tax issue when they retire. Given your situation, the TFSA is probably the better choice. For me, I can finally max both, but pull back on the RRSP depending on my marginal tax rate for that year.

As far as the CPP goes, it was devised as a pay-as-you-go plan, which means most contributions that have been paid have gone to beneficiaries. But with the increased contribution rate, they are building a reserve fund. Check the CPP investment board for details. But there is no
magic bullet, no secret investment available to guarantee
adequate returns within the plan, so we will just have to take what we can get.

#107 Cellar Dwellar on 02.26.11 at 2:09 pm

@ #8 confused/crazed
I do the exact same thing, max out on RRSP’s 1st then use the tax rebate on TFSA. works out ok.

Garth you mention that RRSP’s will be plundered in the future by the tax man. Couldnt they change the rules and tax TFSA’s as well ? and/or up the tax rates on Dividends?
The govt can do whatever it wants……..

#108 Chaddywack on 02.26.11 at 2:10 pm

Article in the Vancouver Sun Business section today. Apparently planeloads of Mainland Chinese are coming here every day looking to buy up Vancouver real estate. Their middle class is growing and they have a ton of money……considering this market doesn’t seem to be falling at all I honesty wonder if this isn’t true.

It’s in the paper. Of course it’s true. — Garth

#109 Timing is Everything on 02.26.11 at 2:16 pm

#63 chanman – said “Speaking of geezernomics, having had fewer kids than their parents, who wants to bet that a larger proportion of baby boomers are going to end up in managed care facilities once they start ailing?”

Agreed. Stack ‘em deep. The ‘minimum by law’ care facilities will be bad. And don’t think your money and gold will buy you much better care. HA! Ya can’t take it with you anyway. That’s a fact! Another out of fashion ‘investment’….Kids. Did I mention it’s kinda ‘natural’ too. Remember, we are animals first and foremost.
Then, citizens, taxpayers, consumers, voters…blah, blah
Nature-Nurture

Governments, corporations, friends, neighbours…Good luck when push comes to shove -U R going to need it- Ain’t no substitute for ‘blood’. Right Garth.

#110 jess on 02.26.11 at 2:25 pm

#31 Cookie Monster
…the explanations are ? I am familar with the sounds but yet i have heard those backtripping tongue utterances before ? committee what committee ? who, what, why, and how come got confused.

well what is too stop astroturfing on astroturfing
http://tpmmuckraker.talkingpointsmemo.com/2011/02/the_group_behind_the_group_behind_that_sketchy_wis.php#more
“The campaign plan for one of the organizations I help uses the phrase black arts when talking about how we’ll win in the fall. It’s not a document filled with dirty tricks but a plan to create a nonprofit organization called Ensuring Liberty Corporation. It uses unconventional methods to get our message out and support grassroots conservatives: “Ensuring Liberty’s relationships run deep into the new media and use of cloud computing and innovation along with the black arts of campaign management. ”
================

remember who is behind the scene making the agency “Acorn” look bad? well……..
==================

A California Department of Justice investigation later determined the video had been intentionally edited to be misleading and found that Vera had called law enforcement after the meeting.

In a motion for judgment, Giles’ attorneys argue:

Hannah Giles throws James O’Keefe under the bus
Anti-ACORN faux hooker says she’s innocent because her faux pimp held the hidden camera

Hannah Giles had no problem bragging to FOX News how she posed as a hooker to catch ACORN workers in incriminating conversations on hidden video. Over and over and over and over….

But now that she’s facing a $75,000 lawsuit, she says she’s not culpable because it was her fake pimp partner, James O’Keefe, who held the video camera.

Former National City ACORN worker Juan Carlos Vera is suing O’Keefe and Giles in US District Court in San Diego, alleging that the pair violated the California Privacy Act, which require all parties to consent before a confidential conversation may be recorded. Vera lost his job after O’Keefe and Giles went public with secret footage that ostensibly showed the two, posing as pimp and ho, asking for and receiving advice from Vera on how to smuggle underage prostitutes into the US.

====U.S. Hate Groups Top 1,000
02/23/2011
The number of active hate groups in the United States topped 1,000 for the first time and the antigovernment “Patriot” movement expanded dramatically for the second straight year as the radical right showed continued explosive growth in 2010
The Year in Hate & Extremism, 2010.
1,002 active hate groups in the United States of America.

#111 Dan on 02.26.11 at 2:40 pm

Garth, what brand of ETFs do you use in your investing? (company who issues them)

Give a man a fish and he eats for a day. Teach him to fish and he eats for life. — Garth

#112 Timing is Everything on 02.26.11 at 2:43 pm

Doomsday on Van Isl….

http://www.bclocalnews.com/vancouver_island_south/peninsulanewsreview/opinion/letters/116850048.html

#113 South Sea Company on 02.26.11 at 2:46 pm

@#82 Chaddywack

The market has been falling… outside of Vancouver, Burnaby, & Richmond. Check out this video summarizing Real Estate Board stats for last year;

http://www.youtube.com/watch?v=q3qK1AI5bmo

But, then this wasn’t in the Sun, so of course, it can’t be true.

#114 realpaul on 02.26.11 at 2:46 pm

Garth, you’re going to hate this but, on the list of why this will end badly is the looming structural deficit the Feds are running with a bloated unfunded overhead.

http://fullcomment.nationalpost.com/2011/02/25/kevin-libin-civil-service-growing-faster-than-canada/

The reporter quite rightly compares Canada with other third world economies that have imploded under the same circumstance. The costs of supporting an unmaageable and grossly inefficient government force revenues to skew towards the cost of government and leading to inevitable revolution among the people. Like it or not this fact is another nail in the coffin of why rates and fees will skyrocket because of the structural deficit within Canada at the same time as international forces are mounting from external factors.

The Liberal cry will be “Just raise taxes” but as I pointed out before, the governement has never been a worse place in time to harry the citizen with extraordinary taxes as they have done in the past. We need only to look at the bankrupt states beneath us and the UK implosion from a top heavy socialized bureaucracy that has been the direct cause of everyones standard of living decreasing. Liberals, and unions as always, can’t do sums and leave the rest of us to suffer their ignorance.

Tell it to the National Post. Maybe they care. — Garth

#115 Dan on 02.26.11 at 2:58 pm

This means that free hand outs do nothing for a person but sustain their immediate needs. It does not help them overcome what ever obstacles that they are facing. But by investing time into them and teaching them that they have the necessary tools to do the job they are then empowered to move forward in life.

Teach me Garth or at least recommend a few books! :)

#116 Enlightened on 02.26.11 at 3:03 pm

Re my post from 2/24…Thanks #57 Heddok, 60 Dan, #85 R for the info – much appreciated.
Thanks also #165 Mr. Plow. You did give me a chuckle acknowledging the apparent gender role reversal…I know, I know, hard to believe we can pee sitting down and think through the hard issues! :)
Seriously, though I am grateful for the comments and support. Had a real heart to heart last night and laid all the cards on the table. Bless his pointy little head – he totally gets it now and we are getting our plan in place to get this puppy sold with the full on intention to rent and invest the proceeds.
Thanks for the post today Garth – very helpful for a newbie.
I will let you know how it goes.
Again, gracias to all.

#117 Dark Sad Monster Bunny on 02.26.11 at 3:03 pm

80 rj – I havent filled out a tax form in 15 years (my CGA does it) nor have I been able to claim the spousal credit in that timeframe, but a reduction in taxable income from an RRSP contribution should always trump a tax credit. If there is little or no benefit in your situation, the RRSP contribuion my not have been the best choice in the
first place.

#118 realpaul on 02.26.11 at 3:10 pm

BTW & PS …..it is also of some interest that the idea that ‘aggressive and TFSA’ are becoming commonalities. I disagree to the extent that ‘risk is risk’ and that risk management should always be at the forefront of any investment strategy. With that in mind I set up a TFSA recently which holds PD, RY, SU and T.A and this ‘non agressive’ dividend blue chip portfolio is up 11.5 % YTD.

It’s not always an absolute to be ‘conservative’ and not achieve a decent low risk return while seeking to lower beta and preserve capital.

#119 Fractional Reserve on 02.26.11 at 3:14 pm

#64 Brian. I have read Friedberg for years and I would not describe him as an optimist. If you read the final couple of paragraphs you will see he is very bearish. He is of the Austrian school of economics as is Faber. For reasons which he outlines in his newsletter, he sees strong deflationary forces at work and not hyperinflation. Glad you enjoyed reading it.

#120 Brad in Cowtown on 02.26.11 at 3:16 pm

#83… you’re missing a few things in your calculations that are completely distorting the results.

1) Why are you calculating tax on the gains from a tfsa account? Even if you missed the dozens of times Garth has written about this vehicle, ask yourself what the “TF” part stands for…

2) If you put 10k into an RRSP, you will be given back (temporarily) from the CRA approximately 3300.00 in the form of a tax deferral (assuming you did not send a form earlier to the CRA allowing your employer to deduct less tax at source – a smarter way to do it unless you want to lend the gov’t money throughout the year). So that’s 3300 more you can invest. But when you take it all out, you get nailed at a marginal tax rate likely higher than it is today…

All in all, the only significant disadvantage to the TFSA is the limit on contributing. I use both vehicles, but the TFSA gets my first 5k every year. It’s really a no-brainer.

#121 (low density) Sam on 02.26.11 at 3:35 pm

they took away the tax benefits of the trusts.

Why won’t they do the same for the TFSA when it’s convenient?

#122 Tkid on 02.26.11 at 3:36 pm

“As far as the CPP goes, it was devised as a pay-as-you-go plan, which means most contributions that have been paid have gone to beneficiaries.”

I did not pay CPP premiums so that someone else could benefit, neither am I willing to fleece the next generation. This willingness to charge the bill on the next generation’s credit card is completely immoral and unrealistic given each generation after the other has a smaller population. Sooner or later these pay later schemes will run out of warm bodies.

#123 Debtfree on 02.26.11 at 3:55 pm

@ real paul

Tell it to the National Post. Maybe they care. — Garth

While you’re at it could you also ask .IF Egypt is drawing up their new constitution with time limits of two 4 year terms for their leaders . Yet we have PM’s and Primiers for life . Am I the only one that thinks this is wrong?

#124 j shum on 02.26.11 at 4:05 pm

Garth

Thank you. I totally buy what you are saying. I just don’t know how to choose what funds to buy. I wish I was born in a high interest rate era like 70 80s I believe so I didn’t have to worry about this. I do not believe that GICs will work right now and they may end up like that for at least another year to 5 years and house is a risky investment. I mean you do need a place to live but I like how you compare the risk of putting your money there to in the stock market

Janet

#125 Devore on 02.26.11 at 4:39 pm

#107 Cellar Dwellar

ANYTHING could happen in the future. Best option for you may be to just stuff money in the mattress, but then you’d be losing out to inflation, which is GUARANTEED to happen. You play as smart as you can with the cards you’re dealt. Today that means taking advantage of tax shelters, and TFSA is #1.

#126 Mickey on 02.26.11 at 4:40 pm

The big banks have been telling everyone for the past year that the fixed rates are going up. Either that is mighty nice advice from the banks or they want you to switch from VRM’s to Fixed as they know prime will not move much higher in the next 5 years. I welcome $200 oil, 8% interest rates and a housing collapse but I doubt it will happen this year, or next.

8% is coming, but it will take two years. — Garth

#127 Thetruth on 02.26.11 at 4:47 pm

#108 Chaddywack

It is true that 559,000 newcomers came to live in Canada last year. Most came to Vancouver and Toronto eventhough stats may state they came to different provinces (problem of PNP Immigration programs).

Of course, CMHC, low rates and lax income verifcation played a role in the run up in house prices.

Saskatoon and other tier II cities boomed because of people buying RE/businesses there from Vancouver in order to allow owners to immigrate people under the temporary worker provincial immigration programs.

With recent changes to the family class immigration programs, expect housing in tier II cities to fall. Vancouver and Toronto are two different stories. The sheer numbers coming in will maintain RE values. Regardless of what you may read, these temporary workers, etc have lots of money. They don’t come here to work…their goal is permanent residency.

#128 Devore on 02.26.11 at 4:59 pm

The Victoria House Hunt blog has a good article today that is not just about house hunting in Victoria, so of interest to this broader readership. No comment necessary, just go read it.

http://househuntvictoria.blogspot.com/2011/02/fighting-losing-battle-skip-payment.html

#129 Jeff Smith on 02.26.11 at 5:01 pm

>#31 Cookie Monster on 02.26.11 at 12:46 am
>Speaking of honesty and integrity, it seems the CRTC has given up on it’s bid to change their regulation for
>allowing faux news. Finally, one for the good guys. Like it should have even been an issue. I swear, a sure
>sign the world today is so mixed up and convoluted.

>CRTC ditches bid to allow fake news
http://www.theglobeandmail.com/news/politics/ottawa-notebook/crtc-ditches-bid-to-allow-fake-news/article1921489/

>

The CRTC is nothing but a puppet of the big Robelus monopoly(Rogers_Bell_Telus) to ensure that only itself can provide services and with the rights to charge any prices they like. Who knows, maybe they are also in the cahoots with the likes of the power companies too (hydro). Last time they raised rates, did anyone say anything?

#130 TheBigLebowski on 02.26.11 at 5:18 pm

102 Pig without Lipstick

look at Sprott or RBC pm fund. Both are top notch.

#131 Cookie Monster on 02.26.11 at 5:19 pm

Garth, it’s very scary to think that a experienced, one time high level politician, economic adviser / controller, financial planner / author and all around knowledgeable guy could in anyway equate the concept of gold backing of money to the cause econimic hardship and depression. This is very alarming. To what econimic theory do you attribute this relation? How does debasement of a currency help productive entities within society be more productive?

A good economy is a rising standard of living, meaning increased productivity and falling prices such that an average worker can buy more for a given number of dollars over time. Free loading and theft by inflation causes the opposite, disrupts business planning, causes misallocation of funds and capital due to boom bust cycles.

Return to gold backed money would solve 75% of all our economic problems. The rest would be solved by privatizing everything possible that government currently boondoggles.

CPP for instance, what a mess. Government is the problem. They should just let people keep their money and live or die on their own accord and just stay the hell out of it!

(a) A gold standard would lead to a massive contraction of credit and economic activity, and directly to depression. It would repeat the monetary policy mistakes of the 1930s. (b) It will never happen. (c) You’d have more credibility making an argument that does not need to lean on an ad hominen crutch. — Garth

#132 Zenith on 02.26.11 at 5:32 pm

If an individual’s earned income is high and in a high tax bracket, the priority is RRSP and then TFSA. If an individual’s income is low then TFSA is the priority.

As an aside, for all those who think that doom is coming… sorry that every day brings another day of disappointment for you; it’s just another day in paradise in Canada where interest rates are low and will remain so ‘for awhile’ (as Warren Buffett mentioned at the Berkhire Hathaway shareholders meeting), Canadians have stashed away over $1 trillion in cash, and the high CAD and oil prices have done little to nothing in slowing down the rise in GDP.

Berkshire Hathaway sales volumes are down, I guess that means the price will collapse soon. After almost 2 decades I suppose that I should sell.

Not.

Canada is awesome and continues to be awesome – proving all the naysayers wrong time and time again. One of my friends told me over lunch that he is going to sell another one of the pre-construction condos that he bought 5 years ago. Nice profit. We can’t think of a better place to live (and raise a family) than Canada.

Can you?

#133 Jeff Smith on 02.26.11 at 5:33 pm

>#41 Master Chief on 02.26.11 at 1:24 am
>“All unused contribution amounts can be carried
>forward. — Garth”

>So if a minor is now 15 yrs old, when he or she turns
>18 they can put in about 30K right off the bat?

I think 15 yrs old are teenie boppers and not considered real people, who knows what they are really. So as far as I know, rule only affects people (real votable people) after 18 yo. Heck, you can’t even officially sign up on many of the internet’s website, if you are 15yo. So repeat, not real people! Right Garth?

#134 eddy on 02.26.11 at 5:37 pm

Brief explanation of how bankers get the goldmine,
Ireland gets the shaft:

http://www.youtube.com/watch?v=xE_3-g8t_9s

#135 Derek on 02.26.11 at 5:42 pm

#104 cool on 02.26.11 at 1:23 pm wrote:
ppl are talking about squirrel and pigeon recipes.

what about vegetarians?

Better just stick to squirrels and pigeons. You can get into a lot of trouble if you start cooking vegetarians.

#136 Chaddywack on 02.26.11 at 5:43 pm

@ Southsea 113

Thanks for the update…..it’s not that I don’t agree with most here and think that this market is unsustainable it’s just what I see on the ground. All these Chinese lining up. One of my friends parents just sold her house in White Rock, they had 27 offers and it went 150k over asking price…ALL Chinese offers except one whose nationality they didn’t know. I mean this really worries me that the floodgates are open to Vancouver and it’s only a matter of time when foreign money does actually price me out.

#137 Jeff Smith on 02.26.11 at 5:44 pm

>#21 Cookie Monster on 02.26.11 at 12:21 am
Garth, I have to apologize for insulting you the other
>day and instead ask why you don’t or won’t support people like me and others on this board who
>understand the theft and inflation that’s going on and who want a return to a gold standard in some form?
>
I’m guessing you’re an honest guy with integrity, so
>why won’t you join our side and advocate a return to honesty and integrity in our money?

>I’m not a gold bug at all, I own no gold, but I understand sound money and that’s all I want, honesty
>and integrity. What say you?

>It would be the fastest route to depression. — Garth

The gold standard was established to allow the US to expand the running of structural deficit. In other word allows the US economy monetary supply to grow indefinitely, as if it was tied to gold, it can only grow up to the amount of gold available (or let the price of gold to also go to infinity). So in essence the problem is that the gold supply is limited. So the US detaches itself from gold and goes on to print infinite amount of US dollars. Imagine if they didn’t detach, the price of gold would probably be $500000/ounce. So your Intel CPU would cost around maybe $50000/cpu. How is the economy gonna function then?

http://en.wikipedia.org/wiki/Gold_standard

So Garth is right, depression for you if you go back to the gold standard. Because the US monetary supply would have to contract maybe a hundred thousand folds.

#138 InvestorsFriend (Shawn Allen) on 02.26.11 at 5:52 pm

Sigh… stop the whining about RRSP taxes on withdrwal.

If (but only if) your marginal tax rate is the same at withdrawal as when the money went in, then, Mathematically, the tax you pay on withdrawal is EXACTLY equal to a repayment of the original tax refund plus an “interest” rate EXACTLY equal to the cumulative return you made on the money since you got the tax refund.

AND, financially $6000 invested in RRSP along with a $4000 tax refund will work out EXACTLY equal to $6000 invested in a Tax Free Savings Account for the same period, if (and only if) the marginal tax rate on withdrawal is the same as when the refund was obtained.

Think of “your” RRSP as being 40% the governments and 60% yours in the above example. It’s fair because the government contributed 40% via the tax refund. They want their share back in the end plus the growth on their 40%. But your 60% grows completely tax free even at withdrawal, if you think of the tax as being repayment of the refund plus growth on the refund.

ZERO tax is paid on YOUR share of the growth in the RRSP.

If A TFSA is good, an RRSP is EXACTLY as good if marginal tax rate is unchanged. RRSP is better than TFSA if marginal tax rate is lower in retirement. TFSA is better if marginal tax rate will be higher in retirement.

That is the MATH folks, and I guarantee it is correct and it does not matter if your RRSP/TFSA is in low interest or in capital gains (or losses for that matter).

Jamie Golombek has explained this in the financial post.

http://www.financialpost.com/opinion/columnists/jamie-golombek.html

People believe what they want to believe. But the math don’t lie. (Neither do I). Neither am I mistaken.

#139 Jeff Smith on 02.26.11 at 6:01 pm

>#22 shanks on 02.26.11 at 12:25 am
>Don’t forget Pigeon a la King… another tasty dish.

pigeon dishes actually taste very dilicious, better than quail. You can order them at various restaurants in the GTA

#140 InvestorsFriend (Shawn Allen) on 02.26.11 at 6:01 pm

So we don’t like the name Tax Free Savings Account, huh?

But we are okay with Registered Retirement Savings Account? (yes it also has the same offending S)

People who put their TFSA’s into GICs are probably GIC people. They simply have a fear of stocks. It’s hard to fix those who do not wish to be educated.

Be ever so thankful for people who invest money at low interest rates. Where do you think the money comes from for your low interest mortgage?

A rose like the TSFA by any other name is just as sweet (but no sweeter). But still some will complain about the thorns and miss the real beauty. Same applies to RRSP as explained in my previous post.

God bless the RRSP and the TSFA and the RESP. All three are gifts to us better off people who have the money to use them. Subsidised by those many middle and higher middle class people who can’t come up with the money to use them. Thank You, Thank You, Thank You.

#141 Otto Doppelganger on 02.26.11 at 6:04 pm

http://www.vancouversun.com/business/Chinese+investment+surge+hits+Metro+Vancouver+housing+market/4352746/story.html

At least I can take heart that when the bubble bursts, it’ll burst even harder.

#142 Morry on 02.26.11 at 6:09 pm

Maxed the TFSA with 20K for spouse and me. (30K total) Now filling the spousal contribution for her RRSP with 15k. Will get a return of 7k. Off to Cabo for 2 weeks in March

#143 LS on 02.26.11 at 6:09 pm

To those who asked about the past of real estate prices in BC, this video is a MUST watch!!

Vancouver BC Real Estate Roller Coaster
http://www.youtube.com/watch?v=hqOn5XEm86A&feature=related

————————————————-

This video is pretty interesting as well:

Global TV News Report – October 2008
On the Bursting of Vancouver’s Real Estate Bubble

Shows 12% drop in 2008
Predicted another 13% drop in 2009
Predicted another 5% drop in 2010
For a total 30% drop

September 2008 Sales:
West Side 1011 listings, 25 sales
East Side 1000 listings, 43 sales

Very interesting to remember the RECENT past:

http://www.youtube.com/watch?v=lAsjo1vesI4&NR=1

#144 allister on 02.26.11 at 6:15 pm

#99 TKID

So you must think that people receiving CPP now are living large (fat) on it?

You will get the same – but don’t count on it paying for much – JUST LIKE RIGHT NOW AND IN THE PAST!!!!!

By the way, I’m not a pensioner but I know people who are. They aren’t the people in real estate bidding wars, I assure you.

#145 Brad in Cowtown on 02.26.11 at 6:17 pm

Investorsfriend, your math is most certainly wrong if you are telling people they will get a 4k refund on a 6k RRSP contribution.
If they put in 6k, and get 4k in a refund, it’s only because they have other deductions or credits. e.g. tuition, medical etc
The RRSP deduction would only get them approx 1/3 back.

#146 jess on 02.26.11 at 6:32 pm

“structured savings accounts”

“A £50bn loophole has been revealed in the Financial Services Compensation Scheme, which will leave holders of “secure” or “guaranteed” savings accounts without any safety net if their bank or building society collapses…

So-called “structured” savings accounts promoted heavily by banks and building societies promise savers extra interest if they lock their money away for at least five years. Typically, they guarantee the underlying capital, a fixed rate of interest, plus some extra if the stock market hits certain levels.

Many have been sold on the promise to savers that they are covered – up to £85,000 – if the bank or building society goes bust. Even investment Isas, which hold shares on the stock market, are covered by the FSCS up to £50,000.

But it has emerged that many are not covered by the FSCS after all, including ones sold by Barclays, Santander, RBS/NatWest and Lloyds/HBOS.

The Financial Services Authority says that, broadly speaking, a structured “deposit”-style product is covered by the FSCS, but a structured “investment”-style product is not. Much depends on factors such as the name of the “counterparty” that stands behind the product. It appears it is the responsibility of the firm selling the product to say if it is covered by the FSCS. But that will give little comfort to savers if the bank collapses and they later discover the product was not, in reality, covered by the safety net.

http://www.guardian.co.uk/money/2011/feb/25/fscs-savings-loophole-customers-at-risk?intcmp=239

#147 BrianT on 02.26.11 at 6:35 pm

#137Shawn-Explain your assumptions whereby marginal tax rates stay the same or decrease permanently while government debts increase permanently.

#148 BrianT on 02.26.11 at 6:40 pm

#136Jeff-The funny thing is how widespread your nonsensical beliefs are. Magically the USA government can create real “wealth” simply by digitally increasing monetary supply. Slowly the public is starting to understand the flaw in this theory.

#149 InvestorsFriend (Shawn Allen) on 02.26.11 at 6:43 pm

RRSPs offer tax avoidance, and not just tax deferral

Jamie Golombek of CIBC explains it here:

http://www.cibc.com[email protected]

I find no reference there to tax avoidance. — Garth

#150 InvestorsFriend (Shawn Allen) on 02.26.11 at 6:46 pm

The diret link to Golombek’s article that I just mentioned…

http://www.cibc.com/ca/pdf/case-for-taxfree-en.pdf

#151 highway61 on 02.26.11 at 6:47 pm

I have 60000 on my savings account and, as of yesterday, another 15000 in TFSA. I make 60000 a year and have no debt whatsoever. How do I go about “investing” my savings? Does it even make sense to bother “investing” 75K? Thank you for advice.

Cash is no strategy. Of course you should be invested. — Garth

#152 debtified on 02.26.11 at 6:47 pm

#137 InvestorsFriend (Shawn Allen) on 02.26.11 at 5:52 pm
“$6000 invested in RRSP along with a $4000 tax refund”
***********************************************

How and where can I get $4K tax refund for every $6K contributed to RRSP? Do tell. Thanks.

#153 Flatlander on 02.26.11 at 6:54 pm

Garth,
You say 8% is coming in a couple of years. How long might that last? You advised against a blend & extend recently when I asked. I will have to renew in 2014.
Thanks.

#154 Hoof-Hearted on 02.26.11 at 6:57 pm

#33 Patz

WTF?

Where do you live…(City and Province is sufficient)

Even the MSM is admitting a shiteload off offshore(adjective for Asian) $$$ is coming like Tsunami force….a 3 year backlog under the old rules.

On top of that, Canada is looking at restrictions on bringing over extended family(elderly parents).

If it wasn’t for the Feds and the CMHC attempt at levelling the property virgin ” horizontal ” playing field, it would be even more obvious, especially in BC.

#155 jess on 02.26.11 at 7:04 pm

deferrals

Really Bad Reporting in Wisconsin: Who ‘Contributes’ to Public Workers’ Pensions?
David Cay Johnston | Feb. 24, 2011 12:16 PM EST

When it comes to improving public understanding of tax policy, nothing has been more troubling than the deeply flawed coverage of the Wisconsin state employees’ fight over collective bargaining.

Economic nonsense is being reported as fact in most of the news reports on the Wisconsin dispute, the product of a breakdown of skepticism among journalists multiplied by their lack of understanding of basic economic principles.

Gov. Scott Walker says he wants state workers covered by collective bargaining agreements to “contribute more” to their pension and health insurance plans.

Accepting Gov. Walker’ s assertions as fact, and failing to check, created the impression that somehow the workers are getting something extra, a gift from taxpayers. They are not.

Out of every dollar that funds Wisconsin’ s pension and health insurance plans for state workers, 100 cents comes from the state workers.

How can that be? Because the “contributions” consist of money that employees chose to take as deferred wages – as pensions when they retire – rather than take immediately in cash. The same is true with the health care plan. If this were not so a serious crime would be taking place, the gift of public funds rather than payment for services….Thus, state workers are not being asked to simply “contribute more” to Wisconsin’ s retirement system (or as the argument goes, “pay their fair share” of retirement costs as do employees in Wisconsin’ s private sector who still have pensions and health insurance). They are being asked to accept a cut in their salaries so that the state of Wisconsin can use the money to fill the hole left by tax cuts and reduced audits of corporations in Wisconsin.

http://www.tax.com/taxcom/taxblog.nsf/Permalink/UBEN-8EDJYS?OpenDocument
Really Bad Reporting in Wisconsin: Who ‘Contributes’ to Public Workers’ Pensions?
David Cay Johnston | Feb. 24, 2011 12:16 PM EST

#156 Hoof-Hearted on 02.26.11 at 7:07 pm

Don’t be so smug folks:

I agree with Garth’s mantra of diversification.

However, I harken back to A-N-O-T-H-E-R Gov’t program a while back…1990’s….a savings plan to purchase a home (Garth can perhaps recall the name …. Home Ownership Savings Plan …..HOSP ? ).

Anyway..it was cancelled, and parties were advised to roll it over into another venue…ie RRSP etc.

In the mid 1990’s, Chretien Liberals cancelled the
$ 100,000 lifetime Capital Gains exemption.

Point= :
IF you think your investments are safe and secure…history has shown that these vehicles can and will be either cancelled, taxed, or any/all exemptions removed at the stroke of a pen.

Either Goldman Sachs will hunt you down with another scam…or the TaXMan will after Feds sick them on you.

#157 Cookie Monster on 02.26.11 at 7:17 pm

#137 Jeff Smith on 02.26.11 at 5:44 pm
The gold supply being limited is not a problem, that’s it’s essential virtue. If it was unlimited it would not be a store of value. The gold standard was broken by Nixon in 1973 BECAUSE the US government had printed to many dollars, the official peg at the time was $35, then lastly $42 i think when they broke free, but if they had revalued at that time to properly reflect all the dollars in circulation the gold peg would have needed to go to $200-$300.

The break from the gold standard ever since has been inevitable high inflation. The whole purpose of gold is to force discipline on government.

#158 Ret on 02.26.11 at 7:19 pm

#108 Bring’em on!

Great, planeloads of Chinese arriving daily. We should be dancing in the streets. God has sent them for sure. Maybe we can get some planeloads of people from other countries too!

I don’t care who comes as long as there are those wonderful Canadian banks waiting to loan them wheelbarrows of money to buy my place. I’ll know when it is time to cut and run.

#159 S.B. on 02.26.11 at 7:20 pm

I read this weekend that Russia’s central bank issued a surprise .25% rate hike last week.

#160 Cookie Monster on 02.26.11 at 7:22 pm

Garth, my post #131 is still waiting to be moderated. I hope you’re not blocking me and my argument. I mean no disrespect to you. I would like to convince you of what I’m saying, if possible because I think you could be a force for good.

If Canada could embrace sound money and small government and cut all the wasteful social programs, Canada could become a much stronger economy. The path we’re on now is not looking to bright. And I know I’m right because the evidence is all around us. For a rich country Canada and Canadians sure do have a lot of debt and crappy services. I say it’s time to try something new. Why do we have to wait for utter collapse, let’s get started!

#161 BrianT on 02.26.11 at 7:45 pm

Lots in the news about Middle East uprisings, but in Ireland things are looking interesting-Denninger is correct in that Ireland has all the leverage here http://market-ticker.org/

#162 Cookie Monster on 02.26.11 at 7:55 pm

(a) A gold standard would lead to a massive contraction of credit and economic activity, and directly to depression. It would repeat the monetary policy mistakes of the 1930s. (b) It will never happen. (c) You’d have more credibility making an argument that does not need to lean on an ad hominen crutch. — Garth
———–
a) Exactly, it would cause the contraction of the false expansion that preceded. Under a gold standard the expansion would not have even happened in the first place. Under a gold standard, savings and therefore credit are strictly limited and hence interest rates are of function of savings available versus loan demand, driven by market forces where a lot of savings whould mean low interest rates and future ability for consumers to consume, while a low level of savings would mean higher interest rates and little ability for future consumption by consumers.

What we have now for the past 40 years, with central banks and zero discipline in the supply of money and credit and interest rates, is a massive credit expansion, poor business investment funding allocation by bankers, real estate bubbles, dot com bubbles, missallocation of funds and resources by businesses, high inflation, followed by the inevitable collapse which is also inflationary as governments print away all their debts and bailouts.

Look at the overproduction of houses, we have too many overpriced houses, we have over invested in auto production capacity, we have to much car making capacity because we had a false boom in demand that wasn’t real.

The depression in the 1930’s was the result of the tremendous credit expansion in the 1920’s. Then the length and depth of the depression was worsened due to government programs, interventions, subsidies and tariffs enacted by Hoover and Roosevelt. If government had stayed out of it, things would have corrected much faster on their own. The whole credit boom itself was a result of the introduction of the Federal Reserve in 1913 and central control over the money supply, interest rates, and fraction reserve credit expansion even under the gold standard.

Even with the gold standard in place in the 1920’s the fractional reserve system still enabled a FIAT credit expansion followed by a bust. The lesson that should have been learned was that paper money substitutes, warehouse receipts, must be backed and maintained by a 100% gold reserve in order to prevent fake credit expansion booms in the first place.

#163 Hoof - Hearted on 02.26.11 at 8:07 pm

#1 mab

( Why did I have this feeling it was another great Matt Taibbi article ? )

QUOTE:
Conversely, one has to consider the powerful deterrent to further wrongdoing that the state is missing by not introducing this particular class of people to the experience of incarceration.

“You put Lloyd Blankfein in pound-me-in-the-ass prison for one six-month term, and all this bullshit would stop, all over Wall Street,” says a former congressional aide. “That’s all it would take. Just once.”

But that hasn’t happened. Because the entire system set up to monitor and regulate Wall Street is fucked up.

=======

Awesome summary, bang on….

Pass the hat for the Lloyd “don’t call me roid” Blankfein
fund…tax receipts available….

#164 Devore on 02.26.11 at 8:08 pm

#155 jess

That’s a very misleading view. The pension is currently underfunded. That means the state will need to close the gap, which means they will use money raised through taxes to do so.

The modern Defined Benefit pension is a scam foisted on taxpayers, because, as structured, there is no way those pensions can possibly be fully funded from contributions alone.

Everyone, whether a public employee or not, whether in a group pension plan or individual RRSP, forgoes/defers present income for a future benefit (a pension). When pension plans are not growing as projected (7-8% is a very common target), either the benefits must be cut (impossible by law) or contributions raised. If nothing happens, the plan becomes chronically underfunded, and the taxpayer will be forced to fund the difference. When pension plans outperform, contributions are returned to participants. When it underperforms, nothing happens? That is not sustainable, or fair.

#165 Daisy Mae on 02.26.11 at 8:47 pm

“The fixed income portion of your balanced portfolio, with assets yielding capital gains and dividends in non-registered and aggressive growers in the TFSA.” — Garth

Say what…? LOL

What don’t you understand about interest-bearing assets inside an RRSP, less-taxed assets outside a shelter and growth assets in a TFSA? — Garth

#166 Cookie Monster on 02.26.11 at 8:49 pm

(a) A gold standard would lead to a massive contraction of credit and economic activity, and directly to depression. It would repeat the monetary policy mistakes of the 1930s. (b) It will never happen. (c) You’d have more credibility making an argument that does not need to lean on an ad hominen crutch. — Garth
———–
c) My intent was not ad hominem, my argument had nothing to do with your background. My point about your history/expertise was just to express my concern about how influential people in government and financial planning could have serious misunderstandings about basic econimic theory which could result in detrimental consequences for people, society and country.

And I’m not saying your misunderstandings are uncommon. They’re to common. It’s what has been taught in universities all over the world since the 1940’s. It’s Keynesian economics. I’m arguing Austrian economics which is sound theory on money and credit versus bad theory and untruths held by most government, banking and university economists.

And it’s a war, a war of truth versus lies, good versus evil and moral versus immoral.

There will be no gold standard. You exemplify why. — Garth

#167 S.B. on 02.26.11 at 8:54 pm

These days, I don’t think people really know the meaning of cutting back.
Interest rates rising to say 5 or 6% do not tell the full story when we can also expect a rising confluence of property taxes, gas, hydro, food – 10-20% higher – in the coming years.

Cutting back these days means switching to a $10/mo cheaper cell phone bill. Is this enough?

What if you told a couple with two small kids and 1.5 incomes that living, maintaining and heating a 2500sq foot house, with a one-hour commute into work and its associated costs, in two new leased cars, is no longer realistic nor sustainable?
That 500 HD channels and spending $700/mo on eating out and booze is not required for reasonable living?

But it’s our right, we’ll exclaim. My neighbours and family members all do it.

#168 Cookie Monster on 02.26.11 at 8:56 pm

The CRTC is nothing but a puppet of the big Robelus monopoly(Rogers_Bell_Telus) to ensure that only itself can provide services and with the rights to charge any prices they like. Who knows, maybe they are also in the cahoots with the likes of the power companies too (hydro). Last time they raised rates, did anyone say anything?
———-
Yes, I don’t like the CRTC either. I’d like to see them abolished. I just found their latest fiasco a little ludicrous. Purely stupid entertainment value.

#169 Hoof - Hearted on 02.26.11 at 9:00 pm

#157 Cookie Monster

The break from the gold standard ever since has been inevitable high inflation. The whole purpose of gold is to force discipline on government

==========

EXACTLY… well said.

There is nothing sacred about gold…..except perhaps its relative scarcity as opposed to say water….coal….beanie babies…

It has a few unique elemental properties ….luster(ever heard of gold polish???), conductivity etc.

Since 1973, it has been a default mechanism when the economy cycles…nothing more, nothing less.

Squirrel futures, and .22 calibre guns/bullets have more practical value.

#170 Utopia on 02.26.11 at 9:01 pm

#96 Cowboy to Utopia, #19

“God, you’re good,….any tips on any particular stocks?”

———————————————————

Thanks for the terrific compliment Cowboy.

Sorry though, I cannot offer any specific advice on stocks or bonds and am not registered to make any recommendations. I therefore stick to discussing the general trends as I see them which really just represents my personal opinion. Thanks again.

#171 Timing is Everything on 02.26.11 at 9:05 pm

Off topic, but this is going somewhere.

Egypt and Wisconsin…Who’da thunk. Fight like an Egyptian.

Contagion?

#172 AM on 02.26.11 at 9:12 pm

“If an individual’s earned income is high and in a high tax bracket, the priority is RRSP and then TFSA. If an individual’s income is low then TFSA is the priority.”
__________________________________________

Define low. And remember, that $5,000 TFSA contribution likely cost $8,000, and I doubt someone earning less than $40,000 is doing this.

#173 moloko on 02.26.11 at 9:24 pm

puke…

http://www.vancouversun.com/business/Chinese+investment+surge+hits+Metro+Vancouver+housing+market/4352746/story.html#ixzz1F6oyJbpD

#174 S.B. on 02.26.11 at 9:36 pm

Again, a potential condo Ground Zero in Toronto: at King/John the new Bell Lightbox/Festival Tower.

The price to buy was very high, 350-700k+ if I recall.

But hey, R/E always goes up right – if not you can rent it out.

On Kijiji alone I see 44 units offered for rent in this new building:

http://tinyurl.com/62fr9va

An other possible trap, this new condo near Young/Bloor with 30-40 units for sale on MLS for the past few weeks:

http://tinyurl.com/6hm2y3l

#175 Cookie Monster on 02.26.11 at 9:48 pm

There will be no gold standard. You exemplify why. — Garth
————
Hey, that’s ad homenin! I give for tonight.

Frustration is bringing those expressions to mind, ‘It’s like talking to a brick wall’, or ‘No one’s more blind than one who choose not to see’, or ‘It’s hard to recognize the truth when one’s living depends on not recognizing it’.

Garth – freedom and liberty beckons you! Truth is you purpose, integrity your strength. Abandon your evil past and join with the good. The tea party awaits you! Freedom!!!

Do you think Sarah Palin is hot? — Garth

#176 Iceman on 02.26.11 at 9:48 pm

Try and take advantage of your available TFSA contribution room.

I’m a tax accountant. I was recently at a seminar where the instructor asked the attendees (…about 60 of us): “…what tax break do you think the government will close first?”

More than 55 of us picked: “TFSA”.

It’s simply too good a tax break.

Once the government figures out that in 10 years, people will have upwards of $75K (or more) in their TFSA’s earning investment income and not paying a dime in taxes, they will look at the lost revenue and go “…party’s over!”

I doubt that will be the case. But, even so, all the more reason to kick this puppy into high gear now. — Garth

#177 realpaul on 02.26.11 at 9:51 pm

Utopia…the rising price of all commodities has been in place for ten years now…since Greenspan strated the central banks on the current paper money flood when the tech meltdown happened. They liked it so much that Greenspan et al were like children discovering their weenie’s….except they haven’t stopped yanking on the money lever for ten years. With the exception of 2008 ( when governments agreed to re set global prices by pulling the rug on lines of credit) the resource, energy and gold sectors have averaged over 45% annual returns each and every year.

I know this is not ‘bank branch investment advice’ but had you invested in those threee sectors in any generic mutual fund you would be singing a differant song today rather than focusing on the short term effects of a few 9th century economies and the ongoing crisis of a Middle East which produces net zero value to global GDP.

The problem is on a macro scale…coupled with political idiocy…which makes for the ten year run in sector investing a slam dunk for the foreseeable future. Fundamentals are the driver of the rising prices of all commodities.

#178 cool on 02.26.11 at 9:55 pm

#135 Derek
#104 cool on 02.26.11 at 1:23 pm wrote:
ppl are talking about squirrel and pigeon recipes.

what about vegetarians?

Better just stick to squirrels and pigeons. You can get into a lot of trouble if you start cooking vegetarians.

———————————————————

I meant what are the recipees for vegetarians?
I didnt meant to cook vegetarians….

And how can you cook the vegetarians? You meant cooking real people???????

gosh…..think before you reply

#179 Cookie Monster on 02.26.11 at 10:08 pm

Do you think Sarah Palin is hot? — Garth
———
Sure, Sarah Palin’s an attractive lady but intellectually speaking my perfect woman is Ayn Rand, but you already knew that.

#180 TheBigLebowski on 02.26.11 at 10:17 pm

(a) A gold standard would lead to a massive contraction of credit and economic activity, and directly to depression. It would repeat the monetary policy mistakes of the 1930s. (b) It will never happen. (c) You’d have more credibility making an argument that does not need to lean on an ad hominen crutch. — Garth

But there does need to be some kind of governor put in place to restrict the un fettered printing of currency going on worldwide. An index of 20 of the main currencies backed by a basket of commodities would work where gold is a component. SDR’s or Bankor issued by and controlled by an unelected group of global bankers(IMF), is certainly a step in the wrong direction also. Yet this is what is being bantered about at Davos and the G-20 meetings. More control centralized into fewer hands is a move towards world government and a Fascist global dictatorship. If this occurs , countries would lose control of monetary policy to a unelected banking cartel who could issue money and credit at a whim with no voter oversight. So what exactly do you have against the voting public having some control over government theft by inflation ?

#181 wetcoaster on 02.26.11 at 10:29 pm

Re: The Vancouver Sun article. Offshore Chinese are known gamblers not smart investors. They are a herd who follow each other and don’t think individually or they would all be buying up Phoenix and Vegas ata quarter of the price, not some over priced rain drenched, traffic clogged swampland built on an earthquake fault line.

I like the part about “speculation” which every real estate agent known to man and Muir etc denies is happening, and the “busloads” but only maybe half or less are really offshore Chinese. Half a bus is like what 25 people ? And every single one buys ?

Lets alienate some more real Canadians who would actually live there and contribute to our economy full time where these “speculators” will never turn the lights on in what will be a White Rock ghost tower.

#182 Utopia on 02.26.11 at 10:34 pm

#127 Thetruth
———————————————————

You know, it is a rare event when I read a comment on this site where there is an error or bad information in almost every single sentence.

You have outdone yourself today.

#183 Ayn Rand on 02.26.11 at 10:38 pm

Cookie Monster:

Sure, Sarah Palin’s an attractive lady but intellectually speaking my perfect woman is Ayn Rand, but you already knew that.
++++++++++++++++++++++++
Why thank you Cookie Monster.

I love cookies too!

#184 blase on 02.26.11 at 10:43 pm

Re the picture of the old dude:

Looks like Robert Altman is getting a little action between saying action

#185 jess on 02.26.11 at 10:46 pm

walnuts:tuna fish ?

164 Devore
this was written by a tax person
State of Wisconsin

Wisconsin Retirement System
FACT SHEET
As of December 31, 2009

http://etf.wi.gov/publications/et8901.pdf

=

Simplistic coverage has also resulted in numerous reports that Wisconsin state workers make more than workers in Wisconsin’ s private business sector. This is true only if you compare walnuts to tuna fish.

State governments (indeed almost all governments) tend to hire people with college educations, including advanced degrees. Overall, private employers in all states tend to hire people with less education. More education means more pay because there is more skill required.

America has roughly the same number of food preparers, who can be high school dropouts, as registered nurses, who require a college education. But the nurses make on average $66,500, compared to just $18,100 for the food service workers. The food service workers collectively made less than $50 billion, while the registered nurses made almost $172 billion in 2009, my analysis of the official data shows.

Business and government hire both food service workers and registered nurses, but you are much more likely to work for the government as a registered nurse than as a food preparation worker.

When you control for the education required to be a prosecutor or nurse, government workers get total compensation that is less than those in the corporate sector. This may reflect the fact that fewer and fewer private sector workers are in unions, about 7 percent at last count. As economic theory predicts, as fewer workers can bargain collectively the overall wage level falls. Effectively wiping out public employee unions would only add to downward pressure on wages, standard economic theory shows.
=
here is the data he used
Occupational Employment Statistics

http://www.bls.gov/oes/current/largest_occs.htm

#186 Robert Dudek on 02.26.11 at 11:09 pm

Yes it seems that everyone has forgotten the “depression” we had in the 1950s and 60s when the US dollar was backed by gold.

Irrelevant. The change from a fiat system to a commodity-based one would impoverish most, cripple the economy and create a depression. It will never happen, so end this pointless debate. — Garth

#187 Kurt on 02.26.11 at 11:11 pm

TheBigLebowski – you’re “fighting the last war.” (This is a standard mistake.) Look up “inverted totalitarianism”. There isn’t a hope in hell of the world getting a Facist dictatorship (look up Facist on Wikipedia.) What we are heading for is much, much harder to revolt against than a Facist dictatorship.

#188 InvestorsFriend (Shawn Allen) on 02.26.11 at 11:15 pm

INVESTORSFRIEND EXPLAINS MATH…

Responding to Brad in Cowtown at 145 who said:

Investorsfriend, your math is most certainly wrong if you are telling people they will get a 4k refund on a 6k RRSP contribution.
If they put in 6k, and get 4k in a refund, it’s only because they have other deductions or credits. e.g. tuition, medical etc
The RRSP deduction would only get them approx 1/3 back.

And to 152 Debtified who asked:

“$6000 invested in RRSP along with a $4000 tax refund”
***********************************************

How and where can I get $4K tax refund for every $6K contributed to RRSP? Do tell. Thanks.

Okay, I could have been a bit more clear.

The scenario is you invest $10,000 in an RRSP and your marginal tax rate is 40%. You soon get a $4000 tax refund. So, of the $10,000 in the RRSP the net cost to you was $6000 and the governement effectively funded the other $4000.

And to continue the MATH, say this ultimately grows to $100,000 and your marginal tax rate is still 40% and you remove the $100,000.

You made ten times on the money. Great.

What the government takes back in taxes can be thought of as its orginal refund to you plus “interest” at whatever your return was. In this case you made 10 times. So the tax man takes back 10 times your original refund. $40,000.

You get to keep your $60,000 and it’s EXACTLY as if you had put $6000 in a tax free account and it fgrew to $60,000.

The math is is correct, like I said.

Remember your RRSP is smaller than you think. Think of it as about 60% yours and 40% belonging to the government.

#189 InvestorsFriend (Shawn Allen) on 02.26.11 at 11:21 pm

Marginal Tax Rates in Retirement

Number 147 Brian Asked:

137Shawn-Explain your assumptions whereby marginal tax rates stay the same or decrease permanently while government debts increase permanently.

Brian, as you know, my example said IF and only IF the marginal tax rate stayed the same…

In retirement the marginal rtax rate could be higher especially if you are in the clawback range.

For many people it will be lower…

One strategy is to remove RRSP money after retirement but before age 65 and so your income nmay consist only of RRSP withdrwals and may be lower…

Like I said if you fear marginal tax rates higher in retirement, TFSA is better and should be used first.

Byut given the tax deferral on your part of the RRSP, RRSP is still a good deal even after you effectively repay the tax refund you got on the RRSP… (repay by paying tax on RRSP at withdrawal)

Hey Brian, if the government debt increases permanently, maybe we can cut tax rates, government can just borrow more to pay the interest on the debt (I am joking… though it does sort of work that way…scary…)

#190 phusis on 02.26.11 at 11:28 pm

The pic shows director Robert Altman with his hand on the thigh of Lindsay Lohan on the set of A Prairie Home Companion. This was the last film Altman directed, and this pic was taken only a few months before his death. At that advanced stage of geezerhood, he really can’t be blamed for copping a bit of skin.

#191 Makes Cents on 02.26.11 at 11:33 pm

Thank you (those of you who answered my question) , original post # 16. I thought it was ING, but I read a comment from someone a long time ago about the Orange guy, she said that his skin turned orange because of some medication he took. I thought we were all being punked. They actually call themselves the orange guys! I hope that same commenter answers this: which one is orange, Roberto Meyer or Jeroen van Schooten?

#192 Signpost in the bushes on 02.27.11 at 12:05 am

#138 INVESTORS’ FRIEND;

If, in the future, $10,000 is withdrawn in a single year from a RRSP(or more probably from the conversion to a RRIF), how much of that withdrawal is taxed as income?
If $10,000 is withdrawn in a single year from a TFSA, how much of that withdrawal is taxed as income?

Consider, how much of the RRSP/RRIF withdrawal can be returned to the account. Then consider, under the present rules, how much of the TFSA withdrawal can be returned to the account.

Perhaps these points will be relevant to some, but not others(?).

#193 Utopia on 02.27.11 at 12:19 am

#177 RealPaul wrote….

“I know this is not ‘bank branch investment advice’ but had you invested in those threee sectors in any generic mutual fund you would be singing a differant song today rather than focusing on the short term effects of a few 9th century economies and the ongoing crisis of a Middle East which produces net zero value to global GDP”.
———————————————————-

Paul,

Have another look at the Middle East and North Africa before concluding they offer no net benefit to the global economy.

Even you should be aware that we live in a planet that is beset by deflationary headwinds as an excess of supply has met up with a shortage of demand.

Consumption has fallen in most Western nations. Precipitously in some cases. This has resulted in a slowdown in countries all over the world, reduced exports and lower than normal GDP, excess capacity and growing unemployment (even in China depending on the business or region under discussion).

This is not the same as some recent inflationary impacts brought on by speculation in food and various commodities though. We need to keep those ideas separate from each other.

In the bigger picture therefore, what is necessary to offset declining consumption and demand in Western nations is a concurrent rise in consumption in other countries if balance is to be maintained.

This is why it is now recognized that Chinese internal (domestic) consumption driven by rising wages and a Renminbi that is no longer pegged to the USD is of benefit to the global economy. They have the savings and the desire to drive demand and take up some of the slack.

Furthermore, rising incomes in Asia will have a tendency to drive demand for goods coming from just about everywhere else in the world (which includes supplies and production from Canada and the US of course).

Given that a large part of the global slowdown has resulted from falling consumption and excess supply is it not then perfectly reasonable to look forward to the advent of millions upon millions of freshly minted consumers entering the scene?

What we are now witnessing in the many countries in revolt is a break-up of monopoly interests over business and resources at the state level and currently held in the hands of just a few autocrats and dictators.

This is recognized to be a drag on the worlds economy as ultra-wealthy individuals do not allocate financial resources in the same way as salaried workers.

That is in essence why it is counterproductive to the world economy to have one individual like Mr Mubarak for example holding tens of billions of dollars of his nations wealth while most of the citizens get by on less that five dollars daily. That won’t work in an age of globalization.

So as democratization proceeds in the Mid-East and North Africa there will be dividends paid not just in greater freedoms but also in the form of more equitable sharing of resources and wealth amongst the citizens.

Less for the dictators and their minions, more for the average working stiff. Mor in turn to drive the wheels of the economies everywhere else.

There will be unionization too as a result, new jobs, better security, economic growth and expanding demand. All of this suggests wages should rise and consumption increase.

For too long now, too few have controlled too much in a handful of Muslim countries. That is about to change.

And that is why the countries currently in turmoil will experience tremendous growth in the coming years as more equity arrives concurrent with greater personal freedoms.

We witnessed this exact phenomenom in the years following the break-up of the soviet Union and the Fall of the Wall. Consumption soared where democracy blossomed.

This current situation bears a resemblance that cannot be ignored. I have no doubt that the countries you so cavalierly called 9th century economies, will be amongst the strongest performers in the world in the coming decade.

In fact, that is already proving to be the case. You may already be aware that six of ten of the fastest growing economies on planet earth are all in Africa now. And the boom times have not even begun yet.

So check your wall map for the next big opportunity. Africa is where the serious money will be made in the future as much of the Asian growth story is already fairly mature.

#194 mattbg on 02.27.11 at 12:20 am

James Howard Kunstler’s latest podcast had some commentary on Vancouver real estate which is kind of interesting, seeing as it comes from an American perspective. He mentions the influx of drug money and Chinese money.

The Vancouver part starts around 24:50:
http://traffic.libsyn.com/kunstlercast/KunstlerCast_145.mp3

#195 Bottoms_Up on 02.27.11 at 12:24 am

#124 j shum on 02.26.11 at 4:05 pm
—————————————
A 12% GIC is worthless if inflation is 14%. Just because GICs were high in the 80’s doesn’t mean they were better then than they are today.

#196 Foster Dulles' paunch on 02.27.11 at 12:43 am

Saudi’s to step up oil production.

Transportation passes on increased cost to customer base via variable fuel surcharge.

Buffett upbeat forecasts turnaround in US housing in 1 – 2 years.

Gadhafi an evil spirit – scared to fly over open water.

#197 BC Bring Cash on 02.27.11 at 12:54 am

Way to go BC Liberals for your choice of the new BC Premier. Pimple faced young’uns signed up as new members did the trick. She pretends to be an outsider. How can you be an outsider being a former deputy Premier? Good luck BC with another one of Gordon Campbell retreads. Have any of you heard some of her tirades on her radio show? What a nut case!!!
Welcome to BC politics.

#198 Toon Town Boomer on 02.27.11 at 1:00 am

I went to the bank to inquire about the TFSA. The bank lady gave me different options to pick with varies rates. The one option I’m considering is the flex rate and it’s rate is lowest (1.25%) because it is a flex term meaning that I’m not locked in and can have access to my money. Can someone touch on choices and rates with the TFSA? I’m learning and unsure!

A TFSA is not for saving, but investing. Dump the bank. — Garth

#199 Form Man on 02.27.11 at 1:05 am

#179 cookie monster

Alan Greenspan is a disciple of Ayn Rand. We all know how his pokicies turned out; he almost single-handedly torched the American economy. Ayn Rand’s ideology has been completely discredited.

#200 Form Man on 02.27.11 at 1:07 am

sorry, policies…

#201 Patz on 02.27.11 at 1:55 am

#185 Jess

Good post. Keep it up; the neo–con nut bars need some facts to chew on.

#202 tmg on 02.27.11 at 2:00 am

Best way to avoid Canadian taxes…have your business in China…buy a house in Vancouver…send your family there for the free education an cheap medical…flip house to a countyman and move back to China when kids finish university.

#203 nonplused on 02.27.11 at 2:35 am

#75 OttawaMike,

I don’t have collective bargaining rights and neither should the teachers I am paying. And you have been reading fraudulent information regarding what the civil servant pension plans mean for the people of Wisconsin and every where else. Sure, the current shortfall is not much, but if you run an actuarial model, the taxpayers are bailing this one out too, and huge, unless the stock market does a quadruple.

I don’t see why civil servants can’t live on an RRSP like I have to. Pay them something fair to get them to come to work. Let them all quit and join the private sector if the wages are unfair. Strike action is not something that belongs in the public sector.

The Kochs may be all things evil, but they understand without a viable government with solid financials we are all Libya.

Garth on #86

Not to defend TheComingDepression because that’s not what’s happening, but the long term affects of inflation are much worse than deflation, excepting borrowers. Inflation, at whatever rate it occurs, wipes everybody out eventually. The inflation rate only describes how fast you are being wiped out.

#89 Don’t loose money.

Yes. Funny. Blogs are not for grammar. But I think you neither want to lose money or be loose with it.

Garth on #131

A gold standard doesn’t have to lead to a contraction of credit, just bad credit. Fractional reserve financing can still exist, and has in the past.

A gold standard might not be in the cards, but some sort of Volker style sound money is. We can’t just all keep lying to each other forever. Eventually those promises to pay will be promises that are kept.

Garth again on #186

Fiat systems impoverish the masses and empower the rich, so yes, end this pointless debate. Money is going to a common agreed upon form of some sort that the bankers cannot control, one way or another. It won’t be gold because it’s too expensive. It won’t be silver because recently that’s too expensive too. But there are a lot of other metals waiting in the wings to make your electronic digits useless, including the old standby, copper.

It will happen. So long as fiat is printed such that there is inflation in the currency, barter will arise, of some form. As Greenspan himself tried to explain, fiat is all fine so long as it looks as good as gold. And as Aristotle also figured out many years ago, there is nothing wrong with fiat currency as long as kings have god like wisdom and morality. I’m going to bet my cat has more wisdom and morality than our current leaders.

#204 Pat on 02.27.11 at 2:38 am

Amazing that it took 137 comments, until #138 InvestorsFriend (Shawn Allen), for somebody to note that Garth’s math about the tax disadvantage of RRSP (re capital gains) is incorrect.

Furthermore, regarding the taxation of RRSP’s. The contributions and, hence, tax advantages are usually at the marginal tax rate. Unless there’s other substantial pension income, what matters for the RRSP withdrawals is the average tax rate at retirement, not the marginal.

The differing taxation of various assets is not incorrect, nor the fact all RRSP income is taxed as just that – income. You confuse two equally valid points. You both also ignore a basic and self-evident premise, that marginal rates will rise over time. — Garth

#205 betamax on 02.27.11 at 2:51 am

#162 Cookie Monster: “a) Exactly, it would cause the contraction of the false expansion that preceded.”

Exactly, so you are now agreeing with Garth’s point (similarly explained by Jeff Smith above) that returning to the gold standard now would lead to a depression.

Maybe you should stick to batteries.

#206 betamax on 02.27.11 at 3:13 am

#138 InvestorsFriend (Shawn Allen): “If A TFSA is good, an RRSP is EXACTLY as good if marginal tax rate is unchanged.”

I agree with your math but not your suppositions about the likely long-term direction for the marginal rate.

Ballooning public debt and demographics suggest that the marginal tax rate will likely be substantially higher decades from now. If that’s the case, then the RSP would be a lousy place to park money.

People who talk about the future marginal rate aren’t “whining” — they’re questioning whether RSPs make sense given likely future rates.

#207 Dark Sad Monster Bunny on 02.27.11 at 3:21 am

172 AM – Here is a good tax rate calculator

http://www.walterharder.ca/MarginalTaxRateCalculator.asp

It looks like “low” can be defined as less than around 37-38K for BC and Ont – MTR about 20%. After 42K its about 30% and stays under 33% to about 68K, then increasing
in steps to over 40% at 84K. I think my sweet spot for
this year was around 71K – what I make over and above that is RRSPed as instructed by my Acct.

So RRSP makes a little sense between 42-68K, but TFSA
the better option below that. Yes, $5K after tax is a tough
find at that income level.

#208 BrianT on 02.27.11 at 3:27 am

#185Jess-This example is typical http://www.thestar.com/news/article/945543–housing-agency-calls-emergency-meeting-to-deal-with-scathing-report?bn=1

#209 betamax on 02.27.11 at 3:28 am

#142 Morry: “Will get a return of 7k. Off to Cabo for 2 weeks in March”

I find it bizarre that most people immediately blow their refund, as if they were given a free gift of unearned money that they should hedonistically squander.

The refund is your own money that the government took from you but is now allowing you to have for a time — but they’ll ask for it back again later.

#210 Timing is Everything on 02.27.11 at 4:36 am

#187 Kurt

Very interesting. I will do some ‘research’ on this.

#211 Kaganovich on 02.27.11 at 8:45 am

Garth said …”The change from a fiat system to a commodity-based one would impoverish most”

I agree.

Cookie and others arguing for a restoration of hard backed currency, what is your opinion on wealth redistribution through political means?

#212 BondGuy on 02.27.11 at 9:47 am

From #186 ” Yes it seems that everyone has forgotten the “depression” we had in the 1950s and 60s when the US dollar was backed by gold.
‘Irrelevant….It will never happen, so end this pointless debate. — Garth'”

Garth is right about this being pointless; this is what happens when people read Austrian comic books to get their knowledge of how monetary systems operate.

Before WWII, the world operated on a Gold Standard for a couple hundred years. This was an era of continued Depressions (no, not recessions, Depressions). At the end of WWII, the Bretton Woods conference was held to do something about the problems inherent with the Gold Standard (or the Gold Exchange Standard) – which were completely obvious to everybody except the most clueless (who were completely unable to come to grips of the reality of the Great Depression, and were ignored).

The Bretton Woods system (post-WWII) released all countries outside the U.S. from a reliance on Gold – they used U.S. dollars as a reserve, and they largely operated unfettered by reserves constraints (like now).

The U.S. in turn, theoretically backed the dollar by gold. But, the reality was that the U.S. had most of the world’s gold after WWII, and so the dollar was over-backed. In other words, the U.S. government was effectively unconstrained by their gold reserves, and they acted in practice as if the currency was a pure fiat currency (like now).

Once the inevitable limits of their gold holdings were hit, they just closed the gold window, and continued doing exactly what they were doing before the closure of the window.

In other words, the whole thing about the U.S. holding gold was a public relations scam to reassure people who were too stupid to notice the fact that gold was de-monetised about 75 years ago (when everybody went off the Gold Standard during the Depression).

And for those who wonder what is “backing” the dollar – look up Modern Monetary Theory or Chartalism. A fiat currency is backed by the taxing power of the State: you need dollars, not gold, to pay your annual tax bill.

#213 Mickey on 02.27.11 at 9:56 am

RRSP’s and RESP’s are a tax deferral for the stupid. Most seniors currently who are retiring comfortably complain excessively that the prior triggers claw back, and in most cases the latter has a track record of 30% probability that your child will go to school and be taxed at the same rate as the grant assuming you put just enough in to get the grant or a 70% chance you will be paying at your own rate a whopping tax to take it back out of your own RRSP if your child doesn’t go to school. Think about it, you have paid hard earned after tax money to gamble your child will go to school and if you are right you have zero gain on the reward (grant) as that will be clawed back in taxes or worse the funds are taxed twice in your hands twice and even a third time if it forces further claw back of pension money. Odds like that folks would make Wynn Los Vegas Blush. Two things are guaranteed in life, taxes, and tax increases. Someone has to pay for the lavish pensions and health care benefits of government employees in this nanny state and F is planning on using your RRSP and RESP to do it. If you are on Garths Blog you probably have or will have a mortgage at some point and should pay every penny of that off before playing the shell tax game with F. Take Garths advice and put your money in the TFSA first.

#214 dc on 02.27.11 at 10:10 am

TFSA/RRSP question… Is it possible to transfer in US dollar cash? or perhaps american equities? Or are these a purely Canadian?

Thanks

Yes. — Garth

#215 OttawaMike on 02.27.11 at 10:37 am

#203 nonplused on 02.27.11 at 2:35

As a municipal employee, I can tell you a few things as I see them from my POV:

-originally wages were supposed to be lower than private sector in lieu of better pensions and benefits
-during the go go years of the late 80’s and early 2000’s, cities had trouble finding qualified skilled employees
(believe it or not there was a fair turnover in engineers, technologists and skilled trades in the public sector)
-this led to wage inflation to attract suitable candidates
-during the early 90’s Rae days were implemented and wages were permanently rolled back for all CUPE except Toronto members who weaseled around it.
-this is the sentiment pendulum I mention in post# 75
-we are on the verge of similar rollbacks and service cuts just like we’re seeing stateside
-where the real disparity lies is in the administrative/ unskilled municipal workforce. Wages and benefits do not even come close to comparison. While I believe in a living wage. 55k$ for an admin or labourer is out to lunch.
-I agree with your assertion that public sector should be essential service/no strikes unfortunately I’ve seen the results of that here in O-town where we have that.
-Arbitrators provide the settlements and almost always give the unions what they wanted
-OMERS the Ont. municipal pension is in some serious shortfalls for the first time. They are seeking large contribution hikes from employers and members
-what do you suppose a housing crash would add to all this?
-privatization won’t solve much, the share holders of the contract firm still want their pound of flesh so the costs are the same or higher. It only gets rid of CUPE. but most have no layoff clauses so you still have to deal with those displaced employees.
-I’ll repeat what I’ve posted here before: citizens are going to have to make do with less services, our cities have become our nannies where everybody expects full 5 star services with no property tax rate hikes. Cities/schools need to go back to providing core services and eliminate the nice-to-have frills. It will take a change in attitudes from ratepayers as we’re witnessing down south.
It will come here to eventually.

#216 Macrath on 02.27.11 at 10:43 am

Bernie Sanders On What Banking Should Be: “It’s Clear Bernanke’s Magic Money Printing Is Working, It’s Just Unclear For Whom”

http://vodpod.com/watch/5638134-bernie-sanders-on-what-banking-should-be-its-clear-bernankes-magic-money-printing-is-working-its-just-unclear-for-whom

Wall Street runs the show impoverishing most, crippling the economy and creating armies of unemployed.

#217 Moneta on 02.27.11 at 10:48 am

Hi Everyone,

Back from Seattle. While waiting for my luggage, I decided to go to the restroom. Of course there were 15,000 women in line so I walked away and went to the one 200 metres further down. No one there, and clean plus I go some exercise!

I couldn’t help but wonder why all the others stood in line… If you really have to go wouldn’t you go find another one ASAP? And if you did not really have to go, why the heck would you wait in such a long line?

It is so easy to get ahead… if you are one of those who is willing to walk the road less travelled.

#218 OttawaMike on 02.27.11 at 10:50 am

#193 Utopia on 02.27.11 at 12:19 am
Good posts this weekend.

I think you’re onto something in post 193 and it should help Canada weather some future storms if things transpire as per your predictions.
On the downside imagine all the new oil consumers if the mid east masses are brought out of the middle ages? We’re already seeing exploding oil demand in Saudi and some of the other feifdoms. Indoor ski hills and chilled sand beaches don’t run on love they need copious qauntities of black gold.

#219 Moneta on 02.27.11 at 11:01 am

Yes it seems that everyone has forgotten the “depression” we had in the 1950s and 60s when the US dollar was backed by gold.

Irrelevant. The change from a fiat system to a commodity-based one would impoverish most, cripple the economy and create a depression. It will never happen, so end this pointless debate. — Garth
——————-

Went to visit the Klondike Gold Rush museum in Seattle. Interestingly, the general population then hated the gold standard because it felt there was never enough money in the system to support growth.

Funny how public sentiment is always forgotten…

#220 Utopia on 02.27.11 at 11:21 am

“You both also ignore a basic and self-evident premise, that marginal rates will rise over time”. — Garth

The above response to Pat and InvestorsFriend (Shawn Allen) is worth highlighting. If there are any doubts that taxation will rise over time then you have not been paying very close attention to the reality of Western economies being in tatters or more specifically to issues of Canadian economics and debt going forward.

Why even argue against the advent of future tax increases when it is self-evident (as pointed out) that few good solutions exist other than serious reductions in services from government?

We know already that major service reductions are not acceptable. This only leaves higher taxation as an outcome in the future as revenues still need to match demands from the public if budgets are to come near balance.

So stop playing semantics and word games and go back to a review of the basics.

#221 Love This Blog on 02.27.11 at 11:32 am

#155 Jess
Excellent post. Very well written. Should explain to the Public Service HACKERS like Real Paul where the benefits come from.

#222 Mean Gene on 02.27.11 at 12:18 pm

Americans are conditioned to stand in line ups.

#217 Moneta on 02.27.11 at 10:48 am
Hi Everyone,

Back from Seattle. While waiting for my luggage, I decided to go to the restroom. Of course there were 15,000 women in line

#223 Dark Sad Monster Bunny on 02.27.11 at 12:30 pm

212 Bondguy – A good refresher for those people who forget the diff between a “gold standard” where gold is
money and the “gold exchange standard” intro’d after WW2 where the deal was that the current accounts at the int’l level could be settled in gold. IIRC the amount of gold vs the money supply (however defined) was about
35% at the start.

De Gaulle caught on though, realizing the “deficit without tears” the US could create, and started settling in gold. With the high spending of the Vietnam war, the ratio was depleted to about 6%.

#224 Alister on 02.27.11 at 12:35 pm

#156 Hoof Hearted

You are so right. You can add income TRUST to your list.

An how about when Trudeau took away the exemption for the $1000 of interest income. This stuff has been going on feorever.

All government programs are up for change at each annual budget. Long term planning is a fallacy, but one has to just play with todays rules, which are subject to change – even retroactively.

Fear of future and unknown rule changes is no reason not to take advantage of existing gifts. — Garth

#225 Oasis on 02.27.11 at 12:40 pm

(a) A gold standard would lead to a massive contraction of credit and economic activity, and directly to depression. It would repeat the monetary policy mistakes of the 1930s.

___________________________________

the gold standard didn’t cause the depression in the 30’s. the Fed was directly responsible for that debacle. that’s been proven over and over.

Did you have trouble reading my second sentence? Try again. — Garth

#226 GooderFool on 02.27.11 at 12:50 pm

“RRSP or TFSA? Expert offers some last-minute advice”

http://www.ctv.ca/CTVNews/TopStories/20110225/rrsp-tfsa-sellery-110226/

Excerpt below:

Sellery tells CTV.ca he thinks most Canadians get hobbled by too much advice about what to do with their money. They get confused this time of year, when it comes time to choose between topping up their RRSPs or opening up one of the newer tax-free savings accounts.

For Sellery, there really isn’t a contest: RRSPs win hands-down.

“It’s not, in my opinion, an either-or thing. It’s: start with an RRSP and only in certain cases, use a TFSA,” he says.

How is a “former Business News Network anchor-turned-personal finance trainer,” an expert? The guy is a TV talking head, and should stick to it. His advice is wrong. — Garth

#227 Cookie Monster on 02.27.11 at 1:03 pm

Alan Greenspan is a disciple of Ayn Rand. We all know how his pokicies turned out; he almost single-handedly torched the American economy. Ayn Rand’s ideology has been completely discredited.
———-
Alan Greenspan WAS a disciple of Ayn Rand but once in Washington and the Federal Reserve he abandoned his roots and betrayed Ayn’s ideology.

Surely you’re not implying Greenspan went to the Fed and applied Ayn’s principles which in turn led to the credit expansions and devaluation of the USD. Ayn’s an advocate of the gold standard, Greenspan enacted the opposite. He betrayed Ayn’s and his own earlier principles.

#228 Signpost in the bushes on 02.27.11 at 1:04 pm

#214 dc;

The US government normally withholds 15% tax on the dividend income from US equities owned by Canadians and other foreigners. US equities held by Canadians in a registered account (RRSP or TFSA) may be subject to a 30% withholding tax. Worth checking first. The Canadian foreign tax credit rarely restores all of the withheld tax!

Further to #138 Investors’ Friend;

RRSPs, once converted to RRIFs, suffer a compulsory withdrawal schedule beginning at age 71, and the withdrawal amount increases each year with the investor’s age.

TFSAs have no compulsory withdrawal schedule imposed upon them because no part of any withdrawals are taxable; nor is there any need to report withdrawals on income tax returns. As mentioned by Garth, any part or all of such withdrawals can be returned to the TFSA in the following calendar year along with the new year’s contribution room.

#229 Another Albertan on 02.27.11 at 1:05 pm

#218/OttawaMike –

Oil revenues to pay for the infrastructure, yes. Otherwise, the biggest growth the Middle East will see is in electricity and in natural gas consumption. The oil is essentially for export. Basic infrastructure for increases in standards of living depends on natty and electrons.

Everyone else’s mileage may vary.

#230 daystar on 02.27.11 at 1:06 pm

Speaking of gifts…

Say Garth, is my understanding correct/corrected that TSFA’s (of which all individual taxpayers are now $15,000 eligable if unused) can hold equities that can be traded in the same year but if the sales generated from trades are reinvested in the account towards other equity(s) that do well and its later sold and reinvested… and so on, until such time as the TSFA holder see’s fit to cash out on his account, that all of the profits as long as they stay in this account are tax free?

In other words, if i was to trade equities inside a TSFA with a $15,000 pot and through various trades spread out over 2 years had the good fortune to add a zero, as long as I didn’t go over my TFSA eligability, the $135,000 windfall is tax free? I guess what I really want to know is, “is the TSFA flexible to potential frequent trading of equities/stocks?” Thanks in advance and appreciate any response you can give me, dude!

Yes. — Garth

#231 Spiltbongwater on 02.27.11 at 1:07 pm

217 Moneta on 02.27.11 at 10:48 am

Was the Flying fish shop open at the Pike place market? Best I saw there was when a guy got hit in the face with a salmon that they were throwing trying to knock a cup off his head William Tell style.

#232 NP on 02.27.11 at 1:14 pm

#217 Moneta on 02.27.11 at 10:48 am
Hi Everyone,

Back from Seattle. While waiting for my luggage, I decided to go to the restroom. Of course there were 15,000 women in line so I walked away and went to the one 200 metres further down. No one there, and clean plus I go some exercise!

I couldn’t help but wonder why all the others stood in line… If you really have to go wouldn’t you go find another one ASAP? And if you did not really have to go, why the heck would you wait in such a long line?

It is so easy to get ahead… if you are one of those who is willing to walk the road less travelled.
…………..

Did you go to the Men’s? :-) I certainly have in the past.

#233 Cookie Monster on 02.27.11 at 1:15 pm

#162 Cookie Monster: “a) Exactly, it would cause the contraction of the false expansion that preceded.”

Exactly, so you are now agreeing with Garth’s point (similarly explained by Jeff Smith above) that returning to the gold standard now would lead to a depression.

Maybe you should stick to batteries.
————-
No I’m not agreeing, a credit contraction does not mean depression, it means loans are being paid back while creditor’s loan books are being made whole.

A credit contraction is deflationary which would cause prices to fall while the value of the dollar RISES once again instead of it’s steady depreciation that we’ve being sold as a good and necessary thing in order to avoid deflation. The fear of deflation is a lie. It’s inflation that responsible savers must fear.

This pointless conversation is over. — Garth

#234 Cellar Dwellar on 02.27.11 at 1:17 pm

@ #43 Nonplused
YOUR comment was EXCELLENT

“……The adjustments are going to come on the service level and user fee side. There will be less provided for free in the future. Boomers like you are just going to have to wrap their minds around that fact sooner or later Garth. The free ride your generation voted itself and put on the charge card isn’t going to be paid back by your kids or anyone else. The charge card has your name on it. You will pay it back, and in full. And the form of the payback will be drastically reduced services and freebies just when those freebies were all you were counting on. It was a nice trick though, thinking that if you forced the state to look after your parents on borrowed money that not only would you not have to look after them but that the state would also be obligated to look after you. But the state is not infinite, and we will see the limits of the state shortly. It’s already starting……”

THIS should be REQUIRED reading for all boomers before they fill out their taxes.
Im a “tail end gunner” boomer. (born in ’61). I have friends /co worker retiring NOW and very very few of them are prepared.
I dread what’s coming…….

#235 daystar on 02.27.11 at 1:19 pm

As for RRSP’s…

It seems to me that RRSP’s are a useful tax shelter only to those who have very little income as seniors from other revenue streams (otherwise, its a tax deferral), and RRSP’s that aren’t so sizeable as to push seniors into higher tax brackets to boot. So… perhaps we should be discussing why it is that younger folks buy RRSP’s intially? This is after all, a $$$ blog of which RE has been at the forefront. Lets not forget the tax deferral RRSP’s can be used for on the purchase of a first time home for virgin buyers, shall we?

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/hbp-rap/menu-eng.html

#236 Macrath on 02.27.11 at 1:19 pm

#217 Moneta

Niagara- here the line up phenomena is automotive. A constant line up of cars at Tims drive-through . People here can`t afford or never heard of a coffee machine.

#237 Rook on 02.27.11 at 1:28 pm

Would I be right to put my US dividend payers in my RRSP account?

#238 Cookie Monster on 02.27.11 at 1:28 pm

Went to visit the Klondike Gold Rush museum in Seattle. Interestingly, the general population then hated the gold standard because it felt there was never enough money in the system to support growth.

Funny how public sentiment is always forgotten…
————-
Market are not about money, they’re about trade. If someone has no money all they need to do is produce something other people need and then trade. Raise chickens, eggs, apples, carrots, cows, anything, then trade for booze, cigarettes, shovels, horseshoes etc… money is just a facilitator of trade, first a person must contribute something. There’s never a shortage of money, only a shortage of production.

#239 Cookie Monster on 02.27.11 at 1:33 pm

No I’m not agreeing, a credit contraction does not mean depression, it means loans are being paid back while creditor’s loan books are being made whole.

A credit contraction is deflationary which would cause prices to fall while the value of the dollar RISES once again instead of it’s steady depreciation that we’ve being sold as a good and necessary thing in order to avoid deflation. The fear of deflation is a lie. It’s inflation that responsible savers must fear.

This pointless conversation is over. — Garth
———–
How can you say this is pointless, it’s the essence of human survival to retain what one earns at the end of each day. I don’t think wealth of productive citizens being stolen by inflation is pointless, it’s absolutely central to all mankind. It’s about liberty, freedom, honesty and integrity in life and economics.

#240 Cellar Dwellar on 02.27.11 at 1:34 pm

@ #61 JoJo
Insane rambing doesnt foster a lot of followers when you can’t consecutively spell more than three words correctly…… ;)
take another pill and relax

#241 Alex on 02.27.11 at 1:36 pm

Interesting commentary over at House Hunt Victoria on Canadian banks’ “skip a payment on your mortgage” programs. I’m not bright enough to know if his logic is flawed.

http://househuntvictoria.blogspot.com/

#242 Form Man on 02.27.11 at 1:41 pm

#226 cookie monster

Both Alan Greenspan and Jim Flaherty ( another Rand apostle) champion ‘deregulation’ ( which certainly is part of Ayn Rand’s teachings ). Supposedly the ‘invisible hand’ of the market would be a superior regulator. When that idea self-destructed, Flaherty ( and Greenspan acolyte Bernanke ) socialized the banks losses and privatized their profits. Now the deregulators on Wall Street are fiercely fighting regulations again ( with great success). Since it all worked out so well last time……….Libertarians are great at promoting thier ideas until it doesn’t work, then they run like frightened children to the comfort of ‘corporate welfare ‘. I can just imagine the economic destruction if we went back to the gold standard

#243 No crystal ball... on 02.27.11 at 1:41 pm

My husband has been investing in TFSAs for ourselves and our son since the TFSA began. He put the money into direct brokerage accounts opened through our bank and he manages each one himself. The three accounts currently are sitting at over 21K, 22K and 27K. Not bad for the yearly investment of 5K for the past three years.

On the other hand, my mother went to open a TFSA at her bank and was told a GIC was her best option which is locked in for two years. The amount of interest she is getting is disgusting – maybe 2% (less than the rate of inflation). The bank employee will receive a commission on that sale of the GIC to my mother.

Sure there is risk involved in our TFSA investing versus my mother’s but it is a worthwhile risk to take given the minimal investment and the potential gains – especially with no tax to be paid anytime we want to withdraw from it.

For all you TFSA newbies, beware what the banks tell you. They want you to do what is in their best interest, not yours.

#244 wetcoaster on 02.27.11 at 1:46 pm

“Americans are conditioned to stand in line ups.”

Seems the Chinese in Vancouver are too.

#245 Cellar Dwellar on 02.27.11 at 1:48 pm

@ #110 Jess
“1002 Hate Groups in the US”

WHAT, pray tell, is a “Hate” group ?
Besides, of course, the Aryan nations , KKK, etc.
What constitutes being labeled a “Hate ” Group?

Any ‘group” that strongly disagrees with another “group” could easily be labelled a “Hate Group”

Sorry but I follow stats like that with a certain level of disdain. do you Hate me because I disagree? Congrats your Hate Group #1003

#246 wetcoaster on 02.27.11 at 1:51 pm

Looks like our new BC premier “fill in” first priority is a junket to Asia to promote more buying of Vancouver real estate cause the province is desperate for some more land transfer taxes in the kitty.

The whole BC system is now eff’d for good when we have to rely on them to come here and price our own people out of owning a simple roof over our head. Sure doesn’t sound like “Family’s First” does it ?

#247 Moneta on 02.27.11 at 1:53 pm

Mean Gene on 02.27.11 at 12:18 pm
Americans are conditioned to stand in line ups.

#217 Moneta on 02.27.11 at 10:48 am
Hi Everyone,

Back from Seattle. While waiting for my luggage, I decided to go to the restroom. Of course there were 15,000 women in line
———–

That was in Ottawa!

#248 Cookie Monster on 02.27.11 at 2:10 pm

Market watch article By Robert P. Murphy that explains nicely the function of interest rates and credit and the failure of the Fed to manage the economy.

From the article:
“Nobel laureate Friedrich Hayek said that in order to understand how things can go wrong with the economy, we must first understand how they ever go right. In the view of Hayek, markets use the price system to coordinate the actions of producers with the desires of customers and the available resources. The interest rate is a special price that helps ensure a balance between how much households are saving and how many long-term investment projects businesses start.
According to Hayek, this “regulatory” function of interest rates is distorted when the central bank — the Federal Reserve in the United States — pushes down interest rates through an injection of artificial credit. This “easy money” policy appears to stimulate the economy, but the growth is unsustainable and the prosperity an illusion. The boom period inevitably ends in a crash, where resources and workers have to be redirected to more appropriate niches. This period of retrenchment is what we recognize as a recession.”

Keep reading at:
http://www.marketwatch.com/story/the-fed-needs-to-free-the-market-2011-02-25

Garth, if you could just post this last post, then I’m done too. Thanks.

#249 Kitchener1 on 02.27.11 at 2:11 pm

#215 OttawaMike

I do agree with your observations. I will give you my point of view– early 30’s uni educated/worked-working for various Fortune 500 companies in management-non management roles.

– Public service workers are overpaid compared to private sector counterparts. Across all levels.

– Silly pension assumptions of 7-8% YoY returns are about to hit home very soon. Private sector pensions are woefully underfunded, and CANNOT all be bailed out by the taxpayer. The reality of math is about to hit home.

– Services will have to be cut/ jobs will have to be cut in the public sector– those folks are going to be in for a suprise as right now they beleive their jobs to be infalliable. They are wrong.

– Taxes will go up- but the populace is almost at the point of max taxation possible. Fine line between what people will pay before they turn to the black market and start paying cash etc..

– Tax avoidance, that is preached by Garth and finance pundits is going to be a huge market soon. Majority of the populace does not engage in it. As more people become wise to it, watch for the govt to close exisiting loopholes.

– The number 1 problem that i see happening in respect to boomers and demographics is late retirement. This is HUGE. Boomers will not retire at 65, they will continue to work. We do not have forced retirement, thanks to human rights commission. This will cause some huge friction and anger. If you guys think Gen X has it out for boomers now, just wait 5 years.

Every boomer that does not retire and puts its off is delaying the working career of a younger person, or delaying a promotion for someone older etc…

-As interest rates rise- thats BoC and bond rates head back to historically normal levels. It will create massive problems for govt and balancing budgets as the interest paid on govt debt rises expontally on govt debt.

– As such, we will never again see a balanced budget in Canada again. EVER. The populace will not be willing to undergo the cuts required and there are no more avenues open– ie.. no more downloading to cities etc..

-the upcoming RE crash will only ensure that boomers stay in the workforce longer. These boomers will not be buying or spending– house prices will drop and then drop and stagnate as the younger workforce will not have the confidence to buy with lackluster work opportunites.

#250 Derek on 02.27.11 at 2:34 pm

#212 BondGuy on 02.27.11 at 9:47 am wrote:
And for those who wonder what is “backing” the dollar – look up Modern Monetary Theory or Chartalism. A fiat currency is backed by the taxing power of the State: you need dollars, not gold, to pay your annual tax bill.

An excellent post. You have nailed exactly why the gold standard is irrelevant. But MMT isn’t the whole story although it is a very important part. I would suggest that once people have got to grips with MMT they should take a look at Steve Keen’s work to learn why uncontrolled fractional reserve banking makes Boom/Bust cycles inevitable whether we use the Gold standard or MMT.

#251 NP on 02.27.11 at 3:00 pm

I’m a retired prov. employee. I remember when our benefit plan was over funded and we rec’d a payback on it. Many govt workers thought they should not have done so – keep it for lean times. IMHO, it’s the govt. of the day that was at fault. BTW, we were forced to pay union dues, but we were not allowed to strike. When our contract was up for renegotiation, Managers and above rec’d ‘anticipated’ increases, sometimes 2/3 years before the contract was signed. With inflation, we basically got nothing.

My husband works for a Municpal Govt. (non- unionized). Unionized workers rec’d 2+% increase, he rec’d 1.5 (IIRC), and his gas mileage was decreased, while the school board members gas mileage was increased. His position, and those under him, requires they have a car, yet they have a hassle to claim a portion of car insurance for work.

#252 realpaul on 02.27.11 at 3:15 pm

Utopia, please feel free to announce it to the world when a single Middle Eastern economy makes a blip on the industrial radar. Right now, they produce nothing and are a net drag on the world economy. We subsidize this part of the world with petro dollars and aid at the present time. Otherwise…nice rant dude. The idea that the Islamic world of Africa will become a dominant political or economic power in the future is wildly fantastical. Internally the oil money they recieve is exported producing little in the way of national infrastructure. Bottom line…when the oil dry’s up or is replaced by technological development the Middle East will sink back into the sands of a pre islamic nightmare. By the way, this is exactly what the majority of local people envisage as utopia.

#123 … We don’t have ‘Premiers for Life’ or Prime Ministers for life…it only seems that way. Don’t forget that the master of disaster in Canadian politics was Pierrre Trudeau who created seats in Parliament out of freshly created ethnic ghettos in southern Ontario by the hundred by bombing sub areas with boatloads of new immigrants beholden on the Liberal Party foe sustenance and continued largesse of grants and freebies to community ‘leaders’.

Don’t bother asking why the distribution of power in Canada rested solely where the Liberal Party was able to control the vote through ballot box stuffing by any other name.

This nonsense worked well to dismantle Canadian democracy in the east but never took off in the west aside from a dumping of tens of thousands of Punjabi Sikhs into two ridings in Vancouver ..only one of which stuck…leaving them with the one and only Liberal seat in the province of BC.

One exception was Newfoundland and Labrador where Liberal hit man Crosbie destroyed the fishery to create desperate poverty via long term unemployment and turn the Newfies from traditional conservatives to a population dependant on Liberal welfare to survive.

You are scary. — Garth

#253 The American on 02.27.11 at 3:18 pm

At #222:
Mean Gene, did you know that Moneta was in OTTAWA when she was trying to use the restroom? You naturally assumed she meant she was in Seattle. Your mistake. Your comment “Americans are conditioned to stand up in lines” is quite comical. Have to BEEN to the airports and restaurants in Canada? ANYWHERE in Canada? LOL

#254 ExExpat on 02.27.11 at 3:18 pm

#240 Cellar Dwellar

Thanks for the link, I was wondering if the banks would find a way around the end of the 35 year amortization, although I had thought they would consider going with some private insurance scheme. The “skip a payment” method is genius, they effectively keep the 35 or 40 year amortization AND the CMHC insurance.

#255 Timing is Everything on 02.27.11 at 3:22 pm

Fear of future and unknown rule changes is no reason not to take advantage of existing gifts. — Garth

Agreed…caveat:

The Government giveth, The Government taketh away.
Amen

So, roll them bones all you gunslingers.
Oh, just a thought, there’s plenty of fear to go around here and now.
If you still want more…look to the future.
————————————————————
Now a word on obsolete verb endings… ;)

http://languagelog.ldc.upenn.edu/nll/?p=736

#256 Devore on 02.27.11 at 3:26 pm

#204 Pat

Your hero Investor’s Friend may know how to operate a calculator, but he does not know what he is talking about, as usual.

The point is not just that RRSP withdrawals are income, and taxed as income, but that they count towards your income, resulting in reductions and clawbacks in your CPP and other old age assistance payments. A TFSA does not, which makes it automatically superior, even if they are both taxed effectively the same (one before, one after).

That’s why your first dollar should go to a TFSA, because you will get a bigger bang with it when you begin to draw down.

An RRSP is useful for its immediate tax refund, which you can use for something productive right now, and most people do not. No one is saying an RRSP is useless, there are many ways you can benefit from tax deferral, just keep in mind future tax rates and brackets will make it so you could be in for a big surprise.

#257 Moneta on 02.27.11 at 3:33 pm

There’s never a shortage of money, only a shortage of production.
————-
My point was that many people today think that backing with gold will solve the too much money printing problem while people under the gold system then thought there was not enough money.

You do make a good point when it comes to money vs. trade but I can’t fully agree with you.

Money was created to facilitate trade. Money promotes specialization. I don’t believe science would be where it is today if we had stuck to barter.

#258 kc on 02.27.11 at 3:43 pm

#173 moloko on 02.26.11 at 9:24 pm

puke…

http://www.vancouversun.com/business/Chinese+investment+surge+hits+Metro+Vancouver+housing+market/4352746/story.html#ixzz1F6oyJbpD

incase anyone wants to read the full newspaper report from China, here it is

http://www.chinadaily.com.cn/bizchina/2010-11/02/content_11490095.htm

#259 Devore on 02.27.11 at 3:45 pm

#246 wetcoaster

Looks like our new BC premier “fill in” first priority is a junket to Asia to promote more buying of Vancouver real estate cause the province is desperate for some more land transfer taxes in the kitty.

Maybe her first priority should be to get herself elected, so she can be a real premier?

#260 kc on 02.27.11 at 3:53 pm

on a footnote to my last post about the newspaper in china, it is worth noting that this article in China was printed Nov 2 2010… if this was so ground breaking “news” why didn’t it hit the “canadian newspapers” untill the end of Feb 2011? While searching for the news link in china I can also say that this blurb was carried as “news” in many papers in the country (canada that is)

take the news with a grain of salt, and read the China paper clipping for a *balanced* thinking….

#261 jess on 02.27.11 at 3:58 pm

“the strength of a nation lies not in the size of its economy but the proserity of its citizens”

In 2005, the World Bank undertook its most complex and accurate survey of worldwide PPP rates under the aegis of the 2005 International Comparison Program, and in doing so answered several criticisms regarding their use in calculating poverty levels.

Opponents of PPP rates argue that previous calculations were based on goods and services that the poor would never buy. Further more, because China didn’t take part in the last survey in 1993, many have stated that poverty levels for China are untrue.

The World Bank intends to release the latest figures at the end of this year, but early results for Asia and Pacific region (ICP Asia Pacific) have already proved surprising.

Both India and China took part in this survey for the first time in 2005 and early results show that that the number of people living on less than $1 per day has rocketed to 300 million in China and 800 million in India.

The reports also states that China’s economy is in fact about 40 percent smaller than previous estimates suggested using the new PPP rates.

http://www.adb.org/Documents/Reports/ICP-Purchasing-Power-Parity/Highlights.pdf

================================
Paul Bremer on Iraq, “corporatize and privatize state-owned enterprises” …“wean people from the idea the state supports everything.” and who was that mulitasking ranching minister who said, “create a crisis”step one.

But then corporate subsidises are okay then?

=

Gibson started a web site after being inspired by the movements in England. “I work three jobs and can barely cover my $450 per-month rent,” said the 23-year old Gibson. “But I still pay my taxes. All I’m asking is that the wealthiest corporations pay what they owe, too.”

US UNCUT is launching the first wave of protests this Saturday, February 26th with a focus on Bank of America. There are actions planned in over 20 states. Bank of America has launched a glitzy PR campaign about how charitable and community-minded they are. But we should remind them the only way back into our good graces is to “Pay up!”

The Tax Justice Network and Business and Investors Against Tax Havens have been pressing over the last year to keep these issues in the public spotlight. With US UNCUT teaming up with the Other 98 and other coalitions focused on corporate tax dodging, we can anticipate a lively April 15th Tax Day.

#262 early mid life crisis on 02.27.11 at 4:00 pm

I’m so confused, i need help. After anxious weeks reading the blog and mulling life’s direction over, I just sold my condo. I will be living in my trailer for a few months while i figure out what to do and where to do it. I suspect i will live in the trailer and/or rent for the next year while i figure it out and watch what the real estate market does. I’m under 40, made about 235k on the sale, and dont know where to put it while i watch the real estate market. I have about 25k in rrsps, but have switched to a work superannuation pension fund about 8 years ago. I may go back to school f/t in september. 1) where do i park my $ while i watch the market? I will buy again sometime hopefully mtge free. 2) If i go to school is it better to pay $, borrow, or w/d and/or borrow from my rrsp to pay for it? 3) what about buying a house (van) and renting out a few rooms to students? (if i do that i’ll have to borrow or w/d rrsp to pay for school) I’m also considering moving to new zealand or the okanagan for school. Whew! Thanks for any input. I’m basing my entire future on this $ and need it to work.

#263 .9999 Silver on 02.27.11 at 4:05 pm

small rant…
ann(us) rand.. the founder of the entitled horde had no trouble using government assistance when it was convenient for her needs….so much for standing on her own two foots…
some 250 comment about how to skim profit (tax breaks ) from REAL GDP but not one comment about a real contribution vie real export manufacturing to contribute to the real GDP in order to extract real profit.
flipping real estate is just an internal redistribution of wealth. no REAL GDP productive gain.
1 guy produce’s REAL product and 9 others figure how to add paper value to it for their profit margin.
a $1 product gets compounded 9 times as each tier thinks they deserve and are worth more than the guy before them. the first guy takes $1, the second $2, the third $4, the fifth $8. and so forth….
canadian manufacturing is about 10 – 15% of the economy. think about that carefully.
if GDP is 3% interest cannot grow beyond that without clipping something else. interest cannot be extracted from thin air without fallout.
a lot of people sure seam to want government funds and special tax breaks for their special interests.
mine is the same tax on every financial transaction, just like when i purchase a product at any normal none socialized store. the market should get taxed, at market rate, on every single transaction.
some 80% of canada’s economy is government or paper market investors….IE welfare bumms. They don’t produce anything of use.
government employment doesn’t create anything, they are paid from my tax’s and pay their tax’s with my tax’s.
and theirs not enough tar and feathers left for the financial vulture’s. and rails to run them out on are kind of scarce tooo
also ….one should remember when government fund’s and tax breaks back large corporate monopolies profits its called fascism not socialism, people should learn to use the right term.

“it’ll never happen here vancouver…”, downtown lower methcouver…
Oh and for an interesting excercise try going down to the local assessment authority and get a look at the paperwork and documentation they have showing how they arrived at your properties value…it’s a complete joke and has no legal value attached.
its a complete peace of “dark fudge” work, a guess… and your being taxed on their recommended value.
Rae

#264 jess on 02.27.11 at 4:12 pm

The quarterly publication provides comprehensive updates to law enforcement agencies, the media and the general public. It is the nation’s preeminent periodical monitoring the radical right in the U.S.http://www.splcenter.org/get-informed/news/us-hate-groups-top-1000

A veteran homicide detective in Sarasota, Fla. – lured by the burgeoning appeal of “sovereign citizen” ideology – was fired last week after he had “seceded” from the jurisdiction of the federal government, an act he claims was intended to be a political protest more than any sort of act of extremism.

Now, we learn that husband-and-wife members of the Alabama State Defense Force (ASDF), a state-organized volunteer force that supports the National Guard, has resigned after superiors discovered they were deeply involved in the sovereign citizen movement. The couple had joined the Republic for the United States of America, a shadow government formed by evangelical preacher and tax scofflaw James Timothy Turner.
..

Sovereign citizens are part of the broader antigovernment “Patriot” movement. They believe they are not subject to the laws and jurisdiction of the federal government. The SPLC estimates that as many as 300,000 people in the U.S. hold some sovereign citizen views.

#265 David on 02.27.11 at 4:20 pm

#217 Moneta: Looks like you’ve started a pissing match on line-ups.

#236 Macrath – Like i mentioned previosly, Tim Horton’s isn’t a business as much as a cult… the zombie line-ups are just one symptom. They’ve raised prices and dropped sizes for the past decade, and now that there’s actually an inflation-related compulsion for it, they’ll be doing it again in spades —coffee beans, wheat, sugar, cocoa.

BTW, if you wanted to hedge a long agricultural commodities position, long THI might do the job pretty well.

#266 Steven Rowlandson on 02.27.11 at 4:29 pm

Garth do you justify official creation of funny money and taxing power as the backing for the funny money?
Sounds like a big scam to me.
All scams come to an end and all glory is fleeting.
What will you have when the scam ends Garth?
Disappearing electronic records?
Wads of worthless paper to use as fuel for the wood stove?
Or will you have gold or silver that you may be rich?

Steven

You guys are pathetic. — Garth

#267 canali on 02.27.11 at 4:30 pm

http://www.vancouversun.com/business/Chinese+investment+surge+hits+Metro+Vancouver+housing+market/4352746/story.html

#268 David on 02.27.11 at 4:32 pm

#263 – .9999 Silver…So you think Ayn Rand is duplicitous for taking advantage of a government program with which she is not in philosophical agreement.

But….isn’t your posting such a criticism of her on this particular message board exactly the same thing?

#269 jess on 02.27.11 at 4:38 pm

sorry cellar dweller i forgot this site

http://mediamatters.org/
========================
newspaper study that was incorrect but i think a truth o meter site is a good idea where on can go quickly to the fact checkers

…misleading USA Today analysis that claimed to show public employees earn twice as much as those in the private sector. PolitiFact rebutted the claim that “federal employees are making twice as much as their private counterparts,” and USA Today acknowledged that its “analysis did not consider differences in experience and education.”
if you say it enough if must be true
right-wing media have continued to push the misleading statistic that public employees in the state of Wisconsin make more money than their private sector counterparts. In fact, according to the Economic Policy Institute, when education and experience are factored in, public sector employees in Wisconsin earn less than workers performing comparable jobs in the private sector.

http://politifact.com/truth-o-meter/article/2011/feb/22/fact-checking-pundits-wisconsin-budget-crisis/

#270 Just trying to be helpful on 02.27.11 at 4:45 pm

I am an advocate of RRSP’s because of creditor protection. RRSP are useful for creditor proofing. TFSA’s are not.

I like to sleep at night and know that my assets are safe from creditors.

That is not even on the radar screen of anyone but a small businessguy who doesn’t pay suppliers. — Garth

#271 patient in BC on 02.27.11 at 4:46 pm

Patz,

You said “While they may be well–to–do by our standards they are not rich. The husband brings his family to Canada and once settled he returns to Asia, because he can not make a living in Canada. ”

==============================
The husband works in China because he is making much more money there (there is a UBC study showing they do not find the local business environment lucrative enough). According to my standards, they are extremely rich. Here is where the hospice is supposed to be built:
http://www.realtor.ca/propertyDetails.aspx?propertyId=10228454&PidKey=-2021365785

Those are luxury condos. Almost nobody who works on UBC campus can afford them. There are dozens of condo towers recently built at UBC, and while all newly hired staff and faculty are stuck renting, such immigrant family are targeted by developers. Not only the neighborhood has completely changed, but many of these wifes do not speak English. So such towers are turned into ghettos of wealthy isolated people. An article in the Vancoucer Sun claims that Canada is to this people “plan B”, i.e. they wait for 3 years to obtain a passport, then go back to China.

The Realtors here are playing a very nasty game at the moment in Vancouver, placing all the blame (hopes) for a rising market on the rich Chinese. Meanwhile, the racist sentiment is exponential: just read the comments on local news and local newspapers’ websites. It is really frightening how fast it grows.

There are realities in Vancouver one cannot really escape. Some Chinese immigrants stay in Canada for their kids to learn English, then they go back to China. A friend of mine teaches in grade 6 to a group of 24 kids: 2 West Indians and 2 Caucasians who speak English and 20 Chinese kids who have issues with the English language. She cannot teach math or science. Her class has turned into an English as a Second Language class. She told me her Chinese students learn math/science at home. She is not racist in anyway, just describing her working conditions.

I can give you many examples of friends and colleagues who are truly mot racist, but right now the immigration policy is impacting their lives in such an overwhelming way that they feel really angry, and guilty of their sentiments.

#272 BrianT on 02.27.11 at 4:46 pm

#261Jess-Median global standard of living peaked around 1993 by most measures and is steadily declining (after having risen relatively steadily for more than 150 yrs). Most are slow to understand that actual real wealth is not created by the IMF, World Bank or any manipulation of monetary supply. In fact, the focus on monetary manipulation instead of actual technological advance is one of the reasons for decline (along with declining EROEI).

#273 Utopia on 02.27.11 at 5:08 pm

“Money was created to facilitate trade. Money promotes specialization. I don’t believe science would be where it is today if we had stuck to barter” ~ Moneta #257

—————————————————————

You nailed Moneta.

Just imagine trying to conduct any kind of international trade or overseas purchases if we had to depend on working with the yellow metal alone. I constantly bite my tongue here reading all the crazy gold comments.

Imagine the complexities of buying a home!

The lunatic fringe that keeps demanding a return to the Gold standard has no idea what they are trying to bring on. Do they not understand how that would suffocate the system we all depend on?

I am all for responsible use of money and the preservation of capital we have earned but does returning to an antiquated system of trade and barter outweigh the benefits of currencies and electronic transactions we currently enjoy?

They (the gold bugs) do however have one good point though; gold has its place in the formation of an objective measure by which to evaluate currencies.

I do not believe that it can carry that trade on its own though. Gold has proven to be too unpredictable, showing wild price swings from week to week, even day to day. These do not coorelate to what is taking place in curency markets. Even the long term P/M trend does not justify its current valuation.

That is why I endorse a basket of commodities and currencies in the formation of a reserve currency with a weighting system that continually reevaluates the purchasing power of paper currencies.

Too much attention is paid to gold with the suggestion that it is the only valid measure of value. It is not and that is, of course, patent nonsense. We only need look to the wild gyrations in the precious metals market to understand that Gold is not the stable and reliable marker of real value many wish it could be.

Let me give a second example in a question. Has the value of the Canadian dollar been so badly destroyed as to explain the rise of the value of Gold in our own currency?

It has not.

There is therefore no explanation for the rise of gold prices in our own currency if it really revolves around the loss of paper (dollar) values.

This tells us in other words that the price appreciation is more speculative in nature than value driven and even gold-bugs in Canada will have to agree that when investing in precious metals it is to turn profit, not to assure protection against a currency in devaluation mode.

If they are to claim otherwise would that not be disingenuous? The Canadian dollar is rising relative to the greenback. Nor are there any Bank of Canada efforts directed towards debt monetization in this country. We are not in the process of massive printing of currency in this country, are we?

And yet, the price of gold continues to rise. Could it be just the fear trade resulting from turmoil in America and the worry that the US dollar will decline?

That is not our dollar though, now is it.

If that is indeed the case then, can we now admit that if gold has risen above its intrinsic value that it can also fall just as quickly leaving the speculators holding the bag?

It will of course. Just as it usually does.

The decline, when it comes, will be both unexpected and precipitous and will leave the gold-bugs scratching their heads and asking “what happened” as they pull out their wallets and settle up losses the old fashioned way. With paper and electronic money.

And they will do it with Canadian dollars that still have plenty of buying power.

#274 Utopia on 02.27.11 at 5:16 pm

#252 realpaul answering Utopia wrote….

“Utopia, please feel free to announce it to the world when a single Middle Eastern economy makes a blip on the industrial radar. Right now, they produce nothing and are a net drag on the world economy”.
—————————————————————

Produce nothing?

Ever heard of a little thing called the oil industry Paul? Perhaps you can find Saudi Arabia on a map and get back to me with details of your discovery later.

You need to get out more, man.

#275 jackfrost on 02.27.11 at 5:19 pm

Hi Garth,

What are the risks of investing in perferred shares? especially when rates are expected to rise? Are there any?

#276 landlessinvan on 02.27.11 at 5:27 pm

Patz#33. I lived in Promontory at UBC from the very beginning; bought a unit pre-construction and lived there for 5 years. The 41% of mother and child residents that live in the building are wealthy–by Canadian standards, and by Chinese standards. The husband is in China making the money, bankrolling his child’s education. Your comment that he ‘cannot afford to live in Vancouver’ is wrong. He doesn’t want to live in Vancouver because he makes his money in China, often directing the manufacture of the goods that we buy here in Canada. The reason he cannot transfer his moneymaking ability to Canada is because he only has to pay what we would consider slave wages over in China, and he doesn’t have to manufacture to strict environmental standards such as exist in Canada. The last laugh will be on Canada with the Chinese, because notice that the wealthy Chinese sons are here in Vancouver getting educated by our school system, learning to work in our environment, so that next generation they can be the big shots. By the way, all these Chinese owners are driving BMWs and Mercedes. We have one second generation Chinese owner who has the top floor penthouse. He put $3.5 million into a renovation a couple weeks after the building was completed. The rest of us had to live through 9 months of renovation nightmare, as the sprinkler system failed on his floor (20), sending water all the way down the envelope of the building. Since then, I’ve wondered just how sound the building will be 10 years from now.

We had one Chinese family whose son insisted on vandalizing the underground parkade. Fortunately, he was caught on camera and made to reimburse the strata. And yes, he drives a BMW.

In some cases, there is a Chinese student living by himself in a condo purchased by his parents. And yes, these students usually end up with BMWs.

The remaining Chinese who live there are wealthy, too. The land being considered for the hospice was always slated for development of some kind. A hospice is about the most benign development you could imagine on that spot of land, next to a stand of protected forest. UBC Property Trust had dead ears when people complained about the tall student towers to be constructed within view of Wreck Beach. Likewise, deaf ears when people complained that all the forest and open space west of 16th Ave. should not be sacrificed for yet another luxury neighborhood on former valuable open space. We all hold our breath every year, praying the UBC Properties Trust (made up of real estate developers, by the way) does not sell the UBC farm out from under the very soil it sits on.

So, most likely, this complaint (of a hospice being bad luck for the Chinese) will fall on deaf ears, despite any findings of Jim Taylor, who lives in the neighborhood, by the way.

#277 betamax on 02.27.11 at 5:29 pm

#249 Kitchener1: “The number 1 problem that i see happening in respect to boomers and demographics is late retirement. This is HUGE. Boomers will not retire at 65, they will continue to work”

Anecdotally, I’m already seeing this…people working past 65. The much-ballyhooed wave of boomer retirements will be slow cresting, and younger people hoping to cash in on demographics will be waiting much longer than they expect.

Also, when the still-cash-poor boomers do finally retire, their much-reduced spending doesn’t bode well for our consumer-based economy. Some of those jobs they retire from won’t need to be filled afterward, again frustrating those who come after.

#278 Timing is Everything on 02.27.11 at 5:52 pm

You guys are pathetic. — Garth

By your own words, so is this blog. It figures. ;)

This blog does not deal in fantasy. The gold-standard-wingnuts are pure fiction. Pathos is relative. — Garth

#279 Cookie Monster on 02.27.11 at 6:18 pm

Moneta, I wasn’t advocating a return to a barter system, i was just pointing out that only a minimum amount of money is necessary in a market to facilitate trade, beyond which further increases in money supply only serve to increase prices for a given level of product or production.

Utopia and Garth, people who advocate a return to a gold standard are not implying that people should walk around with gold metal in their pockets and a hammer and chisel to cut out payments. We would still use money substitutes like pennies, nickles, dimes, quarters and paper dollars, just like chips in a casino, but instead of being redeemable for nothing the money would be redeemable as a fixed ratio weighting of gold.

A gold standard was used to facilitate balance of trade between nations whereby each month gold was moved around inside a vault where various piles within the vault belonged to different countries. The day-to-day accounting was done in dollars and then converted to gold weightings at the end of each month such that the strong men in the vault would only have to shift gold between the different piles. No shipping was required unless or until a country decided to transport a portion of their holdings back to their own country.

#280 Timing is Everything on 02.27.11 at 6:19 pm

#278 Timing is Everything

We all have our ‘crosses to bear’. (Can I still say that?)

Anyway, I agree…They are pathetic.

BTW, so is your blog…but in a good way.

#281 Morry on 02.27.11 at 6:27 pm

I find it bizarre that most people immediately blow their refund, as if they were given a free gift of unearned money that they should hedonistically squander.

Really? i put 20k into TFSA rather than spend it on my vacation which we take every five years. BUT i do go on vacation on my RRSP refund. makes sense to me… you can’t postpone living …

#282 Kitchener1 on 02.27.11 at 6:48 pm

.#263 .9999 Silver on

Your thesis is incorrect. GDP might be at 3% but that has nothing what so ever to do with interest rates in the least.

Back in 2001-2002 we did not have 7-8% GDP yet thats were the rates were.

Inflation is the worry right now. Im seeing some pretty hefty inflation increases in my week to week shoping trips. Stuff that used to be $1.00 now 1.30, stuff that was $3.00 now $3.40 etc.. across the board. Most of it is just cents but in realtion to the item its 10-30% inflation. Or im seeing reduction in product sizes of 10% and the same price–defacto 10% inflation.

I dont know were the BoC is getting there 2% inflation rate from. Just annual increases in property tax/car-home insurance/heat/hydro/nat gas/fuel/water rates etc.. are running at an easy 5-8% combined. Not even factoring in any product- just the basics.

Im also starting to see something a little odd, people are all using coupons and not stacking up as much as in the past onsale items. I dont know if its a function of less disposable money or what.

Even at these inflation rates, the manufacture is still eating a lot of the input costs, profit margins must be getting squeezed large.

#283 brainsail on 02.27.11 at 6:56 pm

#217 Moneta

“Of course there were 15,000 women in line…”

So funny. I have lived in the US for the past 26 years and the worst comment I have ever heard from an American about Canadians is that “They sure love to stand in line-ups!”

#284 InvestorsFriend (Shawn Allen) on 02.27.11 at 7:18 pm

Tax Free Savings Account is good. Max it out if you can.

RRSP is also good. Even if marginal tax rates rise the decades of tax deferral will still be of advantage.

If marginal tax rates rise on average, that does not mean that YOUR particular marinal tax rate will be higher in retirement than when you contributed the RRSP.

My simple financial strategy has always been to maximise RRPS (limited room there because I contribute to a pension). Maximise RESPp and lately maximise TFSA.

This is not easy. Even with an excelent income it is far from easy to come up with $5000 for RESP (two kids) $10,000 for TFSA and another $3000 or so for our RRSPs.

Anyhow this simple approach has added up to an average of nearly $10,000 per year contributed over 21 years and that money has tripled. So under any foreseeable tax rate on RSP withdrwals I will do okay on my RRSP investments.

#285 Roial1 on 02.27.11 at 7:29 pm

#178 cool on 02.26.11 at 9:55 pm

And how can you cook the vegetarians? You meant cooking real people???????

Well ya! You get one realy big pot—–over one hot fire——

#286 daystar on 02.27.11 at 7:32 pm

Wow, had TSFA’s all wrong. For some reason, I didn’t think they were all that flexible with equity trades. Wouldn’t have even had it on my radar if it wasn’t for this well managed blog. Thing is, I’ve been thinking about ways to help other people in my life who are going to need the money and equities in a TSFA offers the best chance of growth potential for them. I would have to come up with the seed money for them and help them run their account, but thats fine by me!

Thanks again Garth :D

#287 InvestorsFriend (Shawn Allen) on 02.27.11 at 7:37 pm

It’s interesting to see how it works on this blog.

I post that under the ASSUMPTION of marginal tax rate equal at withdrwal to the level when the RRSP contribution was made then the investment performance of an RRSP is EXACTLY equal to that of a TFSA. (The RRSP pays tax but it had more money in it since the government contributed a portion trough the tax refund).

After posting that, people state I am wrong for suggesting that RRSP is better than TFSA and I am wrong for claiming that marginal tax rates will not rise.

I made neither claim.

If you only have $6000 to investand you are in a 40% tax rate. Then with the refund you can put $10,000 in an RRSP or only $6000 in a TFSA. (assuming the room exists)

Years later you have $100,000 in the RRSP and as you take it out you pay say $40,000 tax assuming the same 40% marginal tax rate. You are left with $60,000, which lo and behold is your original $6000 grown tax free to $60,000 under this asumption of same marginal tax rate. (And remember most of you will earn less in retirement, far less, than in your peak earning years)

The TFSA has $60,000 and no tax implications… They are duh, equal…

Which is better is going to depend on your particular tax situation. In SOME cases the RRSP will be better. In others the TFSA.

Ideally you max out both…

The only thing worse than having to pay a lot of taxes is not having to pay a lot of taxes. I hope to pay a huge tax bill every year for the rest of my life.

Not to say I won’t practice tax minimisation, put my big financial priority is income and wealth maximistation.

#288 bridgepigeon on 02.27.11 at 7:44 pm

262 midlife
What do you want to study in Okan or NZ ?

#289 jess on 02.27.11 at 7:48 pm

The fastest growing sector in China is the security sector in the financial industry. In 2008, it was $172,123, compare to $42,582 in 2003. Average salary in this sub category is increasing at a rate of 32.23% per year. Adjusted for PPP, $172,123 in China commands the equivalent purchasing power of $688,492 in the US.
http://henryckliu.com/page239.html

#290 Angela on 02.27.11 at 7:59 pm

@ #198 Toon Town Boomer:

Stop thinking of a TFSA as a “product” that a bank sells you, each bank competing with their rates, and instead think of it like a basket that you put the products in. A “product” can be anything from cash, a 1.25% GIC, stocks, ETF, mutual funds, etc. Do some more research.

Also anyone that is trying to lock your money in so you can’t access it is trying to screw you. Don’t pick an account based on whether it’s “locked in” or not. An RRSP is locked in, per se, but a TFSA is not. The whole idea of it is that you can withdraw the money at any time without penalty and without tax consequences. If a bank tells you that you can only get 1.25% return on TFSA they are telling you that you can only hold cash in that account. Walk away and find somewhere else.

According to the CRA website re the types of investments that can be held in a TFSA: “Generally, the types of investments that will be permitted in a TFSA are the same as those permitted in a registered retirement savings plan (RRSP). This would include cash, mutual funds, securities listed on a designated stock exchange, guaranteed investment certificates (GICs), bonds, and certain shares of small business corporations.”

I’m not sure if I’ve been very concise, but hope that helps a bit.

#291 Debt's Dark Embrace on 02.27.11 at 8:15 pm

Question for Garth:

Suppose I want to withdraw $5,000.00 worth of “equity X” from my rrif and move it to my tfsa . Can I just slide the shares over to the tfsa and pay the applicable tax in cash OR do I have to sell the shares first, pay the tax, then buy the shares back and put in in the tfsa? I really don’t want to sell something that is paying 8.6%………

No need to convert to cash. — Garth

#292 Jeff Smith on 02.27.11 at 8:17 pm

>#74 Alister on 02.26.11 at 10:07 am
> #54 TKID
> You forget the Feds own the printing press. They will
>print your fat OAS and CPP and hand it to you.
> You will probably be broke and the money will be
>worthless, but you will get it.

That’s why every individual must prepare your own retirement plans, by the time we retire, the amount of CCP can probably only get some eggs and a bag of milk, maybe add a box of cereal to that. The rest of the expense must be funded by you, yourself. Otherwise plan on working on your retirement years, that’s probably what I will have to do, cause heck, I didn’t really have enough saved up in RRSP. Besides Nortel and Stelco took some of that savings from my RRSP. I know it’s disaster, but heck, better get ready to still be working at 65, Walwart here I come. Maybe Walwart would be gone from the environment by that time, remember the Eatons? and Stelco? Corporations doesn’t seem to have an immortal life either.

#293 Jeff Smith on 02.27.11 at 8:30 pm

>#43 nonplused on 02.26.11 at 1:40 am

> On the inflation note, check out the MIT “Billion
>Prices” project. They are no where near a billion, but might be in the millions. The idea is to monitor
>inflation by looking at online pricing by scraping the internet retailers. As expected, the Bernanke is lying to
>us, and technology is sweeping his lies aside. Inflation is now already out of control. Happy motoring
>as you fill up this weekend. Check it out before the >government shuts it down, that is.

I thought most of the economists are screaming deflation! But you are right, I see inflation at the pump and at the grocery checkout! Ouch!

#294 April on 02.27.11 at 8:36 pm

Westcoaster – #246
Garth, doesn’t believe there’s enough wealthy Chinese immigrants to hold up our Canadian real estate , not even in Vancouver. He’s not the only person in the know who believes Van home values will drop at least 25% to 40% starting this yr.

#295 .9999 Silver on 02.27.11 at 8:38 pm

#268 david

Remember I said rant. She’s no different than karl marx, who was a member of the very class he was against.
Tax’s properly used for schools, hospitals, invalid’s etc are fine. corporations are not people and should not be bailed out with public subsidies in a true capitalist/freemarket system. I also believe unions and business should be banned from affecting and funding government decisions and elections. They are not and do not represent living people.
I read this blog because the pictures are killer and diverse opinions are, and appear to be welcome here. for the humor in the comments blog, and because of it’s relatively interesting dialog going on here on a daily base’s. (top 5 reads)
Ann rand rant was more about people who claim that position and then look for public handouts to make their business viable. (tax breaks)
The useless entries are the “me firster’s”…christ whats with that.
hope i didn’t offend you David just not a big ann rand fan, everyone I’ve ever meet who quoted her was the first to look at a public handout to fund their development because their project or they were special.
I also read Garth because anyone who tangled with Harper and stood by their belief’s is first rate in my books and obviously has something valid to say.
But more importantly this is one of the best sites on Canadian real estate,…it’s delusions, and frauds (Artificial increases in property tax assessments based on fictional undocumented property value increase’s by third party representatives being one of them that affects me).
Rae

#296 john m on 02.27.11 at 8:40 pm

From the horses mouth how much Canada actually benefits from its oil..long time ago sold out by our politicians—–The rising oil prices “puts next to nothing in the federal treasury,” Finance Minister Jim Flaherty said on Friday, downplaying any gain from taxes on corporate profits and suggesting that the oil-rich province of Alberta stands to gain more from royalties.

“It’s not a significant revenue concern for Canada as I prepare the budge………….Hmmmm is that not curious..even in the oil rich “dictatorships” they knew enough to profit from their resources……very sad…..

#297 reality guy on 02.27.11 at 8:50 pm

#271
You said “While they may be well–to–do by our standards they are not rich. The husband brings his family to Canada and once settled he returns to Asia, because he can not make a living in Canada. ”
==================

People bring their family here and goes back to hk or china because they get tax to death in Canada and can’t get rich in this county.

But they like their family to reep the free education and health benefit of this country.

When the money runs out and everyone suffers because of our socialist system which allows these loopholes. Everyone pays.

Take a look south. Obamas health care which is a joke because the country is broke. Something has to give.

#298 buylow on 02.27.11 at 8:54 pm

so we opened a TSFA last year with BNS and the money is in a GIC because “it is a savings account” according to the BNS lady at the time.

Now I know better what it is. How do I get it moved over to my TDW account now so that I can invest it in something other than a GIC?

Do I just close the BNS account and open a new one at TDW (and transfer the cash over?)

#299 pigeon patties on 02.27.11 at 8:57 pm

178cool

I meant what are the recipees for vegetarians?
I didnt meant to cook vegetarians….

And how can you cook the vegetarians? You meant cooking real people???????

gosh…..think before you reply

========================

First you need a really big pan.
LOts of spices( they eat very poorly)

You might need two, they are usually pretty skinny too.

#300 jess on 02.27.11 at 9:14 pm

mab on 02.25.11 at 10:39 pm
Why Isn’t Wall Street in Jail?
http://www.rollingstone.com/politics/news/why-isnt-wall-street-in-jail-20110216

AMY GOODMAN: We turn now to Matt Taibbi. But before I do, let me read a sentence from a recent paper by Dean Baker, who concludes, “Most of the pension shortfall using the current methodology is attributable to the plunge in the stock market in the years 2007-2009. If pension funds had earned returns just equal to the interest rate on 30-year Treasury bonds in the three years since 2007, their assets would be more than $850 billion greater than they are today.”

And this—he quotes David Cay Johnston of tax.com: “The average Wisconsin pension is $24,500 a year, which is hardly lavish. But what is stunning is that 15% of the money contributed to the fund each year is going to Wall Street in fees,” which is why we now ask the question, “Why isn’t Wall Street in jail?”

http://www.democracynow.org/blog/2011/2/22/matt_taibbi_why_isnt_wall_street_in_jail

#301 dradak1 on 02.27.11 at 9:18 pm

Sorry Guys – looks out of topic but if you think a bit is not. Having the chance to live in most of them and visit the rest I was surprised by Here is the poll done by our weather man and woman:

Quick Poll: Out of these Canadian cities, which has recorded the most snow in one day?

Winnipeg, MB

32%
(22596 votes)
Toronto, ON

12%
(8577 votes)
Victoria, BC

18%
(12590 votes)
Montreal, QC

25%
(17788 votes)
Ottawa, ON

14%
(9907 votes)
The correct answer is Victoria, BC. 64.5 cm fell on December 29, 1996. Thank you for voting!
Recent Polls

#302 dradak1 on 02.27.11 at 9:31 pm

#3 Mojo on 02.25.11 at 11:14 pm

&

#5 i.am.1st on 02.25.11 at 11:20 pm

Guys you have to have competition – who is the biggest moron – please find adequate blog and spear most of us.

#303 Adventures in Sea-Tac with Moneta on 02.27.11 at 9:48 pm

I’m testing this new moniker. Comments?

DSMB

#304 Herb on 02.27.11 at 9:58 pm

#300 Jess,

do keep the antidotes to the TEA Party/Neandercon/CPC Kool-Aid coming.

#305 dradak1 on 02.27.11 at 10:00 pm

#82 Daisy Mae on 02.26.11 at 11:38 am

Every chester always have his spectators. :J

What damn language is that? — Garth

#306 Bigboy on 02.27.11 at 10:11 pm

Devore#256–CPP is never clawed back, it is OAS if your income is above $85,000+ on a graduated scale, at least get your facts straight before spouting off.