I owe Darcy an apology. “I just started reading your blog,” she says, “and am now awash in a sea of anxiety and depression. According to you, I not only have made nothing but bad financial choices my entire adult life, the steps I was thinking of taking to improve my lot are also wrong. I am in dire need of some good advice that won’t make me feel like such a loser.”
She’s 47 and supports an unemployed husband and seven-year-old child in Ottawa. This is here story:
“We moved here for my job after I escaped from the dead-end of adjunct academia. My husband is having trouble finding work as people with his skills (musician/music teacher/house painter) appear to be thick on the ground here. I have a public service position, 200K on a mortgage and 40K and sinking in an RRSP. We sold everything to afford a house in Ottawa – the mortgage takes about 1/3rd of my monthly salary. We have about 8K on a line of credit and almost no savings. If I got sick or lost my job we would be absolutely screwed. This fear frequently keeps me awake at night.
“I opened that RRSP with a money management firm who promised on average a 10-15% return per year over a 20 year period. They keep telling me it’s going to get better. This RRSP has been steadily losing for ten years and everything I read now – including your blog – tells me that mutual funds are for suckers. I’ve been too scared of losing what little we have to open a self-directed account.
“In our previous location, we had a rental property in a student area that gave us a little extra income and a marvelous bunch of tax deductions. I’ve been thinking about getting back in the rental property game but, again, everything I read says ‘don’t do it’. I went to Scotia Bank for a second opinion on my RRSP and got the sales pitch to move everything into their mutual funds. I’m trying to muster up the courage to do self-directed investing but I don’t feel I have enough time to do it properly.
“I feel doomed to walk the working poor treadmill to the end of my days with very little hope giving my child a good start and no hope of a comfortable retirement. I’d appreciate any encouragement and practical advice you can offer. – Darcy”
Well, the choices have been poor ones, but I guess you know that. Moving to a government job, presumably with a modest pension in 15 years, was smart. Buying a house wasn’t. Whatever money you and Ringo had was buried in that property, leaving you with debt, no cash and no sleep. As this blog’s probably told you, it’s not different in Ottawa. You’ll be lucky to get out with your original investment.
Sadly you swallowed the crap some mutual fund salesguy spewed. Anyone promising 10-15% returns over 20 years is a liar and a thief. All this time he’s collected his commission, while you have lost capital. As you realize, the promises now are vacuous, and the bank is no different. People who sell financial products, being human – with mortgages and children – too often put their own interests before yours.
So, Darcy, what to do?
Start by feeling proud of yourself, as your broad shoulders support an entire family. You have a purpose and a duty, both of which are fulfilled daily. Clearly you’re responsible, seized with the gravity of your situation and the need to find better ways to protect those you love. They are blessed to have you, and your spirit. Despair not. Anxiety and depression are for people who cannot cope. That’s not you.
So, craft a plan. Reject any notion of taking your last cash and buying some flophouse to rent out. It will bury you. Instead, you must exit real estate altogether, at least for a few years. The mortgage, property tax, insurance and utilities will likely end up eating half your take-home pay, leaving nothing for investing in the future or your child. While I don’t know what you paid, if it was average for Ottawa (about $370,000), then bailing out would not only erase the LOC and the mortgage, which will cost more upon renewal, it will put $170,000 or so back into your hands.
Properly invested in a balanced and diversified portfolio, that should give you an average return of 7% over the next decade (not 15%), which will double the amount. But don’t try this yourself, since you obviously have enough on your plate. Find a fee-based advisor who sells no products, refuses to collect commissions, whose cost is tax-deductible, who will manage risk and actively help you with tax strategies, like income-splitting with Elvis.
Obviously dump the fund guys. And open two TFSAs. Stuff them with $40,000 from the house proceeds and have the advisor do a tax-smart integrated plan between the existing RRSP, the tax-free accounts, the non-registered account containing the house money and your public service pension. Feel free to run it by me. You know where I am.
As for Bono, he also has responsibilities beyond riffing and vacuuming. Get his butt out there.
Be proud, Darcy. But change.