Bad advice

bad idea

Julie’s a lucky woman. BC government pension. Married to a federal civil servant, who’s cute and doesn’t cross-dress. Obedient 7-year-old kid. House in Victoria. Even a financial advisor. But she has a problem. Julie reads this blog.

“My husband doesn’t. Neither does our advisor,” she says. “It feels like we are investing the right way, but the benefits just aren’t there.”

No wonder. They are deprived. Let’s dive in.

“We have lived in our house for 4 ½ years in Victoria and have a mortgage we plan on paying off in around 10 years (around $250,000 left on the mortgage). Yes, we are paying about $300 biweekly more than we have to in order to pay it off sooner. We also have around $225,000 in RRSPs in mutual funds, $12,000 in investments for our son (not RESPs), and $20,000 in my TFSA.

“I have two questions.
1)      How do I convince my husband to stop paying so much into the mortgage and to invest the $300 biweekly instead? I remember reading an explanation in your blog a while ago about the benefits of investing the $$ instead of paying down the mortgage, but I can’t find it. Our investor provided his own numbers that convinced my husband we are doing the right thing.
2)      The TFSA. In reading your posts you suggest that bank preferred stocks are a good place to invest.  I went to our financial advisor, and he talked me out of investing in Scotiabank Preferred Shares and to go instead to Scotiabank Common Shares. You haven’t mentioned much about common shares that I can remember. I have about 2 weeks before the deal is final. Should I insist on the preferred shares?”

Assuming the house is worth what an average, bloated Victoria property is these days, that’s $485,000. So it sounds like this couple’s net worth is almost $500,000, of which about 46% is in their house. Using my Rule of 90 (ninety minus your age = share of net worth that should be in a house), they’re in good shape in terms of overall asset allocation.

But if they continue to accelerate mortgage payments, this favourable balance might well tip into higher-risk territory. How can that be?, the rabble cries in wonder. Isn’t it a no-brainer, godly-good thing to pay off the mortgage pronto? That’s what all the advisors say, at least the ones who don’t waste their time writing pathetic blogs.

Well, the more equity Julie & Hubs deposit in the house, the more dependent their financial futures become on one asset. If this were 1996, that’d be cool. But the world has changed and real estate’s in for a long-term slide that will surprise and disappoint a lot of people. The average detached home in Victoria lost 7.6% of its value in the past year, while sales have tumbled 21%. There’s every reason to believe the losses in 2013 could be greater.

This raises a simple question: why would you shovel more and more money into an asset that is depreciating, when you don’t have to? What’s the goal?

The rabble roars back, “to pay off the non-deductible debt, you friggin’ idiot.” Then we need to look at the wisdom of doing so. As I mentioned here yesterday, mortgage money is still available for less than 3%, even on a fixed-term basis. That means if you lock up a mortgage at below the inflation rate over the next five years, it’s essentially free money.

More importantly, why would you pay off a home loan at 3% or less when you can invest your funds in liquid assets and make three times as much? That was certainly the experience in 2012, with a moderately conservative, balanced portfolio (60% global equity index and 40% Canadian bond index) yielding 9.25%. Of course just riding the S&P 500 would have given a 14% payback, but smart people fight risk with balance and diversity. In fact, a balanced portfolio over the last three years has averaged about 8%. And over the last nine (including the crash), close to 7%.

Let’s recap. Real estate is likely to lose value. So it’s a lousy place to park net worth. You can borrow almost-free funds to finance a house.  And money’s been growing three times faster in liquid assets. You’re right, Julie. Husband and advisor fail.

Speaking of the money guy, ask him to check out charts of BNS preferred and common stock. While the equity bounces around, the preferreds are a model of stability. They churn out a dividend of almost 5%, are completely liquid, with dividends that must be paid before the common stock and will never change regardless of whether or not bank profits are dunked by a housing crunch. Why would you choose volatility?

Finally, while I am dissecting you: two civil servants with defined-benefit, to-die-for pensions should not have RRSPs. You’ll end up giving half of the money back, and all the while be unable to claim the dividend tax credit or enjoy lowly-taxed capital gains. Stop it. Take the mortgage money and stuff it into fully-funded TFSAs and a joint non-reg account.

As for the kid, why no RESP? The feds will give you $500 a year just for signing a few papers. The money can grow tax free, and if your boy ends up disappointing you by becoming a billionaire rock star in high school, you can roll most of the money over into your RRSP.

It’s make-over time, Julie. Fix the husband, dump the dud.

161 comments ↓

#1 Mike on 02.13.13 at 10:22 pm

Surfer babes are hot !!!
Well, most of the time … :)

#2 T.O. Bubble Boy on 02.13.13 at 10:29 pm

2 points that were missed:

– RRSP is all in Mutual Funds??? (that advisor must be making sweet commissions on those)
– Preferred Shares in a TFSA wastes the Dividend Tax Credit… dividends in a TFSA aren’t the worst thing, but make the most sense in a non-registered account

#3 Dave on 02.13.13 at 10:32 pm

Actually….. Julie if you want truly excellent financial advice you should research and implement the Smith manoeuvre.

Your welcome.

No she should not. It doesn’t work. — Garth

#4 dosouth on 02.13.13 at 10:35 pm

Just could not pass on this property. Check the price drop– it’s awesome. More to come….I’m sure

Assessed 2013 – http://tinyurl.com/ct77cxo – $847,000

Nanaimo spring 2012 – http://tinyurl.com/c5rpdfq

Fall 2012 – http://tinyurl.com/bqqpdg6

Just relisted today – New hot-sheet from my realtor $689,900 (mls – 350947)

The times they are a changing…

#5 Chickenlittle on 02.13.13 at 10:35 pm

It’s Beach Girl!!

You did say you had some work done, but I didn’t realize it was in the form of tattoos…

#6 Nerfboy on 02.13.13 at 10:35 pm

If Scotia pays 5% “guaranteed”, why don’t they just buy their own preferreds instead of loaning the money out at 3%?

I can now retire. I have heard it all. — Garth

#7 Texas boy on 02.13.13 at 10:40 pm

Why is it that some folks cannot heed simple advice… People are nuts! Invest, diversify and don’t go house crazy… How hard is that?

#8 None on 02.13.13 at 10:40 pm

Past performance is not indicative of future returns.

There are good, bad, and terrible decisions. I would rate buying a house in Victoria now as terrible but putting extra cash on the house… I wouldn’t even consider it that bad.

Assuming their TFSA’s are maxed out they would need to get around 5% in the market to just be equal with not paying off their mortgage. Sure, over the last three years they would have done better but if they could go back in time and do it all over again they should have leveraged money to all hell and back and put it in Apple (and sold 8 months ago) or the S&P.

Going forward accelerating mortgage payments and getting a guaranteed return on investment of around 4.5% is far from a bad decision. Perhaps not optimal in hindsight but certainly a much better than buying more real estate.

Sometimes hyper-optimizing just leads to confusion and playing in the noise.

#9 Lily joe on 02.13.13 at 10:41 pm

So resp would be better than rrsp? If you expect a government pension. Or would a cash investment account be better?
I should call you Garth!

#10 Frustrated Kiwi on 02.13.13 at 10:46 pm

Great post as usual Garth. I am very curious what sort of maths that dud adviser used to justify paying off the mortgage quickly. Using free money as an investment seems like a no brainer to me (given that this couple seems like they are actually disciplined enough to invest rather than spend the difference). Yet it’s so controversial – odd.

#11 Fed-up on 02.13.13 at 10:51 pm

Well at least they are in far better financial shape than most of the other working stiffs out there.

#12 Jordy on 02.13.13 at 10:53 pm

I bet the mutual funds are expensive mer, back loaded disasters that you are stuck with for years, hail to the commission salesman/financial advisors. Garth is right, dump him.

#13 Gogo on 02.13.13 at 10:56 pm

Garth, yes you should retire as a financial adviser. But damn you are a fantastic writer, very eloquent, subtly cynical… no retirement for you, at least not until real estate corrects 25%…

#14 ayn rand on 02.13.13 at 11:06 pm

With 2 indexed, defined benefit government pensions they should be living the life of Riley (who is Riley?, BTW).

I know several retired civil servants that are living a far better life in retirement than when they worked (and supported mortgages, kids/education, retirement savings). And they often consult in their early retirement years usually waiting for the other partner to retire as well; and double dip.

#15 Bottoms_Up on 02.13.13 at 11:08 pm

#131 45north on 02.13.13 at 2:16 pm
—————————————
Thanks for the youtube link you provided. Interesting that she discusses the high cost of housing relative to proximity to good schools, the fluctuation of family finances based on family type, the downloading of hospital and insurance costs onto families etc. Very useful and interesting stuff indeed.

#16 Min in Mission on 02.13.13 at 11:09 pm

It has always been easy for me to tell what I should do. I just look at what I have done, and, then realize that I should have done something else instead!

Hopefully I can get things right for the last few years.

#17 Richard and Zeus on 02.13.13 at 11:13 pm

DELETED

#18 Bardbarian on 02.13.13 at 11:16 pm

Apropos bank preferreds…

Any insights from the assembled blog-illuminati about choosing bank preferred stock? The risk seems to be in the bank redeeming them for the $25 face value. They vary in price, so I assume the timeline to redemption and the risk of redemption are priced in somehow. I think the risk must be small for them to sell at such a premium, but what prompts a bank to call them in?

e.g. TD.PR.E sells for 26.4, the bank can redeem April 2014, and it will pay $2.00 between now and then.

Anyway, just thought I’d ask. Not that the usual blog debates aren’t entertaining…

#19 Bottoms_Up on 02.13.13 at 11:17 pm

Julie, in convincing your husband on #1, all you have to ask him is “do you think you can beat 3%?”. That’s effectively the question that needs to be answered. If you and he don’t think you can invest your money and get greater than a 3% return per year, then you’re better off putting the money toward the mortgage. On #2, the preferreds will be more stable, but could drop a little in price if interest rates go up (they probably won’t for a couple years). Buy Garth’s book ‘Money Road’, he discusses many different investment options and you’ll learn a lot. A fun read that’s filled with great information.

#20 John on 02.13.13 at 11:21 pm

Hi Garth

What about the rules you mentioned that allow withdrawing money from spousal RSP after 3 years? Can we do it with regular RRSP or it has to be spousal? I currently have no RRSP at all and thinking about opening one to get some taxes back. Not sure which one I should choose. Probably the primary goal will be to use money from RRSP for down payment or to get my spouse to withdraw the money after 3 years. Both of us are in late twenties, no debt, no house, one kid + 35k in savings.

#21 Smoking Man on 02.13.13 at 11:31 pm

Good Advice…..

When in Daytona, I needed new flip flops..Go into to a gift shop right on A1A and Inter Nat Speedway….The owner is day trading. French Canadian Dude. We start talking strategy…He explains his, some book he read..Makes 5% a month. I told him if he gives me a discount on the 8 dollar flops, show him a better one.

3 hours later he’s sold on camel toe trading. took a buck off the flip flop fee. That was on thurs. On Monday I need moisturizer, He says hes up 10 percent using my system. I get a free tee shirt and mosisterizer….Damn I’m a cheap date

#22 Darklan on 02.13.13 at 11:34 pm

I had a condo ad in my snail mail box today as I was just about to throw it out I noticed that it advertises “We can provide an extra 13% to your down payment.” For condo development in Toronto.

Got me curious so went to their website where they explain:

“The Options Contribution (or 2nd Mortgage) is a loan to boost your down payment worth 13% or more of the purchase price of your Options suite. There are no payments due until you sell or rent out your suite. At that time, the loan appreciates by the same percentage as the resale value of the home and must be paid back in full.

The repaid loans then go to create new cost-effective homes for other home buyers.”

Prepackaged for speculators. Wow….and the pic conveniently don’t show you builder’s profit….and last sentence just screams ponzy.

http://optionsforhomes.ca/boost/

Where do I sign up!

#23 NOTHING SURPRISES on 02.13.13 at 11:35 pm

Julie

Do you and your husband donate some of the wealth you garner from taxpayers to the many folks that need it or is it always about us ???

They’re called ‘jobs.’ — Garth

#24 Ken R on 02.13.13 at 11:39 pm

#7Texas boy on 02.13.13 at 10:40 pm

“Why is it that some folks cannot heed simple advice… People are nuts! Invest, diversify and don’t go house crazy… How hard is that?”

Look around! I would say it is very hard not to go house crazy. People are insane.

As for Julie, dump the dud advisor. I have gone through three advisors, all looking after their own interests instead of mine. If they are commision based, best move on.

#25 Charlie on 02.13.13 at 11:40 pm

#6
“If Scotia pays 5% “guaranteed”, why don’t they just buy their own preferreds instead of loaning the money out at 3%”?

Well, think about it this way. If a bank is not lending money then it essentially has no revenues. No revenues no dividends, no matter the priority.

#26 Cici on 02.13.13 at 11:46 pm

Wow, I would so love to have Julie’s financial woes!

#27 AK on 02.13.13 at 11:46 pm

#6 Nerfboy on 02.13.13 at 10:35 pm

“If Scotia pays 5% “guaranteed”, why don’t they just buy their own preferreds instead of loaning the money out at 3%?”

LOL. Have you ever heard of Credit Cards?

#28 John Dominsas on 02.13.13 at 11:50 pm

It does not mean that they both have government defined pension plans that they can live it up too much. There are many risks that could happen over the next say decades. If one spouse dies the survivor will get at most 65% of the deceased spouse’s pension. This 35% loss is about the income taxes they would pay on the full pension amount.Also, lost C.P.P. and Old Age security pension benefits would kick in too depending on their ages at the time.

The RRSP would be taxed at almost 50% if no beneficiary is named on the RRSP/RRIF. The RRSP would go to the spouse as a beneficiary if good financial planning is done and the surviving spouse would have a much larger RRSP/RRIF balance and RRSP withdrawls would be taxed much more or minimum mandatory annual RRIF withdrawls would give a much higher annual income tax bill. It most likely would bump the surviving spouse into a much higher tax bracket on all the surviving spouse’s income by at least 10% to 15% more+ provincial surtaxes, heath taxes etc.

Also, lost personal amount and pension income splitting tax savings would be lost depending on the amount of their government defined benefit pensions if one spouse makes 25% or more than the other. The $20,000 TFSA would cease to be tax free after the death of the TFSA planholder and all future income would be taxable ranging from 29% to 48%.

The investments they are holding could also lose value precisely at the time a spouse dies and expenses could add up at the worse possible time when needed. The surviving spouse could be house rich but cash/investments poor paying off the mortgage but have little non-registered investments that are not fully taxable like RRSP’s,RRIF’s. This is where you need balance in your assets so income taxes will not take most of your income.This is just a few thoughts of possible risks but I’m sure there are more that I did think of. Think about it.

#29 John Dominsas on 02.13.13 at 11:54 pm

Correction John Dominsas post

I meant to say I’m sure that there are more that I did not think of.

#30 T5>myT4 on 02.13.13 at 11:54 pm

#6
“If Scotia pays 5% “guaranteed”, why don’t they just buy their own preferred’s instead of loaning the money out at 3%”?

Thats actually a great Question. The answer is Fractional reserve banking. If the bank has $3 They typically lend out about $100 because they do not need to maintain full reserves on all deposits, only “fractional”

Essentially this means banks can charge interest on money they do not actually have and hence make insane profits and can toss a 5% dividend out there like its gravy.

$3 deposit
$100 Loaned out at A CONSERVATIVE 3%
=100% return on investment.

#31 MarcFromOttawa on 02.13.13 at 11:58 pm

#6
If Scotia pays 5% “guaranteed”, why don’t they just buy their own preferreds instead of loaning the money out at 3%?

Banks have no reserve requirements according to the Bank Act of Canada (1991) and are leveraged over 30:1.

With double entry bookkeeping they can create credit and expand the money supply which leads to inflation.

#32 MarcFromOttawa on 02.14.13 at 12:01 am

Garth,

Do you believe the U.S. dollar will still be the reserve currency of the world for our lifetime?

Of course. — Garth

#33 Dave on 02.14.13 at 12:10 am

Garth, your comments about smith manoeuvre are disturbing. It certainly isn’t for everyone, but to say it does not work makes you look foolish to a reader that is intelligent and informed on personal finances.

SM is one of the single best wealth building strategies Canadian homeowners can implement…you just need to follow the simple rules, which granted I’m sure a lot of people would be unable to do. Must commit to the strategy for the long-term (this is probably the toughest rule for most people), hold relatively conservative and diversified asset mix and my recommendation is to capitalize the interest payments.

At any rate, you did offer Julie sound advice. If she follows your recommendation they’ll get along just fine.

#34 Freedom First on 02.14.13 at 12:15 am

Julie, your husband is a lucky man to have you on his side. Like Garth said, your RE $ ratio is bang on right now, following Garth’s formula for asset allocation/diversity/balance/liquidity, which is the holy grail of financial security. Dump the adviser. I know it is difficult in a world of financial fools to not follow the advice of the idiots right now to funnel all of your investment $ into paying off the mortgage, but follow Garth, he is right.

Garth, love that: “I can retire now. I have heard it all”.
It is beautiful, the wit you use to reply to the “stars” of the people who are unable to think, knowing how many
stupid comments you simply let slide by, as there are so many of them.

#35 Charlie on 02.14.13 at 12:17 am

Folks should not forget the fact that paying off a 3% mortgage is the equivalent of a 3.5% dividend before taxes on an investment. A 5% dividend after taxes is 4.25% (appox), so the variance is 0.75%, with zero volatility / risk if you’re paying off the debt.

However, I agree with Garth – go get the 7/8% in a balanced portfolio and forget the mortgage (unless you’re thinking about a GIC…).

#36 VanRant on 02.14.13 at 12:22 am

Scums: MAC Marketing Solutions admits to using employee in news story .
http://whispersfromtheedgeoftherainforest.blogspot.ca/

#37 Devore on 02.14.13 at 12:22 am

#30 T5>myT4

Thats actually a great Question. The answer is Fractional reserve banking.

Actually that is a stupid question, and the answer is “then they would be paying themselves, wastefully moving money from one pocket to the other”.

Corporations, including banks, do buy back their own equity, but for reasons other than “because it’s guaranteed”.

#38 InvestX on 02.14.13 at 12:28 am

“While the equity bounces around, the preferreds are a model of stability. They churn out a dividend of almost 5%, are completely liquid, with dividends that must be paid before the common stock and will never change regardless of whether or not bank profits are dunked by a housing crunch. Why would you choose volatility?”

Maybe they plan on holding for a long time period and also benefiting from rising a dividend that the common stock provides.

#39 Grim Reaper/Crypt Speculator on 02.14.13 at 12:40 am

Beach Girl ?

I think Datz da Smoking Man !

#40 Nerfboy on 02.14.13 at 12:46 am

#30

Thanks for replying. If they can create money out of “thin air”, then why doesn’t Scotia buy TD’s preferreds and vice versa? Earning 5% is more than their cost of capital, isn’t it?

I know that banks hold many different types of securites.

#41 Beach Girl on 02.14.13 at 1:09 am

OK, yes that woman is large, like in KFC. That chicken never left that bucket, but that is rude. Next picture should be an obese male. Could not be to hard to hunt that down.

I want an article from you, your holiness, why the banks and I do talk to my friends. They are trying to hunt us down on Credit Cards, we pay every month. This is actually new to us. What is the drift on this, worthless exercise? Seriously, I have never not paid a credit card late, and in full, it is like going to Tim Hortons, which is stupid if you are broke. I have shares there, LOL.

#42 Beach Girl on 02.14.13 at 1:17 am

DELETED

#43 squidly77 on 02.14.13 at 1:19 am

Careful REIC (real estate industrial complex).
People are watching you.
http://whispersfromtheedgeoftherainforest.blogspot.ca/2013/02/mac-marketing-solutions-admits-to-using.html

#44 Nostradamus Le Mad Vlad on 02.14.13 at 1:39 am

-
“Julie reads this blog. My husband doesn’t. Neither does our advisor. It feels like we are investing the right way, but the benefits just aren’t there.” — Which once again proves the theory re: Women are from Mars, Men are about as intelligent as worn-out door knobs.

“But if they continue to accelerate mortgage payments, this favourable balance might well tip into higher-risk territory. How can that be?” — By increasing the bank’s profits at one’s willingness to pay debts off faster, one loses the chance to put extra into TFSAs or non-registered plans with growth oriented companies. Unknowingly, one cuts off his nose to spite his face.
*
Humpty Dumpty – Libya “It’s right over there, inside your brand new shiny private central bank!” wrh.com; Food Stamp Population Larger than Spain; Inflation Weimar US Zimbabwe? Recession + Inflation? Idiots rule this nation “Specifically? We’re not spending enough.” and UK inflation Not much better; EZone and Wall St. Fixed – sterilized? Caribbean Selling citizenships; The EU and US NAFTA and CAFTA are Dinky toys compared to this; Indonesia Support for Iran; Platinum and Palladium Shortage? UK Going backward; Blloodbath on High St.; Japan Still shrinking; AA and US Airways merging; Fed’s Stein says banks could be hurt by bursting bond bubble, and Bond Bubble Expectations; Russia – China You scratch my back, etc.; Former GS Exec. “The most powerful force in the universe is compound interest.” — Albert Einstein; Mfg. won’t save America by itself; Balanced Budget? Chart says otherwise; France Cash controls on the horizon; Egypt and Venezuela Both are running short, or out of US$’s, so this may be a good time for Russia and China to introduce a new gold-backed currency; Doc. Won’t Get Fooled Again (at supermarkets).
*
Sea slugs were men’s ancestors; 2:09 clip Malaysian bbq; Crabtreeapples Bad names; Original Mugshots More than 150 years old; Burning to prove a point; Texas Wants out; Birth Date success or failure; The Schoolyard Bully (the west) “. . .is eventually destroyed by his own behavior”, and Monsanto, Agenda 21 (UN) and Sustainability The first two can be done away with; 0:55 clip Argentina — Not only is their currency a shambles, so is a glacier; Billary Running in 2016; Pentagon and Smartphones Scanning us everywhere we go; Oh Lord we beseech thee amen It all comes down to money; Homeschooling Works.

#45 An Cat Dubh on 02.14.13 at 1:53 am

I had relatives who sold their strata in Victoria at the peak and then bought a brand new one. They tried to sell last fall but only had a few lookers, but no offers. I didn’t tell them what to do, but suggested they read this blog and maybe rent as the market was in a bubble.

Here is a funny Hitler parady-especially where he tells the people who told him not to buy at the peak to leave the room. Saves me having to make a parody.

http://www.youtube.com/watch?v=rnzE3FGKkpM

#46 blobby on 02.14.13 at 2:35 am

So first sales drop off.. and then the rental market floods? WHY DIDNT ANYONE TELL ME THISD HAPPEN!?!?

I thought if no-one could afford property, there wouldnt be ENOUGH rental units…

http://www.cbc.ca/news/canada/british-columbia/story/2013/02/13/bc-vancouver-rental-incentives.html

(because i’m dim)

#47 Tom from Mississauga on 02.14.13 at 2:39 am

#6 Nerfboy on 02.13.13 at 10:35 pm

“If Scotia pays 5% “guaranteed”, why don’t they just buy their own preferreds instead of loaning the money out at 3%?”

Um, Nerfboy, why don’t YOU buy the preferred at 5% with money you borrow at 3%. Readers here been for 4 years now. It was better during the crisis, borrow at 2.25% and preferreds paid 6%.

#48 gokou3 on 02.14.13 at 2:54 am

Garth,

You should talk about this MAC marketing scam:

http://whispersfromtheedgeoftherainforest.blogspot.ca/2013/02/mac-marketing-solutions-admits-to-using.html

#49 Real-e-horny on 02.14.13 at 3:03 am

Julie,

Rates will rise eventually, so it does make sense to tackle the mortgage… No matter what Garth says!

#50 Mic D'angelo on 02.14.13 at 3:12 am

They both have government defined pension plans which one is B.C. and the other is federal. They should spend more money than the rest of us in retirement so both these governments can get back some of taxpayers dollars from income tax, H.S.T. or B.C. sales tax etc.

They can give help the Canadian economy and give something back for all the benefits they will receive in the future. If they move from B.C. ,it ill be out of luck but at least the Federal government should get his cut and the new province they move to.

I heard a proposal in the U.S. that state pensioners should pay income taxes to the state they worked in originally and not where they retired. This seems to be more fair as a New Yorker pensioner that moves to a lower income tax state or no income state tax like Florida, Nevada etc. which is receiving a New York state pension is putting stress on New York state’s finances and avoiding paying income taxes to New York state.

If you receive a state government pension you should at least pay the state or province in Canada’s case income taxes to the government that is paying you. This is the least you can do.

In the U.S. municipal bonds are state income tax free to the investor only if you buy the muni bond from the state you reside in. If you buy another state muni bond than it is state income taxable. Federal income tax free status does not change .

#51 Sockeyemoon on 02.14.13 at 3:26 am

Well, there may still be a few places that really are “different here.” One such place is Yellowknife where the average family income is about $92 000 and you can buy a double wide for 4 times income! http://bux10.biz/pdf_listings/dmPDF/105haenerdrive/105haenerdrive.pdf

It sounds crazy but this makes Yellowknife one of the more affordable places in Canada. Maybe its a boom / bust town but it’s seems to be going on a tear.

#52 Buy? Curious? on 02.14.13 at 4:31 am

I just saw some footage about the real estate correction, happening in Anywhere, North America. It’s about young couples that recently bought condos.

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

#53 Buy? Curious? on 02.14.13 at 4:37 am

Whoops! That was the wrong clip. My previous post had a clip of the Cruise ship Triumph drifting in the Gulf of Mexico. Silly me to confuse the two. One is vessel carrying 4500 frightened people, aimlessly in unknown territory and one is stationary vessel taking thousands of clueless, soon to be scared, down unknown territory.

#54 AACI Home-Dog on 02.14.13 at 5:19 am

Best post in recent recollection…thanks Garth !

#55 LS on 02.14.13 at 5:57 am

So your investments made you 7% on average over the last 9 years. Sorry that is pretty miserable. Sounds good compared to a 3% mortgage right now but you forget 2 things:
1. Mortgage rates were higher before.
2. Mortgage payments are made with after tax dollars so your effective return is higher.

Paying off your mortgage over the past 9 years would have yielded about 6% depending on your tax bracket. Or exactly the same as Garth’s investments minus the 1% admin fee that most normal people will be paying their fee-based advisor.
And that is 100% guaranteed and takes zero time to administer.

#56 meslippery on 02.14.13 at 6:03 am

tnl@tb The nice Lady at the bank.
tnbg@tb The nice Beach Girl at the blog.

#57 T.O. Bubble Boy on 02.14.13 at 7:07 am

@ #18 Bardbarian on 02.13.13 at 11:16 pm
Apropos bank preferreds…

Any insights from the assembled blog-illuminati about choosing bank preferred stock? The risk seems to be in the bank redeeming them for the $25 face value. They vary in price, so I assume the timeline to redemption and the risk of redemption are priced in somehow. I think the risk must be small for them to sell at such a premium, but what prompts a bank to call them in?

e.g. TD.PR.E sells for 26.4, the bank can redeem April 2014, and it will pay $2.00 between now and then.

Anyway, just thought I’d ask. Not that the usual blog debates aren’t entertaining…
———–

Yes, redemption @ $25 for Preferreds priced is one risk, but the bigger risk would be rising bond yields and interest rates, since Preferreds act like bonds (would go down in price as rates rise).

#58 buy hi on 02.14.13 at 7:27 am

“If Scotia pays 5% “guaranteed”, why don’t they just buy their own preferreds instead of loaning the money out at 3%”?

Well, think about it this way. If a bank is not lending money then it essentially has no revenues. No revenues no dividends, no matter the priority.

Actually his question makes sense – whether the bank lends its own money out to someone @ 3% for a mortgage or uses that same money to buy its own preferred at 5% return, the bank is using the same money (heck, the bank could even buy another banks preferred’s.) Like a stock buy back in a way but they get their capital back later on. It’s starting to make sense now, really.

#59 buy hi on 02.14.13 at 7:33 am

Thats actually a great Question. The answer is Fractional reserve banking. If the bank has $3 They typically lend out about $100 because they do not need to maintain full reserves on all deposits, only “fractional”

“Essentially this means banks can charge interest on money they do not actually have and hence make insane profits and can toss a 5% dividend out there like its gravy.

$3 deposit
$100 Loaned out at A CONSERVATIVE 3%
=100% return on investment.”

Then the bank can get a mortgage from itself, and invest the mortgage in its preferreds and make more than 100%! I wonder I i should take this idea to Dragon’s Den to Kevin??? Maybe this is my ticket to retirement!!!! What great ideas come to me at 3am!!

#60 COW MAN on 02.14.13 at 7:41 am

Amigos:

Garth always leaves out the tax implications. If one takes after tax dollars and compares them to before tax dollars the answer will always be wrong. Nice to talk about preferreds. You are buying them at a premium to issue price with after tax dollars. They can be called, even the prepetuals, by the issuers at the issue price. The loss to the investor will be a loss of after tax dollars; while the dividends are yet to be taxed. Right now preferreds are expensive. Buy them when they are below the issue price. When redeemed the investor gets a capital gain. Garth’s “keep it simple stupid” doesn’t tell the entire story.

All Julie’s money is registered. Read, then type. — Garth

#61 House on 02.14.13 at 8:04 am

I have heard that banks have changed the conditions on their perferreds since they have become one of the go-to vehicles for investment gurus.

Untrue. — Garth

#62 Steven Rowlandson on 02.14.13 at 8:11 am

Julie is part of an elite clique of workers who actually can afford canadian real estate due to their high pay and benefit package that makes private sector market pay rates look like slave labor. So pampered and privileged government people are. Two of them are my brothers and they think they are all right jack even when they are out to lunch. Being a big brother in the real world is not always an easy thing.
Julie ought to be gratefull for her situation and not take any foolish risks financially or politically that would endanger her position. All glory is fleeting.

#63 Ralph Cramdown on 02.14.13 at 8:12 am

I haven’t read one thing about Basel III and related OSFI rules. Investing in Canadian bank prefs without considering them will gain you an education you might not have been expecting.

N.B. Anytime anyone uses the term “fractional reserve banking” it’s best to ignore them forever.

#64 maxx on 02.14.13 at 8:21 am

#30 T5>myT4 on 02.13.13 at 11:54 pm

Brilliant explanation. Thanks.

#65 Beach Girl on 02.14.13 at 8:29 am

You never were this judgmental. What is up? New body guards? Getting stale, always being deleted. There was no profanity in my last post. I only inquired, what do you do up in space that long? Happy V-Day to you. Yes, I know Chris. He would laugh. This also will not get through. You used to maintain a vibrant site. With different personalities and opinions, what happened? Isn’t just me.

#66 jess on 02.14.13 at 8:51 am

36 VanRant
re: marketing solutions
the pamphlets

Pamphlets extolling the state’s virtues were published in German, Norwegian, Dutch, and English and were distributed throughout Europe as well as in eastern port cities. Advertisements were placed in more than nine hundred newspapers. By 1855, however, the rise of antiforeign sentiment, or nativism, led to the dissolution of the commission.
http://www.wisconsinhistory.org/turningpoints/tp-018/?action=more_essay

Chapter 1
British North America
1758–1866
In the colonies that would later form Canada, the vote was a privilege reserved for a limited segment of the population – mainly affluent men. Eligibility was based on property ownership: to be eligible, an individual had to own property or assets of a specified value or pay a certain amount in taxes or rent….
http://www.elections.ca/content.aspx?section=res&dir=his&document=chap1&lang=e

Marketing the Frontier
A misleading advertising campaign convinces thousands to head west

..”At the time, the CPR (Canadian Pacific Railway) was plastering the country with fascinating pictures of glorious wheat fields on the great prairies,” she wrote. “There was a fortune for everyone in three years not to mention glittering promises of practically free land. Hopes were high. So we, poor fools, fell into the trap.”
http://www.cbc.ca/history/EPISCONTENTSE1EP10CH3PA2LE.html

#67 Beach Girl on 02.14.13 at 8:53 am

Of course I am not Smokin Man. I like him and Herb, and Old Man. Also like Live within your Means, she is intelligent. People assume too much. Dasie Mae is cool too, my favs. Snowplowed the back 40 with no shoes on all uphill. Gotta love the Canada thing. No you are cool.

Love pumping Western Homo Man. Nothing wrong with being gay. I always go to the gay parade, I am not a Ford. And he is really rich, by the way. Or Mommy is. Puppetry in motion. You would think they are the Kennedys. Our version at least. Sad.

#68 Ralph Cramdown on 02.14.13 at 8:57 am

#62 Steven Rowlandson — Julie is part of an elite clique of workers who actually can afford canadian real estate

Yeah, I think of late people have been referring to them as “the 70%.”

#69 Steve on 02.14.13 at 9:02 am

#49 Real-e-horny on 02.14.13 at 3:03 am Julie,

Rates will rise eventually, so it does make sense to tackle the mortgage… No matter what Garth says!
___________________________________________

WRONG! If you were paying attention on a regular basis you would know that Garth has recommended investing that ‘extra’ mortgage pay-down money UNTIL RENEWAL. You can then liquidate your investment to pay down the principle when you renew. You earn more interest then you avoid paying, and you still avoid the imminent rate increases.

Julie, fire your advisor and hire Garth, or one of his disciples…

#70 Devil's Paralegal on 02.14.13 at 9:07 am

One clarification. “ninety minus your age = share of net worth that should be in a house”

That’s how you define the rule of 90 in this post. I understood it to be 90 – (your age) = share of net worth that should be in real estate.

It’s a good rule of thumb, I think, as far as letting people know that, no, you can not keep “climbing the property ladder” until you are 60, and be equally undiversified as you were at 30. But does it refer to only your principal residence, or real estate in general? Shouldn’t someone with a rental or two also consider the rule of 90?

#71 Luc on 02.14.13 at 9:09 am

”As for the kid, why no RESP? The feds will give you $500 a year just for signing a few papers. The money can grow tax free, and if your boy ends up disappointing you by becoming a billionaire rock star in high school, you can roll most of the money over into your RRSP.” – Garth

I thought you had to repay all the money given to you by the government with interest. But also that the parents could take the money to return to school.

What’s the penalty if my son becomes a high school drop-out and we roll it into an RRSP (of course this can be done only if my wife and I have room and earn income) ?

Repay the grant. Keep the principal. Roll the untaxed gains into allowable RSP room. — Garth

#72 blase on 02.14.13 at 9:12 am

I’ve been trying to get onto mls.ca and realtor.ca for the last 2 days but keep getting an error message. Anyone else encounter this problem?

#73 jess on 02.14.13 at 9:15 am

Barclays and KPMG developed and promoted STARS tax avoidance scheme to U.S. banks (13 Feb 2013)
http://www.bloomberg.com/news/2013-02-11/bny-mellon-barred-from-199-million-of-foreign-tax-credit.html
=======
laundry lists machine
Report: Russia Hemorrhages $211.5 bn+ in illicit outflows 1994-2011 via Cyprus “Laundry Machine”
http://taxjustice.blogspot.ca/2013/02/report-russia-hemorrhages-2115-bn-in.html
===========

From COMPANIES 10:56pm
US authorities widen SAC Capital probe
Ex-SAC analyst named 20 alleged insider traders

#74 Rob aka Captian and Mrs slow on 02.14.13 at 9:25 am

Got in earlier than usual, but great post Garth but if I can suggust that the book Millioniare Teacher, a must read for every novice investor, He says exactly what you say, skip MF and buy ETFs

BTW great column today

#75 Dwilly on 02.14.13 at 9:35 am

Garth, not sure if you actually read all these, but just wanted to say that I really enjoy this type of post.

Not to say that I don’t enjoy the blunt, harsh, semi-sarcastic, tone of other posts. Because I do. But you’ve made a couple posts recently that I personally thought were more constructive. Instead of a lot of “don’t”s and “this bad thing is about to happen”s, this post offers lots of constructive, helpful advice. For example, your “Rule of 90″ – I had never heard that before, and found it helpful. Keep the constructive, finance-related stuff coming – you have lots of good stuff to say and I think people need it.

Appreciated. — Garth

#76 Herb on 02.14.13 at 9:36 am

#41 Beach Girl,

if that is an actual product of your stream of consciousness, you have a problem, Sweets.

#77 albertaguy on 02.14.13 at 9:39 am

Calgary continues to defy gravity: did we sell to soon?

http://www.creb.com/public/seller-resources/statsDetails.php?type=sf

As I recall, your sale was agonizing. Are you not happier now? The market will exhaust. — Garth

#78 Beach Girl on 02.14.13 at 9:47 am

#70 Herb on 02.14.13 at 9:36 am

#41 Beach Girl,

if that is an actual product of your stream of consciousness, you have a problem, Sweets.

___

What are referring too, Sir Herb?

Note to Herb: Do not encourage this creature. — Garth

#79 LP on 02.14.13 at 10:05 am

#72blase on 02.14.13 at 9:12 am
I’ve been trying to get onto mls.ca and realtor.ca for the last 2 days but keep getting an error message. Anyone else encounter this problem?

Nope – just got off there.

#80 TurnerNation on 02.14.13 at 10:17 am

For the yield-hound blog dogs. Ie. PBN.TO is yielding highly but performing poorly.

“The Globe and Mail reports in its Thursday, Feb. 14, edition that it is possible to reap dividends and avoid paying taxes on them. The Globe’s David Milstead writes in the Vox column that several Alberta energy companies think they have found a way to perform this feat. Over the past couple of years, they have replaced their traditional dividend-reinvestment plans, or DRIPs, with what they call stock dividend programs (SDP). Dividends received in the form of shares do not count as income under Canada’s Tax Act. Instead, the dividend shares come with a cost basis of nearly zero, meaning shareholders only pay tax if and when they sell the shares. So, technically, the dividends are tax-deferred, rather than tax free. Husky Energy introduced an SDP to its shareholders in February, 2011; Bonavista Energy and Enerplus followed in May of last year. PetroBakken got shareholder approval for its plan in December. Expect more companies to follow, says AltaCorp Capital Energy managing director Dirk Lever. Alas, it seems the phenomenon may be limited to Alberta-domiciled dividend-payers, thanks to a quirk in the province’s Business Corporations Act.
© 2013 Canjex Publishing Ltd.”

#81 rosie "moving forward" on 02.14.13 at 10:33 am

#50 and others

Why do some people assume that one person’s pension, built up over 30 plus years, needs to have strings attached to it by envious, pitiful whiners. It’s his/her money. Mind your own business, moving forward.

#82 Bryan on 02.14.13 at 10:40 am

It’s Chinese New Year and the real estate pimps are telling us helicopters full of HAM are about to descend on Vancouver to buy up the real estate. But the MAC Marketing scandal has shown that much of this Chinese New Year pumping has been lies because it is employees of MAC Marketing who were featured on CTV News as prospective real estate buyers, just waiting for their rich parents from China to come over and buy them a condo for Chinese New Year.

Please cover this story, Garth. It’s important to expose the myth of HAM and the deceptive practices of the real estate industry and the media. Check out the MAC Marketing facebook page, they admit Amande Lee in the CTV story is one of their employees.

https://www.facebook.com/MacMarketingSolutions?ref=stream

Why should I cover a story that I wrote was a scam more than a year ago? This is simply the latest evidence of how HAM never existed as a pervasive market force in Vancouver. I said that back in the ‘yellow helicopter’ days. — Garth

#83 Kevin on 02.14.13 at 10:41 am

why would you shovel more and more money into an asset that is depreciating, when you don’t have to?

Because the rate of the asset’s depreciation is completely independent from the rate at which they’re paying down the debt obligation.

In other words, the house is going down in value, regardless of whether or not they make extra payments on it. The associated debt obligation is set in stone, and must be repaid in full, no matter what happens to the house’s value.

I’ve corrected you on this before, yet you keep insisting that paying down a debt secured by a depreciating asset is “throwing money away.” You keep inexplicably missing the point that the money has to be repaid anyway. The size of the debt was set at the time the loan was signed, and is completely independent of the house’s value.

That is, their net worth will be exactly the same, regardless of whether they direct their extra money at paying down their debt, or building their savings.

You have ‘corrected’ nothing. Securing cheap financing on a depreciating asset is like leasing a car with dealer incentive. Your money is far better invested in higher-yielding, liquid assets. If you still live there upon renweal, then pay off some of the financing if it makes you feel good or if rates have risen. The reality is most people move every six years or less, so this ‘paying off the mortgage’ thing is largely an agrarian myth, demonstrably useful only in retirement. — Garth

#84 Gunboat denier on 02.14.13 at 10:56 am

69 Steve – works great as long as your investments are
up at that exact time. And if they are there can be tax
implications. Just to repeat – your mortgage paydown is the equivalent in after-tax return – guaranteed.

#85 Small town Steve on 02.14.13 at 11:06 am

I love the blog Garth, thank you for all you are doing here. I am learning more here in the last two months than I have in the last 10 years. The 60-40 split liquid asset mix you recommend should be ingrained into everyone that is just starting to invest heavily.

#86 Justin on 02.14.13 at 11:18 am

Where would you recommend first time home buyers park their downpayment for the next 2-3 years while waiting for price melt?

What areas should be avoided? Eg. Are bank stocks still safe or will they get hit hard by a correction?

I’ve said repeatedly buying individual equities is a bad idea. And, no, banks will not be meaningfully impacted by a real estate correction. — Garth

#87 Daisy Mae on 02.14.13 at 11:29 am

#16Min in Mission: “It has always been easy for me to tell what I should do. I just look at what I have done, and, then realize that I should have done something else instead!”

*********************

That’s called ‘learning the hard way’….and, unfortunately, most of us do just that! LOL

#88 Kevin on 02.14.13 at 11:34 am

@buyhi:

” If the bank has $3 They typically lend out about $100″

How, praytell, does a bank lend out $100 if they only have $3? Where did that other $97 come from, and how can I work similar magic with my own money?

You do not understand how “fractional reserve banking” works. Banks do not create money out of thin air. Banks can only lend money that is already in their vaults.

#89 Ralph Cramdown on 02.14.13 at 11:36 am

The reality is most people move every six years or less [...]

Source? As much as the real estate industry would like this to be true, the numbers suggest otherwise. There were 9.4 million households in Canada in 2011, 70% owners and 30% renters, and CREA reported 453k MLS sales in 2012. Add about 200k new homes built.

#90 Devore on 02.14.13 at 11:40 am

#40 Nerfboy

Banks need to generate far more income than preferreds provide. They issue a series of preferred shares to raise capital, and that money needs to generate more than the dividend payout, obviously.

Also, preferreds are a drop in the bucket. The entire Royal Bank Series A has a market cap of around $300M. That’s nothing in the bank capital bucket. That’s a couple of West Van mortgages.

#91 X on 02.14.13 at 11:49 am

Think the HBP is here to stay? As Garth pointed out, most Home Buyers are not repaying their RRSP afterwards. Then getting the tax hit on it.

Scrapping the HBP may be a way to force people to save for retirement. Or moreso, it may force them not to blow their brains out on mortgage debt.

#92 TurnerNation on 02.14.13 at 11:51 am

Toronto bunghole-of-the-week.

13 foot wide semi! $564,000.

http://www.realtor.ca/propertyDetails.aspx?propertyId=12831277&PidKey=-816620270

#93 TurnerNation on 02.14.13 at 11:54 am

Could apply to today’s post. Those who can…

Quote:
“I am so tired of Republicans in government, making a fortune from their government jobs tell minimum wage workers the government can’t and shouldn’t be doing anything for them, telling them that government should be put on the back burner and the private sector should be allowed to take care of their every need. If this is their belief, why didn’t they stay in the Private sector? I’ll tell you why, because their objective is to go into government, denounce government while there in favor of the private sector, and then go through the revolving door into that private sector having completed their mission. When will the people in this nation, and now more and more in the world wake up to the fact that politicians are no longer public servants, they are more and more covert servants of the private sector. “

#94 NOTHING SURPRISES on 02.14.13 at 12:21 pm

Julie – from #23

Do you and your husband donate some of the wealth you garner from taxpayers to the many folks that need it or is it always about us ???

They’re called ‘jobs.’ — Garth

One perceives sensitivity Garth.
Would “jobs” apply to the honourable members of the Canadian Senate?

Cops, teachers, soldiers, nurses, paramedics, doctors, coast guard, border guards, fire fighters and many more, without whom your life would be dark and dangerous. Grow up. — Garth

#95 Beach Girl on 02.14.13 at 12:30 pm

I am demoted to a creature.

Interest can’t go up. When every bank in the world is trying to buy your debt. Garth the Guru, illuminate us on that one. Of course, I respect you. You did not get to were you are, on good looks alone.

#96 Suede on 02.14.13 at 12:38 pm

#36

Great link. The people at MAC Marketing did a great job at selling this fabricated story, but are now outed as ethical ingrates as it backfired on them. This card has been played many times before – it’s now been used one too many times.

#97 waiting on 02.14.13 at 12:40 pm

I went to the bank yesterday after another call from them (I have some money set aside for a business and they really want me to tie it up in something) but they called offering 2.5% on new TFSA deposits. I knew it was too good to be true but was in the area and dropped by. (the rate was good only until April 30th and then drops.) After some initial discussion with the young woman who called, a more seasoned verteran joined us almost immediately. She quickly realized I wasn’t biting on anything and talk turned to the fact that Canadian personal debt was so high and with interest rates so low etc. it was easy for young people to get into trouble. I mentionned the new debt loads brought on by car loans and how crazy an 8 year car loan was. The young woman suddenly spoke up and said “I know – I just got one – I didn’t realize it was 8 years until I got home – I can’t believe it, it affects my insurance premiums and everything and I’m locked into it – I called them but they said “you signed the loan”. ” I looked at her superior who was glaring at her to no effect and thought “and these are the people trying to advise me on financial decisions?”

#98 PLEASE!!!!!!! on 02.14.13 at 1:03 pm

Please stop calling them ” Civil Servants”. This gives the wrong impression that they are working for servitude wages.
Servants work very hard for low wages, completely opposite to what these “jobs” pay.
“Civil” as well is stretching it!

#99 NOTHING SURPRISES on 02.14.13 at 1:24 pm

Cops, teachers, soldiers, nurses, paramedics, doctors, coast guard, border guards, fire fighters and many more, without whom your life would be dark and dangerous. Grow up. — Garth

I did grow up…. with a war widowed mother on a pension requiring bottles to be cashed at the end of the month to purchase food.

Was wearing a military uniform at 17. Almost died at 18 for the first time. Put myself through engineering at university.
Have a son and daughter-in-law as teachers. Brother-in-law and sister-in-law who are teachers.
My wife is a nurse.
Sister-in-law a nurse – retired.
Brother-in-law a retired security supervisor for OPG.

Raised two sons, founded 3 companies, retired now – no gold plated pension after a life of hard work.

Support a young fellow in Zambia and support the Sally Ann etc.

Who in the hell are you to tell me to grow up!!

Then you should know better. — Garth

#100 Steve on 02.14.13 at 1:25 pm

#84 Gunboat denier on 02.14.13 at 10:56 am 69 Steve – works great as long as your investments are
up at that exact time. And if they are there can be tax
implications. Just to repeat – your mortgage paydown is the equivalent in after-tax return – guaranteed.
____________________________________________

Yes, there CAN be tax implications. The amounts mentioned in today’s blog entry could be channeled into TFSA, or to dividend returning investments. All investments could be of a liquid type, meaning there is no date to ‘be up’. Done right, this should give you several percentage advantage.

The point is that, properly executed, one will be further ahead following Garth’s proposed approach of investing now and paying down at the end of the mortgage term, than if they just paid the mortgage down at an accelerated rate each payment period.

#101 Mister Obvious on 02.14.13 at 1:25 pm

Most people would love a chance to get the ‘parasitic’ banks off their back. But how many would go that one step further and have themselves become parasitic upon the banks?

If you can prosper by investing ‘bank money’ at an average rate significantly higher than they receive you have accomplished exactly that.

Congratulations! You’ve become ‘parasitic’ to the banking establishment. And there’s exactly squat they can do about it until the next renegotiation of terms. Then you can re-examine your options.

Who would not love to be in this position if they could? How many times per century does such an opportunity arise, even for a small subset of us?

Just as it seems counterintuitive to reject mom’s advice by “throwing away your money on rent” its hard to convince anyone that an accelerated mortgage payout could be anything but the smartest possible move in all circumstances.

#102 AK on 02.14.13 at 1:33 pm

#98 Viewpoint on 02.14.13 at 12:41 pm

“Anyone have a look at the European numbers today? Any investment advisor telling you that things are getting better is stupid, willfully blind or plain lying. Return of capital will be more important than return on capital. Deficit spending and corporate efficiency have driven corporate profits. If the US government really gets aggressive with cutting spending, they go into recession. That is where the numbers point. If you are in stocks, make sure you can get out in a hurry. It will not take much of a shock to send people to the exits.”

It’s all noise, Dude. The Market has it all priced in. The US is not going into a recession anytime soon. A number of companies are trading at chep valuations.

http://www.cnbc.com/id/100442835?__source=yahoo%7Crelated%7Cstory%7Ctext%7C&par=yahoo

#103 COW MAN on 02.14.13 at 1:34 pm

Garth Said: “All of Julies’ money is in registered accounts. Read then type.”

So Garth, in your wisdom capital loses inside registered accounts aren’t loses? If you buy preferreds above the issue price you position yourself for a capital loss either inside a registered account or a in non registered account.

You’d have to work hard to experiences loss. Good luck. — Garth

#104 Dr. Hoof Hearted on 02.14.13 at 1:42 pm

Re Civil Service:

Back in the old days….there was a trade off. People took Gov’t jobs because it was a secure career, but the trade-off was lower pay(or conversely the private sector paid more but less job security).

However, the private sector is less stable, more of a frontier now . The Public sector , however, has long ago exceed to wages and benefits the private sector once provided.

I considere the Pubic Sector as a simply a service provider…nothing more nothing less. There is nothing the Gov’t does that the private sector cannot do and more efficiently.

What we have allowed to happen is lets these Public Servants be our Masters. This gap is widening. We are seeing all sorts of examples globally it is unsustainable.

This perverted sense of entitlement and that belief in the bottomless taxpayer pockets needs to be seriously adjusted.

I have not seen any value from this shift..in fact quite the opposite. As one party once mentioned, you could cut the civil service in half and not even notice it.

#105 street on 02.14.13 at 1:44 pm

Why on earth would you buy BNS preferreds that yield 5% when you can buy the common shares that yield 4%, but the divident grows at 10%? Does anyone remember the last time a Canadian bank cut its common share dividend?

#106 Justin on 02.14.13 at 1:49 pm

I’ve said repeatedly buying individual equities is a bad idea. And, no, banks will not be meaningfully impacted by a real estate correction. — Garth
*********************************************

I appreciate the response. I failed at asking a clear question…along with many other things today.

What I meant was, how does saving for a downpayment on a house with a 2-3 year timespan differ than saving for retirement? How much more conservative should one be? What asset classes or equity sectors should be targeted or avoided?

Eg. Those in the US in a similar situation in 2005 who believed housing prices would decrease would have done well with their DP sitting in cash rather than equities.

#107 Smoking Man on 02.14.13 at 1:49 pm

War on with insurance companies, got a bunch of kids to start a face book revolt…….

That’s what happens when I get board…….

Niece in Florida pays 60 bucks a month brand new altima. In the land of 90 year old blind drivers who don’t know dif between gas and break peddle.

Kids your getting hosed everywhere by your corrupt and thieving provincia , govt…

Thank god for them school has made you truly stupid…

#108 Canoe on 02.14.13 at 1:57 pm

The $500 Canada Learning bond only applies for those whose income is below $36,378.

#109 Puzzled Redneck on 02.14.13 at 2:24 pm

I finally found a local advisor who has agreed to put together a financial plan for me for a very reasonable fee. During the interview he spoke of diversification, tax efficiency, RESP matching, the advantages of TFSAs over RSPs, why ETFs are better than MFs, preferred shares, and the importance of rebalancing annually. This all sounds very promising to me.

However, he doesn’t actually execute the plan. As far as investment, he says he will give me advice on brokerages and even recommend specific ETFs to buy, but the actual buying I will have to do myself.

My question for you and your readers, Garth: is that still “DIY” investing? OK, question number two: is that weird?

Why would he/she not execute the plan? Rebalance? Tax harvesting? — Garth

#110 Dwilly on 02.14.13 at 2:32 pm

@#83 Kevin,

I hate to point out that I think you’re missing something dude. It’s called time. What you are saying is correct & true if one looks only at an instantaneous snapshot around the transaction, and not the return on those assets over time.

Example: I have a home valued at 300k this year, a 100k mortgage, and 100k in invested assets. I have 10k this year that I need to decide what to do with.
Case 1: I pay down my mortgage by 10k. Now, next year I own a 300k home, a 90k mortgage, and 100k in assets. My net worth is $310k.
Case 2: I invest the 10k. Now, next year I have a 300k home, a 100k mortgage, and 110k in investments. My net worth is $310k.

Since these are the same, you are right, right? Nope.

The year after, my house loses 10% of its value, while my investment portfolio gains 10%.

In Case 1, I will now have a home worth $270k, and investments worth $110k, and my same 90k remaining mortgage. My net worth is $290k.
In Case 2, I will now have a home worth $270k, investments worth $121k, and a $100k mortgage. My net worth is now $291k.

Notice it’s $1k higher in Case 2? This is why you’re wrong. Repeat that for 5 years and the difference will grow bigger. This is because in Case 2, you have more of your net worth invested in an asset that is returning a higher rate than you do in the depreciating asset. Yes, you still have to pay the mortgage – but that is not your objective. Your objective is to increase your Net Worth as high as possible, and Case 2 is the correct answer for that.

#111 all_we_need_is_mortgage on 02.14.13 at 2:36 pm

Canada can’t increase interest rate, and it’s mostly because of external reasons rather than internal ones.
All leading centers of world currency: USA, Britain, European Union, Japan are continuously emitting trillions dollars and by virtue of financial globalization it affects all other countries.
Hiking up domestic interest rate would mean losing in “currencies war” especially for the export oriented countries.

#112 Smoking Man on 02.14.13 at 2:43 pm

Nothing, not 1 single sfh for sale in Longbranch….All sold.

Boom!!!!!!!!!!!!!!!!

Vancouver will eat Toronto dust, Toronto to become most expensive city in Canada

#113 Richard and Zeus on 02.14.13 at 2:46 pm

#88 Kevin on 02.14.13 at 11:34 am

You do not understand how “fractional reserve banking” works. Banks do not create money out of thin air. Banks can only lend money that is already in their vaults.
————————————————————–

From Wikipedia on the Bank of Canada:

It is important to distinguish between the right to “issue money,” which is the sole right of the Bank of Canada, and the ability to “create credit,” which, through legislation and regulation enacted by Parliament, is largely done by commercial banks through the issuance of loans. While all of Canada’s money is created by the government through deficit spending, if “money” is thought of as the combination of issued money and bank-created credit, then presently, the Bank of Canada “issues” less than 5% of Canada’s money, “”””””with the remainder (95%) being “created” by commercial banks through the process of fractional-reserve banking.[20]“”””””

Sounds like “CREATING out of THIN AIR” to me. But I only understand English.

Garth made a comment some days ago that the banks “DO NOT” create money out of thin air. So Wikipedia is wrong?

Creating debt obligation is not the same as creating money. — Garth

#114 jess on 02.14.13 at 3:06 pm

96 Suede
..and don’t forget the flyboarding schemes
======

In addition to disclosing how much money they hold overseas, companies are required to report to the SEC the amount of federal taxes they would owe if their earnings were transferred to the U.S., with credit for any foreign taxes already paid. Many companies, however, avoid disclosure by citing an exception that estimating their tax burden is impractical…A study of Apple, Google and about two dozen other companies by Levin’s Senate subcommittee in 2011 found that 46 percent of the money the firms held “overseas” actually was invested in U.S. Treasury bonds and other government-backed assets, such as mutual funds and stocks.

“The data shows that, in many cases, the funds that corporations identify as being offshore are really onshore,” the report said. “The presence of those funds in the United States undermines the argument that undistributed accumulated foreign earnings are ‘trapped’ abroad, because nearly half of those funds are already located right here in the United States.”

The study found that Apple, Google, Adobe, Cisco Systems and Microsoft, among others, keep more than three-quarters of their designated foreign holdings in U.S. investments.

https://www.baycitizen.org/news/business/silicon-valley-firms-shelter-assets-overseas-avoid/?utm_source=BayCitizen&utm_medium=social_media&utm_campaign=twitter

#115 ozy - kanatian investment made simple on 02.14.13 at 3:10 pm

kanatian investment made simple.

Few must do rules:

1. make money easier in kanata vs other countries, e.g retail anything to hoard of consumes
2. do not repeat never invest in GIC, RESP, RRSP, TSFA or any product that is promoted by the equalizer government
3. Invest in commercial (I won’t tell you where exactly:) to make more money
4. with some un-worked for profits, go buy a nice house in a HOT like HELL neighborhood (stay clear of low-income stuff like suburbs where land is everwhere)

Repeat 1,2,3, and 4. Type this on the wall and don’t waste time/life with b-l-anks, stock market-sucket, b-l-onds and other “advisory” stuff, you have a brain, your consilierre should ONLY be someone that DID it a lot before (not a talker, not a know-it-all….)

Post this is you dare

#116 A Little Bit More on 02.14.13 at 3:18 pm

Garth, what are your thoughts on ETFs which focus on preferred shares. As an example BMO S&P/TSX Laddered Preferred Share Index ETF
(ZPR).

#117 ronthecivil on 02.14.13 at 3:21 pm

Garth,

You seem to assume everyone has the same risk tolerance.

I for one would be more than happy to put all my money into a nice portfolio of ETF held bonds, preferreds, and dividend paying stocks but trying to convince others of this idea is not always easy. Of course, part of the reason is most people do not understand risk at all (even to so called safe things like cash or bonds).

Perhaps a way to convince someone of this without making their eyes roll back over what my significant other calls “magic bean talk” would be in order. I have made some serious progress but we will have to see how her meeting with TNL@TB turns out on Friday.

#118 ronthecivil on 02.14.13 at 3:23 pm

#115

Garth will never tell you on here to buy one thing.

However if you put 2 and two together and see that ETFs are loved and that Prefferreds are loved it’s probably a good guess that it would be something that would fit in the catagory.

What’s more important is that you feel confortable with it and actually understand what it is.

#119 Dr. Hoof Hearted on 02.14.13 at 3:38 pm

#109 Smoking Man on 02.14.13 at 1:49 pm

War on with insurance companies, got a bunch of kids to start a face book revolt…….

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

Here in BC we have BC Gov’t owned ICBC…

ANY Gov’t corporation is simply an extension of the taxation base. Tweak things here and there, they can easily raise several million dollars.

I have had my license for almost 40 year..spotless record re claims…… yet with all the maximum discounts still paying over $1000 per vehicle (and we drive OLD vehicles).

#120 Bottoms_Up on 02.14.13 at 3:41 pm

#115 Richard and Zeus on 02.14.13 at 2:46 pm
————————————————
You also have to remember that Wikipedia can be written by anyone.

#121 Old Man on 02.14.13 at 3:43 pm

#109 Smoking Man – are you still in Daytona as have been there many times? Now for a seafood bargain go to where the fishing boats come in, as they will sell wholesale for cash before they hoop the markets, as went there all the time to buy my share for 1/2 price. I also took a suite with a full kitchen for my woman to cook me a wonderful seafood meal late at night.

#122 sickofbc on 02.14.13 at 3:45 pm

Vancouver real-estate firm admits faking investor for TV news

Read more: http://www.theprovince.com/Vancouver+real+estate+firm+admits+faking+investor+news/7965588/story.html#ixzz2Ku8Hbx8s

#123 staywarm on 02.14.13 at 3:48 pm

Is the balanced portfolio approach nice warm and cozy going forward?

The USA impacts the majority of Canada’s economy. USA has 50% of the world’s debt, cannot pay it back and continues to export its economy. Pensions are fried so Whaobama is already investigating how to confiscate IRA’s and 401K’s – for your own safety. The most recent GDP print in the United States is negative, as well as Japan and most of Europe. The US Federal Reserve today prints an unprecedented $85 billion per month. Central bank printing made the Zimbabwe stock market the world’s best performing over the last decade and povertized every citizen.

We know Canadians now have more debt than Americans do, and just recently Americans savings have begun to taper off and they are adding more debt because jobs are increasingly gone and prices of things keep going up.

But don’t cry, the balanced portfolio approach is liquid. The only question is what will you do with that liquidity when the stock market doesn’t perform? When the global zero interest rate policy finally leads to zero returns on conservative investments and rabid printing like Japan has recently kicked off continues to inflate prices of daily consumables faster than the balanced portfolio approach?

Where will you put that liquidity to maintain your purchasing power?

Why does this blog continue to attract nihilist whackjobs? Do I not insult you enough? — Garth

#124 Bottoms_Up on 02.14.13 at 3:52 pm

#89 Ralph Cramdown on 02.14.13 at 11:36 am
————————————————
Garth is right and in fact I do believe the average length of time new buyers stay in their first homes is approximately 3.5 years.

#125 NOTHING SURPRISES on 02.14.13 at 3:58 pm

Then you should know better. — Garth

I should have.

Making a comment on this blog tells me I have too much time on my hands.

A singer/composer who performs in our park in the summer wrote a song with the line in it ” What will it matter in a 100 years”.

For you and I we can interject 20 years.

#126 Richard and Zeus on 02.14.13 at 3:58 pm

From Wikipedia on the Bank of Canada:

It is important to distinguish between the right to “issue money,” which is the sole right of the Bank of Canada, and the ability to “create credit,” which, through legislation and regulation enacted by Parliament, is largely done by commercial banks through the issuance of loans. While all of Canada’s money is created by the government through deficit spending, if “money” is thought of as the combination of issued money and bank-created credit, then presently, the Bank of Canada “issues” less than 5% of Canada’s money, “”””””with the remainder (95%) being “created” by commercial banks through the process of fractional-reserve banking.[20]“”””””

Sounds like “CREATING out of THIN AIR” to me. But I only understand English.

Garth made a comment some days ago that the banks “DO NOT” create money out of thin air. So Wikipedia is wrong?

Creating debt obligation is not the same as creating money. — Garth
———————————————————-

WHAT? Wholly cow Garth you have to be kidding me right? A “debt obligation created by banks” is just a fancy way of saying “money” in the form of a debit created out of nothing. That banks charge INTEREST on by the way.

It just amazes me how people who have the publics ear will just not admit to the scams of this world whether its WMDs in Iraq, thin air money, glo-bull warming…….just amazing…….I guess when they do…..they are cut off or assassinated. So fear is the name of the game. Courage…..is gone…..so sad.

#127 My thoughts on 02.14.13 at 4:00 pm

#114 sadly there is a chance smoking man is right. Having said that… Two listings in mineola west below 2.5 million… Not the magical 2.8 as per usual. I’ve actually quit going to open houses. I’ve decided it’s a waste of time until prices come down. Lets see what the spring brings. What used to sell quickly is sitting on the market longer. Many feel the same way about long branch as you do.

#128 Old Man on 02.14.13 at 4:06 pm

#109 Smoking Man – the auto insurance in Canada can become a burden, so find a well established insurance broker with a huge business, and a good reputation. I have mine and deal with the owner, and simply say Jim get me the best deal for my personal needs, and he comes through with integrity which is why am paying about $900 a year with $2 million liability, and a few other items that are needed including all the taxation on said premium.

#129 Richard and Zeus on 02.14.13 at 4:08 pm

#106 Dr. Hoof Hearted on 02.14.13 at 1:42 pm
Re Civil Service:
I have not seen any value from this shift..in fact quite the opposite. As one party once mentioned, you could cut the civil service in half and not even notice it.
————————————————————–

I actually had a pretty good theory on something that is somewhat related to this comment. The govt is so desperate to keep the economy going…..you rarely ever hear about the underground economy. The govt can’t touch it. To go after the underground economy in force would by default collapse the entire economy and therefore……cash to the treasury which pays……civil servants.

I think its a pretty good theory. We are so overtaxed for the RICH country Canada is its unbelievable. I avoid taxes and promote this to everyone I know. When govt finally starts to shrink and taxes come down. I will pay more. Until then……AVOID, CHEAT, buy used…..whatever it takes. And I don’t feel the least bit guilty doing it……

#130 Bryan on 02.14.13 at 4:23 pm

Update on the MAC Marketing scandal in Vancouver:

The Province has actually done a half-decent story exposing these shenanigans!!! Who would’ve thought a rag like The Province would come through like this!

http://www.theprovince.com/business/Vancouver+real+estate+firm+admits+faking+investor+news/7965588/story.html

According to a comment by Evan Cunningham at VREAA, Lynda Steele from CTV news is investigating this story and has said that both Lee sisters in the CTV story work for MAC Marketing.

http://vreaa.wordpress.com/2013/02/13/ctv-tv-news-featured-condo-buyer-actually-a-marketer-of-very-same-condos/#comment-61670

This is getting good!

#131 Beach Girl on 02.14.13 at 4:25 pm

#101 NOTHING SURPRISES on 02.14.13 at 1:24 pm

Cops, teachers, soldiers, nurses, paramedics, doctors, coast guard, border guards, fire fighters and many more, without whom your life would be dark and dangerous. Grow up. — Garth

I did grow up…. with a war widowed mother on a pension requiring bottles to be cashed at the end of the month to purchase food.

Was wearing a military uniform at 17. Almost died at 18 for the first time. Put myself through engineering at university.
Have a son and daughter-in-law as teachers. Brother-in-law and sister-in-law who are teachers.
My wife is a nurse.
Sister-in-law a nurse – retired.
Brother-in-law a retired security supervisor for OPG.

Raised two sons, founded 3 companies, retired now – no gold plated pension after a life of hard work.

Support a young fellow in Zambia and support the Sally Ann etc.

Who in the hell are you to tell me to grow up!!

Then you should know better. — Garth

___

By the sounds of it, you are not smart enough to hold down a government job. Sorry.

Zambia. How lonely are you? I won’t say the obvious, as I will get dumped again.

#132 Wake up on 02.14.13 at 4:49 pm

The best scheme to make money in Quebec, ive seen it done often.

– Start a small company with average wage employees.
– Make friends with leaders of FTQ (union) to get financing in your company, in exchange your employees must buy FTQ shares
– Get as much subvention from the government as you can
– Get low interest loans and max credit margins
– Give yourself and your wife huge salaries
– All major assets under your wifes name
– The company buys stuff you can hide in your wifes assets
– When on the edge of bankruptcy, dont pay your employee and deal with them to have them go on retroactive unemployement
– Buy back your assets with your new company
– rehire your dumber employees
/repeat

#133 The taxman on 02.14.13 at 5:14 pm

http://impressionskleinburg.com/pdf/rules.pdf

#134 Puzzled Redneck on 02.14.13 at 5:16 pm

Garth: as I recall, he said that there isn’t any advantage to his actually executing the transactions as long as I know exactly what needs doing, so I could save money by not paying for the time. I don’t really have an answer for that. The fee is less than half what I expected it to be and I’m thinking that is probably why. As to rebalancing, that is to be done yearly as separate consultations. I’ll have to read up on tax harvesting and see what he has to say about it.

He has also stated as one of the goals of his practice to increase public financial literacy. I like that.

Get a real advisor, not an hourly rental. — Garth

#135 jess on 02.14.13 at 5:16 pm

Government to blackball tax avoidance firms from major contracts
14 Feb 2013: Treasury unveils proposals to stop companies bidding for major contracts if they have used aggressive tax structures over the past decade
http://www.guardian.co.uk/business/taxavoidance

The ‘culture’
Barclays secret tax avoidance factory that made £1bn a year profit disbandedLucrative dark arts were practised in the run-up to the banking crisis by the company’s Structured Capital Markets division

….”Whistleblowers described to us a management style that depended on fear, summary sackings, ritual humiliations and group social events that outdid any 1980s fictional tales of macho banking excess.

The division was run by Roger Jenkins, reported to be paid up to £40m a year, and whose nicknames were Roger the Dodger and The King of the “Double Dip” – a tax avoidance trick that exploited different tax rules in various countries to extract double tax benefits. The brains behind the schemes was said to be Iain Abrahams, a tall Scot with an encyclopaedic knowledge of tax and accounting law. It was common for staff to come in to work to an email from Roger Jenkins announcing that a colleague who had been there the previous day no longer worked for SCM. On one occasion a secretary was said to have been fired for booking an executive a taxi that was a Volvo rather than an S class Mercedes….

http://www.guardian.co.uk/business/2013/feb/11/barclays-investment-banking-tax-avoidance

http://www.guardian.co.uk/business/2013/feb/12/shut-barclays-tax-avoidance-unit-10-years

#136 Inglorious Investor on 02.14.13 at 5:22 pm

#128 Richard and Zeus on 02.14.13 at 3:58 pm

The argument is partially semantic. Like “inflation vs. deflation” it partially hinges on the definitions you use.

In our system, money IS debt. Bank credit is not money, but it becomes money/debt when you spend it or when the bank deposits it in your bank account. You see? We the people get to create money too.

Central banks create money out of thin air. The Fed openly admits this. It’s no secret.

Commercial banks collectively create new money via interbank transactions as loans become deposits become loans become deposits, etc.

The Fed was created largely to pyramid money for the commercial banks. Profits come from monetary inflation. Currency first, wealth later. Perpetual game of catch-up with a receding horizon. Until debt gets too big and defaults restore balance, or the currency goes to zero.

Oh joy.

#137 Old Man on 02.14.13 at 5:23 pm

I noticed that H.J. Heinz was just bought out as the biggest food deal in history by Buffet and his gang, so pay attention. In the 1970’s was privy to the payroll for all in Canada with the President for the execution of a new benefit plan, and was shocked at the high factory earnings; way too high because of the unions.

The average factory worker today in Canada with the main plant would be making at least $60,000 a year and with pensions and benefits would be much higher, so guess what is going to happen in time? This future outcome will not be nice, as see it coming.

#138 Bryan on 02.14.13 at 5:38 pm

MAC Marketing Scandal is in the Globe and Mail:

http://www.theglobeandmail.com/news/british-columbia/real-estate-firm-confesses-after-employees-pose-as-buyers-in-news-stories/article8688210/

#139 Dr. Hoof Hearted on 02.14.13 at 5:45 pm

Deal reached between City of Richmond and outside workers

http://www.richmondreview.com/news/191237871.html

QUOTE:

The City of Richmond’s outside workers have won a 6.75 per cent wage hike over four years, according to a new collective agreement announced Wednesday.

Members of the Canadian Union of Public Employees Local 394 and the city came to terms one year after the previous contract expired.

The new contract covers the period from Jan. 1, 2012 to Dec. 31, 2015. It offers wage increases of 1.25 per cent for 2012, 1.75 per cent 2013, 1.75 per cent in 2014, and two per cent in 2015.

QUOTE:

That previous deal was considered the best ever by union leaders, offering a 17.5 per cent wage increase over five years.

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

The previous deal was typical of many Local Gov’ts, some even exceed that.

What happened was Richmond Council took on the Olympic Oval and of course wanted Labour Peace. So did Vancouver .

However, this created a ” me too ” mentality throughout Metro Vancouver, as each Local Gov’t usually does its own bargaining.

PS: So…how you guys in the Private Sector doing ?

#140 Bryan on 02.14.13 at 5:46 pm

This Mac Marketing story really speaks to the power of blogs. This is what the Globe and Mail has to say:

“The misrepresentation was first spotted by the local online community and then dissected on local blogs, message boards and comment sections. Some noticed a Google search of one of the women’s named turned up her Facebook and LinkedIn pages – both since deleted – which stated she worked at MAC.”

http://www.theglobeandmail.com/news/british-columbia/real-estate-firm-confesses-after-employees-pose-as-buyers-in-news-stories/article8688210/

#141 Dr. Hoof Hearted on 02.14.13 at 6:03 pm

Harper defends Sen. Wallin’s ‘reasonable’ $350K travel budget — after all, she’s only the third most expensive senator

http://news.nationalpost.com/2013/02/14/harper-defends-sen-wallins-reasonable-350k-travel-budget-after-all-shes-only-the-third-most-expensive-senator/

Wallin herself defended the $321,037.58 spent [since September 2010] on “other travel” compared to $29,423.84 she spent on “home travel,” saying she often wasn’t flying directly from Ottawa to Saskatchewan.

“If I fly from Ottawa to Toronto and do an event – say, go give a speech or go to a dinner or whatever it is I’m doing — and if I sleep in Toronto, either in a hotel or a condo or whatever it is, then that flight the next morning – where I fly from Toronto to Saskatoon or Toronto to Regina — that flight then shows up in the categories that are made public on the internet from the Senate as ‘other’ travel,” she told the talk radio station 650 CKOM Wednesday.

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

Oink Oink Pork Barrel

One reason I have a detest for MainStreamMedia…

Keep your head low…don’t stir it up…. and ACTUALLY inform the citizens(taxpayers)..and you too can get the gold plated taxpayer funded perks…

I’ll bet most Canadians can’t even name 5 Senators….

#142 jess on 02.14.13 at 6:21 pm

richard and zeus

you may like to read irving Fisher 1936 Chicago plan

“The over-indebtedness hitherto presupposed must have had its starters. Over-indebtedness may be started by many causes, of which the most common appears to be new opportunities to invest at a big prospective profit, as compared with ordinary profits and interest. Such new opportunities occur through new inventions, new industries, development
of new resources, opening of new lands or new markets. When the rate of profit is expected to be far greater than the rate of interest, we have the chief cause of over-borrowing.When an investor thinks he can make over 100 per cent per annum by borrowing
at 6 per cent, he will be tempted to borrow, and to invest or speculate with borrowed money. This was a prime cause leading to the over-indebtedness of 1929. Inventions and technological improvements created wonderfulinvestment opportunities, and so caused big debts….When the starter consists of new opportunities to make unusually profitable investments,the bubble of debt, especially bank loans, tends to be blown bigger and faster than when the starter is some great misfortune, like an earthquake causing merely non-productive debts….
The public psychology of going into debt for gain passes through at least four more or less
distinct phases: (a) the lure of big prospective profits in the form of dividends, i.e. income
in the future; (b) the hope of selling at a profit, and realizing a capital gain in the immediate
future; (c) the vogue of reckless promotions, taking advantage of the habituation of the
public to great expectations; (d) the development of downright fraud, imposing on a public
which had grown credulous and gullible.
When it is too late, the dupes discover scandals like the Hatry and Kreuger scandals. At least one book has been written to prove that crises are due to frauds of clever promoters. But these frauds could seldom, if ever, have become so great without the original starters of genuine opportunities to invest lucratively. There is probably always a very real basis for
the “new era” psychology before it runs away with its victims. n —100% Money, 130–32 (original emphasis)
http://www.dallasfed.org/assets/documents/research/ei/ei0501.pdf

revisited paper
http://www.imf.org/external/pubs/ft/wp/2012/wp12202.pdf

#143 Canadian Watchdog on 02.14.13 at 6:22 pm

HAM will save Vancouver real estate!

#144 Russell on 02.14.13 at 6:31 pm

Garth, I have a gov pension. I was just about to start adding to my very small RRSP. TFSA is maxed. Should I get a non reg account instead? Or should I put a little bit in, take it out for home buyer program then switch it to non reg accout? Thanks

#145 Mr Buyer on 02.14.13 at 6:40 pm

#114 Smoking Man on 02.14.13 at 2:43 pm
Nothing, not 1 single sfh for sale in Longbranch….All sold.

Boom!!!!!!!!!!!!!!!!

Vancouver will eat Toronto dust, Toronto to become most expensive city in Canada
………………………………………………………….
Hot air, the whole country knows it now and it becomes more obvious with each passing day. The country is on fire alright, even Toronto.

#146 COW MAN on 02.14.13 at 7:13 pm

Sir Garth # 105

“You’d have to work hard to experience loss – Good Luck”

Wrong again Garth. Preferreds can tank too. PWF.PR.H June 2009 to September 2009, $25 to $17.50. RY.PR.A
same time frame $21.75 to $16.00. The later now back to above issue price at $25.79.

I agree with your recommendation to hold Preferreds. It is just not as simple as implied.

It is not 2008-9. How obvious is that? Besides, only those dumb enough to bail lost money. Everyone else continued to pocket their dividends. You have no point. — Garth

#147 TurnerNation on 02.14.13 at 7:28 pm

I see a tie hanging, on this weblog’s door handle…

#148 Devore on 02.14.13 at 8:12 pm

#149 skeptacular

and where pray tell, does the FED find $85 B a month to buy US Government debt? and how did it increase it’s balance sheet by $2 Trillion in the space of 2 years?

It exchanged the money for the debt obligation.

Tomayto, tomahto.

I don’t get why Garth so reviles the term “creating money”. Money is debt. Debt is money. Banks have government blessing to create money backed by a debt obligation, as long as they meet the mandated capital/reserve requirements.

Central banks create money backed by government debt obligations (see Bank of Canada’s balance sheet). Depository banks create money backed by borrower debt obligations (see RBC balance sheet). Ditto for VISA. Same difference. One money is as good as the other money. Credit money is as good as cash money is as good as coins. Fungible. This is why government blessing is explicitly required, lest a rogue entity start creating uncontrolled amounts of money.

#149 Nostradamus Le Mad Vlad on 02.14.13 at 8:27 pm

-
Beeyootifull day today. A few degrees warmer and it could be taken as Victoria Day.
*
#143 Dr. Hoof Hearted — See first link re: lobbyists, etc. Getting to the point where we might be better off governing ourselves.
*
3:34 clip Lobbyists / Senate / Politicos = trashcan. They do nothing to help the economy; 2:40 clip Got gold? Got guns? Chubby Checker lawsuit Terminology; Adobe Reader More problems; 3:42 clip 1987 – 2013 similar? Enormous Profits after imposing a hefty increase; Paper / Real Silver One dumped, other ???; Recession Hitting most of the west.
*
1:06 clip Smoking Man, was this you? As usual, the m$m followed its master’s orders and didn’t show this; US vs. China Thailand is a good spot to start a war, and Iran “These talks have been engineered to fail by the West.” wrh.com; Wag the Iran The usual bovine excrometer stuff; 5:06 clip Mineta and the secret orders of Big Dick Cheney (9-11); GW Temperatures don’t lie. Greenland is frozen solid. Plus it’s a great tourist trap; 1:58 clip Valentine’s gifts? Guns and gun classes top them; Microsoft Getting greed; Fukushima m$m says one thing, transcripts say another; Police Accident “Ban the Police!” wrh.com; Pope-ometer Hiding to avoid the lawyers? The US Mass immigration, a.k.a. cheap labor; NDAA Obomba – King George, and 4:45 clip Chris Dorner was executed by the police (under NDAA).

#150 Uwinsome on 02.14.13 at 9:07 pm

#148

“It is not 2008-9. How obvious is that? Besides, only those dumb enough to bail lost money. Everyone else continued to pocket their dividends. You have no point. — Garth”

I think the point is that even the almighty preferred shares can become illiquid unless you are willing to take a loss. Same as real estate. Garth you’re always preaching about liquidity aren’t you?

There was never a moment these assets were illiquid, unlike houses. No point there, either. — Garth

#151 Ralph Cramdown on 02.14.13 at 9:11 pm

“BMO S&P/TSX Laddered Preferred Share Index ETF”

Somebody once described buying rate reset preferreds as getting paid short term rates to take long term credit risk. I couldn’t really disagree.

So buy perpetuals. — Garth

#152 sickofbc on 02.14.13 at 9:18 pm

http://bc.ctvnews.ca/condo-marketing-company-admits-it-duped-media-1.1157243

#153 Ralph Cramdown on 02.14.13 at 9:51 pm

Anyone have a look at the European numbers today?

I know, I know. It’s just crazy how cheap things are over there. You can buy Volkswagen at three and a half times earnings. Daimler is yielding 5% and the telecoms are cheap, too.

#154 Daisy Mae on 02.15.13 at 5:38 am

#121 Dr. Hoof Hearted: “ANY Gov’t corporation is simply an extension of the taxation base. Tweak things here and there, they can easily raise several million dollars.

********************

Yup. Here in BC my premium went up $50 for 2013 and I don’t have collision/comprehensive….is this what you mean? LOL

#155 Daisy Mae on 02.15.13 at 5:49 am

#130 Old Man: “….which is why am paying about $900 a year with $2 million liability…”

********************

BCs ICBC was pushing $10 million liability for a couple of years. I’m not sure how much it would have upped my premium but I declined. Enuf, already.

#156 Small town Steve on 02.15.13 at 6:51 am

#142
PS: So…how you guys in the Private Sector doing ?

Doing just fine thank you. I made over 210k last year and the year before that..

#157 Kevin on 02.15.13 at 8:26 am

@Dwilly (#112):

“The year after, my house loses 10% of its value, while my investment portfolio gains 10%.”

Boom, right there, you lost me.

You do not have a crystal ball. You cannot know whether your house will go up or down next year, or whether your investments will to up or down next year.

If you knew with complete certainty what both markets (real estate and equity) were going to do in the next year, then yes, it becomes an easy decision. But that’s not how it works. You can only make decisions based on what you KNOW.

But nice try.

#158 John on 02.15.13 at 12:39 pm

Garth,

The only part I don’t get is that you keep saying that interest rates are going up. Sure 3% is free money but if they go up, won’t the people who paid down debt while the going was good be better off?

#159 Doug in London on 02.15.13 at 1:15 pm

@COW MAN, post #148 and Uwinsome, post #153:
That’s why you need to have a diversified portfolio. During the mid 2000’s I cashed in some of my equity funds and moved the money into bond funds. During the crisis of 2008-09 I reversed the flow, cashing in the bond funds, some of the money went to meeting my immediate cash needs and the rest went to buying dirt cheap equity funds. Economic crisis? What crisis? It worked well for me, and if everyone did the same thing the whole economic system would be far more stable.

#160 gtaguy on 02.15.13 at 1:58 pm

sorry if it was already posted

http://www.cbc.ca/news/canada/story/2013/02/15/business-home-sales.html

home sales up 2% in jan

and the msm is writing this as look homes are continuing their upward climb. Of course the readers seeing these headlines are going to think this is from last month but its yoy increase of 2%.

yoy @ 2% isnt that then a huge drop considering the masses believe home values go up 8% a year min.

#161 spaceman on 02.15.13 at 3:12 pm

Pay off the Mortgage, or invest the difference ?

There is only one reason you would pay down the Mortgage, and that is if you think the rates will shoot up, and you have too much outstanding debt.

This is the problem facing Canadians, too much debt ready to explode if rates shoot higher. Luckily, rates are not going up any time soon, giving us time to deplete debt. If my next Mortgage in 4 years in 6%, that will close to double my payment, and that will be a huge hit. Therefore yes, pay down your mortgage so that with a stress test of 6% (make up your own estimate) you can still make the payments comfortably. If rates were to stay at 3% forever it would be a no brainer, but they will rise in time.

All my investments I track in a spreadsheet , and keep balanced at close to 60/40 Equity/Bonds… sometimes swings the other way due to market corrections.

I try to put as much cash as I can into kids RESP (free money, take it) RDSP for my son, (again free money)TFSA X2 (no tax? major bonus at retirement) and balance both RRSP’s, not much in them as used for HBP.

Don’t have enough money to buy outside of RRSP/TFSA, no even close to maxing out, so not taking advantage of Dividend Tax Credit.

I will collect a small pension, so some money in RRSP’s is ok, balanced with TFSA. But you really need to look at how much tax you will pay at the end of your earning