Why we suck

Mike

Every time a bank wants to scare the crap out of you, or somebody has a new financial book to flog, they use a poll. Because it works. The sexiest topic is retirement, because most people are seriously screwed.

What they don’t understand is how easily this can be fixed.

So, the latest poll came out Wednesday and reveals that 75% of Canadians don’t think they’re saving enough to retire. Ever. That sounds about right. The mistakes people are making are epic.

First, more money sits in GICs and savings accounts than in all other investments combined. The Royal Bank alone has $180 billion in personal deposits, most of it earning south of 2%. Obviously this is an insane place to put money. The current inflation rate is 1.1% and all interest (outside of registered accounts) is taxable. So forget trying to grow money that way. Unless you make and save huge amounts of money, or start when you’re four, GICs are retirement-toxic.

Why do the banks push these hard? Simple. If you’re dumb enough to hand over $50,000 for five years in return for a weasely 1.7%, the bankers are happy to take it, then lend the cash out as a five-year mortgage (amortized) for 3.69% to finance some hipster’s inflated condo. It’s a win-win for them, a lose-lose for you. Why? Not only is the return hugely inadequate, but you have to pay tax every year at the same rate as your work income, on interest you haven’t received yet. That sucks.

But billions sit there, molding. Some people buy GICs because they were talked into it by [email protected] and secretly lust after her. Others have the financial acumen of a poodle. Still others live in fear of losing money when they should really fear running out of it. Whatever. It’s a bad choice.

Second, it seems most of us are completely mangling the TFSA. The latest numbers show about half (47%) of all Canadians have opened a tax-free account. Good. But of those, 41% have put nothing in, which is sort of like collecting condoms. That means only 19% of people have money in a TFSA, which is appalling, since two spouses now qualify to sock away $51,000, a number which swells by $11,000 in another two months.

But it gets worse. BeeMo research found 80% of the TFSAs that this 19% of people actually use are sitting in cash assets. That’s right – those hideous GICs or “high-interest” savings accounts, yielding 1.5% or (if you use some wacky, desperate credit union) 2%. Another losing strategy. TFSAs are for investing, not saving.

Third, not only have RRSP contributions dropped off into a black hole since 2008, but the number of Canadians who don’t understand them is legion. For the record, RRSPs are not products. You don’t buy them. They’re not things. A registered retirement pension plan is merely a vehicle into which you place assets, where they’ll grow without triggering tax while providing you with some immediate tax relief. Never, ever populate an RRSP with the low-hormone stuff mentioned above.

By the way, the money you put into RRSPs becomes taxable once again. Don’t forget that. It must come out as income, taxed at your marginal rate in the year you take it. So best to use this as a way of shifting tax from a year when you’re working to one when you’re not (back to school, job loss, sabbatical, pregnant or retired). If you and your squeeze have differing incomes, then use a spousal plan to split income. The one earning more directs all contributions to the spouse and takes the deduction from taxable income. The one earning less can retrieve the money three years later at a lower rate. It’s perfect for financing a mat leave.

Fourth, mutual funds. These are the 8-track cassette players of the financial world. Most have dubious performance records, but they’re stars when it comes to fees. The typical equity mutual fund can easily ding you for 2% or 2.5% a year in management fees, which are not tax-deductible, boosting the real cost well beyond 3%. Why would you pay that when there are ETFs available with embedded fees 90% lower, while providing more liquidity because they trade on the market?

Worse, mutual funds have spawned tens of thousands of financial ‘advisors’ who are really salesguys in drag. They’re all about front-end loads, management expense ratios, trailer fees and deferred sales charges in effect for up to seven years – sentencing you to mutual fund prison. The salesguy makes money every year. The fund company makes money. The fund manager makes big money. And investors pay for it all.

So, there you go. Some reasons why most people are failing financially, and why it will continue. Of course, let’s not forget that 70% own real estate, so they think they don’t need a retirement plan. Especially nine million wrinklies – house-rich and cash poor.

Guess how that’ll turn out?

173 comments ↓

#1 Smoking Man on 10.30.13 at 9:24 pm

To: LaughingCon with love.

So Realtors, Boards, MSM fib. It’s business, grow up man.

It’s painfully obvious now that that fence sitting renters and savers got screwed in the last 5 years. No real estate, No Investing. GIC’s don’t count.

Today home owners are walking the streets with a calm aura of arrogance, self congratulations, and an overall feeling of joy. You basement dwellers out there must hate that with every fibber of your being. Epically you LaughingCon. After years of telling the family at Xmas dinner, and Thanksgiving that Real Estate is doomed, yet year after year you look like an idiot at the dinner table.

http://business.financialpost.com/2013/10/29/dont-look-now-mr-flaherty-heres-another-shot-in-the-arm-for-real-estate/

I feel bad for you LaughingCon. You have been fortunate enough to know my brilliance form about 2007 when I called the USA RE crash and stock market crash on the Globe and mail, you chirped me at the end of Feb 09 when I said BUY, BUY, BUY, stocks hit bottom. You did nothing but chirp.

You chirped me and WhazzUp endlessly on the G&M when real estate was 40% cheaper than it is now.

You were orgasmicly elated in 2009 when you honestly thought that your flesh and blood sister in Milton would get run over and crushed by a falling market. Karma’s a bitch.

Let’s face it LaughingCon.

I’m an F-en genius with a Universe given gift of getting things right 98% of the time, how many more years do I have to keeping doing this before I make a believer out of you.

Even Gartho, Bay and Wall Street were blown away when I talked about last months FOMC meeting. Everyone was betting on a tapper.

NOT I.

LaughingCon what can I do to help you? I hate it when you call me a realtor. I’m a code smith, part time day trader, and small business owner damn it. I would like you stop, it’s insulting.

And for the rest of you SM haters that can’t stand my boasting, I want you to know I have no ill feelings for your resentment toward me, that is a learned emotion your teachers drilled into you so you could be easily integrated to collectivism and obedient slavery.

Teachers Hate Glowing Individuals that do it differently. I was fortunate enough to have a learning disability which made it imposable for their mould to set.

Kids how many Zillionaires do you know that care about fitting in?

See the difference between 1% and 99%

Have I helped anyone here yet?

Oh and this:

http://business.financialpost.com/2013/10/30/household-imbalances-keeping-bank-of-canada-from-setting-lower-rates-analyst-says/

#2 jimmy on 10.30.13 at 9:24 pm

First to say get ready for Halloween!

#3 Andrew on 10.30.13 at 9:29 pm

You know what they say… the bigger your TFSA the bigger your… err nevermind.

#4 [email protected] on 10.30.13 at 9:32 pm

Some of you seem to be feeling ronery just b4 halloween

https://www.youtube.com/watch?v=UEaKX9YYHiQ

#5 FORTHRELL on 10.30.13 at 9:34 pm

Garth with respect to RRSPs I recall (vaguely) you have mentioned that when withdrawing from RRSP keep it under $5000. Is that correct? If so why is that?

Thank you.

The mandatory withholding tax is minimized below $5K — Garth

#6 CrowdedElevatorfartz on 10.30.13 at 9:36 pm

….and perhaps most Canadians avoid investing because of the confusing, manipulative, avarice advice that the investment hucksters spew forth.
Reminds me of Realtors
Sounds like most people are so busy just “existing”… this further financial confusion is an annoyance that they cant be bothered with….
Are they to blame? Yes.
Is the financial investment industry to blame? Yes.
Is credit too easy to get? Yes.
Are we doomed? Yes
Have a nice day.

#7 Jordan on 10.30.13 at 9:38 pm

First – well done on pushing the housing statistics issue into the main stream media! Persistence pays off eventually it seems.

I think the calculations you did on RRSPs is a bit off though – 47% have opened an account x 59% of those have put money in = close to 30%. Of course it’s still ridiculously low.

#8 4 AM Sunrise on 10.30.13 at 9:39 pm

For what it’s worth, Kevin Newman is renting in Toronto and says it’s kind of “romantic”!

http://www.youtube.com/watch?v=cALG9KUaNww

#9 Retired Boomer - WI on 10.30.13 at 9:41 pm

Most people FAIL at investing because they are not educated about investing.

If anything they have an inkling about saving…different from INVESTING.

School does NOT normally teach much other than perhaps the mechanics of balancing a checkbook. A needed item certainly, but where is the teaching about saving, or INVESTING? How many can tell you the difference?
An emergency fund – what’s that the 20 something says?
I have a credit card for that….OH.

How do you educate a populace who retains their parents
religious traditions without question, their parents political leanings without question, and their parents money habits -usually BAD-without question?

Garth, you do an admirable job here of trying to educate people, but is Real Estate fever so overwhelming in Canada that all else is futile?

Change can happen, and it can happen FAST to make that real estate the worst thing you could have done!

#10 Tiger on 10.30.13 at 9:44 pm

My banker is hot ,she just looks at me as in wtf, you no do what I say! At fifty I’m still learning. Always had gut feelings and conducted my affairs accordingly, wow Garth you just spell it all out for me thanks ! Rember one time going in bank to pay off 25 y m after 4 th year. That manager was pissed at me, good thing I’m a tiger or that guy would have eaten me! I tell you so unprofessional , I guess that’s what greed does to the greedy ! RB ?

#11 blase on 10.30.13 at 9:44 pm

Garth,

What’s with the bug up your butt about people on this blog pointing out anything about immigration and it’s relation to the housing bubble?

Canadian Watchdog made a valid point yesterday. You tried to turn it into something racist, when it clearly wasn’t.

Inferring non-English speakers are deficient is called what, then? — Garth

#12 DT76 on 10.30.13 at 9:48 pm

Garth soon we’ll be able to buy a Vanvouver home with them shiny bitcoins.

#13 Musty Basement Dweller on 10.30.13 at 9:48 pm

For any doubters out there, (and I was one with questions) the diversified portfolio seems to work well. At least so far. I am tickled pink with how things are going compared to how my real estate was.

I have only had my portfolio for 3 months, after selling my house In Nanaimo (which was losing at least 4% per year in the past three years based on similar sales from my realtor) but my portfolio is on track to deliver 15% in a year if this keeps up.

Obviously it won’t keep up with these crazy returns, because I think the last month has been stellar, but it sure seems achievable at this point to get at least 5%. Per year.

That’s a fair bit of coin every month and it’s fun to see it grow, as it has with a few daily dips. It definitely beats having to take care of a house and having my money tied up in a resource that is essentially sucking down my retirement savings.

If you are thinking about it, Try it, start small if you are nervouse you might like it, I sure do. It also has forced me to learn about the products that Garth talks about all the time.

#14 cici on 10.30.13 at 9:51 pm

Garth, do you have any strategies to help those of us who didn’t know better in the past and stashed money into GICs within RRSPs?

I have about $10,500 in lost opportunity dwindling away in three different bank RRSP GICs. If I pull it out to put it in a brokerage account, I’ve got to pay at least $375 in combined fees. OK, mathematically it would be worth it if I can get at least 5% on the new investments, but is there a better strategy somewhere out there? P.S.: I’m not planning on getting pregnant anytime soon, or taking a sabbatical, or getting laid off…But since we’re talking about a small amount of money, should I just leave it there anyways as a dire emergency fund, just in case?

#15 Nick on 10.30.13 at 9:51 pm

I’m with #6
We’re doomed

#16 ILoveCharts on 10.30.13 at 9:54 pm

And you didn’t even mention the percentage of people who have all of their assets in CAD.

#17 pinstripe on 10.30.13 at 9:56 pm

I have been enjoying the High Drama about the Senate.

More interesting is that Harper will not allow anyone to waste tax payer money. An example of Leadership.

#18 Tiger on 10.30.13 at 9:56 pm

Sure know I’m not first, people talk to u like you are stupid, like your dun bro,I like to play with my dinner before I eat it ! There is quite a large menu out there:)

#19 blase on 10.30.13 at 9:57 pm

Garth,

It’s inferring non-English speakers can’t read English documents. Duh.

Obviously not what he said. — Garth

#20 Mr. Frugal on 10.30.13 at 9:59 pm

Sometimes you don’t know what you don’t know. When I first started reading your blog posts, I was a little bit skeptical about some of the stuff your were saying. But, I started reading alot of books on investing and now I’m in the process of building a balanced portfolio. So, yes there is hope for all of us. The answer is education. Keep up the good work Garth.

#21 blase on 10.30.13 at 9:59 pm

And I guarantee you that their lawyer will use that defense to try to get out of paying on the contract, as he/she should.

But the more buyers the better, for the banks. And let CMHC sort it out later.

#22 Tiger on 10.30.13 at 10:03 pm

DELETED

#23 "Callgirl" on 10.30.13 at 10:05 pm

#5 Forthrell- A withdrawal of 5k or less from an RRSP would result in 10% withholding tax (Federal) However, remember the withdrawal is considered taxable income. If your marginal tax rate is 30%, or if the added income pushes you into a higher tax bracket, expect to owe more.
As Garth said, in a year where one is on mat leave, or not working this would have less of an effect those where the income is added to a full salary.
10% is simply the minimum that must be deducted at the source (more in Quebec ) Make sure you consider your marginal tax rate for that calendar year.

#24 KommyKim on 10.30.13 at 10:10 pm

RE: #14 cici on 10.30.13 at 9:51 pm
I have about $10,500 in lost opportunity dwindling away in three different bank RRSP GICs. If I pull it out to put it in a brokerage account, I’ve got to pay at least $375 in combined fees.

What are the fees for? I had my banker (TD) reluctantly transfer my mutual funds (In an RRSP) to the bank’s direct investing arm (Into a self directed RRSP account). Once there, I sold the mutual funds and bought ETFs. No fees.

#25 Smoking Man on 10.30.13 at 10:11 pm

#10 Nick on 10.30.13 at 9:51 pm
I’m with #6
We’re doomed.
………………………………………..

You guys kill me, its over when you got to pay for it. :(

You’re young, set sail damn it. do something…

#26 espressobob on 10.30.13 at 10:11 pm

Financial illiteracy seems to be commonplace these days. Our education system needs a serious overhaul! What happened to ‘home economics’ in grade 9?

As for the fools who get lured into ‘rear loaded’ mutual funds, a moment of silence!

#27 Stoopid Idiot on 10.30.13 at 10:22 pm

Canadian Mint ready to test its own digital money project
John Greenwood | 19/09/13 6:00 AM ET
As the government body responsible for the production of loonies, toonies, nickels and sundry “limited-edition” collector coins, the Royal Canadian Mint is hardly the first thing that comes to mind when you think of cutting-edge technology. But that may be about to change.
Sometime before the end of this year, software engineers at the 105-year-old Crown corp. will begin pilot testing a novel form of digital currency that so far has received little attention but which has the potential to revolutionize how we do business.
“Where we’re going is not a road that has been travelled,” said Marc Brûlé, head of the MintChip project and chief financial officer of the Mint. “It has its challenges but there are lots of people who are encouraging us.”
Like many such technologies, the initiative has mostly been cloaked in secrecy — apart from an app building contest last year aimed at coming up with new ways of using the currency. Beyond that, the Mint has been determinedly tight-lipped about what it’s up to, which has only served to heighten expectations among the tight-knit community of techno-geeks and others that are focused on the sector.
Certainly, interest in so-called crypto-currencies is exploding for a variety of reasons, not least because of loss of faith in traditional money in the wake of recent central bank money-printing. Digital money such as Bitcoin, Litecoin and various online game currencies that have made the jump into the real world are starting to garner major attention, but there’s a big difference between them and what the Mint is doing. As a government organization, the Mint has the backing of the federal government, while Bitcoin and the like clearly do not.

http://business.financialpost.com/2013/09/19/canadian-mint-pushes-ahead-in-murky-world-of-crypto-currency-with-mintchip-project/

#28 Shawn on 10.30.13 at 10:24 pm

WE ARE AWASH IN SAVINGS?

“The Royal Bank alone has $180 billion in personal deposits, most of it earning south of 2%. ”

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

And this large amount of savings is, in part, what explains low interest rates. Supply and demand.

Perhaps it’s all part of the split between rich and poor, the rich have excess cash and lend it to the poor and middle class.

Meanwhile the rich clamor for and get ever more tax breaks. Tax deductions for pension and RRSP contributions. Tax Free Savings Accounts. Tax advantaged growth in RESPs. Lower tax rates compared to 15 years ago (I believe) Flat 10% Alberta tax. 50% tax on capital gains, dividend tax credit. As a 1%ter I struggle to keep up with all the opportunities to save tax. It’s good to be rich.

It sucks to be in the middle because those in the middle are paying the shot for the poor and not getting much help from the tax-dodging risk. The lower middle income level faces crushing tax rates when you consider how an extra dollar of income cuts into GST or child-tax credits.

It’s time to raise taxes on the rich.

#29 Stoopid Idiot on 10.30.13 at 10:26 pm

Vedy Scardy oh oh oh

Renowned gold expert Jim Sinclair says financial calamity is just around the corner for America. Sinclair contends, “We are facing the annihilation of currency. We are facing the shift of America as the leading and most influential nation of the world to some form of banana republic. . . . If it wasn’t for food stamps, we would be facing long lines of people waiting for free food.” For gold, everything hinges on the U.S. dollar, and Sinclair says, “I think the dollar gets hammered. I believe we are headed for hyperinflation.” One of the many black swans, according to Sinclair, is the possible abandonment of the U.S. dollar by Saudi Arabia. If Saudi Arabia stopped selling oil only in U.S. dollars, what would that do to the buying power of the buck? Sinclair says gasoline would be “$10 a gallon very soon, without a doubt.”
Sinclair predicts retirement funds and bank deposits are going to be taken by the government. How much of your money could you lose? Sinclair says, “In Cypress, it was a total of 83%. . . . Cypress is the blueprint, and it’s what we are going to experience here in the United States.” Jim Sinclair, who has just accepted the position as Chairman of the Advisory Board for the establishment of the Singapore Gold Exchange, says, “The exchange will trade physical gold only and not future gold. . . . You have to make delivery.” Meaning, there will be no naked short selling or manipulation of this new market. Sinclair says, “This will emancipate gold from the paper price.” How high will gold go? Sinclair predicts, by 2016, “Gold will be $3,200 to $3,500 an ounce.” By 2020, Sinclair predicts, “Emancipated gold will be $50,000 per ounce.” Join Greg Hunter as he goes One-on-One with Jim Sinclair of JSMineset.com.

Sinclair is a discredited merchant of fear. When you lie like that just to hump gold, you deserve to be marginalized. — Garth

#30 getrealcanada on 10.30.13 at 10:30 pm

“So, the latest poll came out Wednesday and reveals that 75% of Canadians don’t think they’re saving enough to retire. Ever. That sounds about right. The mistakes people are making are epic.”

So ..lets see if I understand this….75% of Canadians should be revolting in the streets like village people after Frankenstein because they’re so burdened with taxes that they can’t afford to eat, vacation, save or have children…and the other 25% of the population are civic serpents with nothing but fat excess to look forward to?

#31 Smoking Man on 10.30.13 at 10:30 pm

Why do I think Old Man is Neil Young.

Solar flairs and the universal consciousness consolidator.

I’m close I think

#32 Dan from Calgary on 10.30.13 at 10:30 pm

With fractional reserve lending, the bank is making much more than 3.59% on your deposit…

#33 Inglorious Investor on 10.30.13 at 10:33 pm

#13 Musty Basement Dweller on 10.30.13 at 9:48 pm

“[…] it sure seems achievable at this point to get at least 5%. Per year.”

Historically, balanced portfolios with a skew toward stocks over bonds (say, 60/40) have averaged somewhere between 6% and 7%.

––––––––––––

“It definitely beats […] having my money tied up in a resource that is essentially sucking down my retirement savings.”

Have you not seen house prices in Toronto over the last decade or so? Nothing would surprise me going forward, but over that time period RE has been a great store of value. And rental props have achieved huge returns. And as for retirement, droves of boomer would be SOL without their homes at this point. Many will need to monetize their homes thru reverse mortgages to fund their retirements. Sadly.

I applaud your efforts to learn about investing and to muster the courage to ‘put your money to work’. Just maybe keep things in perspective.

#34 VanDammeCouver on 10.30.13 at 10:35 pm

Garth, I’ve got to respond to a few things you said regarding mutual funds.

“The typical equity mutual fund can easily ding you for 2% or 2.5% a year in management fees, which are not tax-deductible, boosting the real cost well beyond 3%.”

1) most mutual fund companies offer tax deductible funds for folks with $250,000 or more
2) If the fund has a track record of beating its index or peer group, then paying 2% can certainly be worthwhile

“Why would you pay that when there are ETFs available with embedded fees 90% lower, while providing more liquidity because they trade on the market?”

1) Mutual funds can be sold within 3 days, that’s pretty liquid
2) somewhat unfair comment, as there are brokerage fees involved in owning and trading ETF’s. Saying ETF’s can be 90% lower in management fees compared to some mutual funds is a bit of an exaggeration, don’t you think?

“Worse, mutual funds have spawned tens of thousands of financial ‘advisors’ who are really salesguys in drag. They’re all about front-end loads, management expense ratios, trailer fees and deferred sales charges in effect for up to seven years – sentencing you to mutual fund prison. The salesguy makes money every year. The fund company makes money. The fund manager makes big money. And investors pay for it all.”

1) Really unfair comment…. if you’re going to say most mutual fund salesguys are scumbags, then you need to say the same thing about stock brockers, churning accounts and selling high-risk IPO’s to get huge spiffs…
2) Regarding Deferred Sales Charges, yes they are certainly abused… but if you’re investing in your RRSP, you shouldn’t need to move your investments. Furthermore, you know the lengths of market cycles, you can’t achieve proper investing by trying to ‘time’ the market. Sticking with an investment for 7-9 years and having it properly rebalanced is important.

Again, I’m an avid reader, love your posts, but you’re doing a disservice to some folks. Mutual funds certainly have a place for some people. They can be low-risk, steady, consistent performers for people who don’t know too much about investing but need to produce some returns.

If you’re a potential investor, do your research, find out why your guy is recommending the mutual funds he is recommending, ask to see the data and how its performed compared to its peers and its index. And ask your guy how he gets paid.

Commissions breed conflicts of interest. That alone is enough reason not to play. Your other points contain several inaccuracies, but let’s stick to the main theme: pay for advice and management, not products. — Garth

#35 Inglorious Investor on 10.30.13 at 10:39 pm

#26 espressobob on 10.30.13 at 10:11 pm

“As for the fools who get lured into ‘rear loaded’ mutual funds, a moment of silence!”

Front-end loaded. DSC. Makes no difference in the end. The fund companies and sales guys will get their money one way or another.

One thing you can do to lower your overall costs is to prevent your friendly neighbourhood advisor to stop moving your money around for the sole purpose of generating commissions and resetting the fee amortization schedule so that you will always have to pay redemption fees no matter how long you are invested.

Or, just stay away from the fund industry altogether. If possible. Even fee-only advisors sometimes buy mutual funds for their clients.

Not exactly. A fee-based advisor placing a client in a fund would likely be doing so with a F-class product, which pays no commission whatsoever. — Garth

#36 john on 10.30.13 at 10:45 pm

What’s up with smokingman? For a guy who claims to be so smart and making mad money you sure do look like a desperate realtor waiting to post more of your pro RE nonsense. Sales getting slimmer by the day? Oh ya you are not a realtor just a guy making mad money but spending all his free time here posting day and night. Lol who is this clown?

#37 Inglorious Investor on 10.30.13 at 10:50 pm

#1 Smoking Man on 10.30.13 at 9:24 pm

“Everyone was betting on a tapper. NOT I.”

Not until the inflation makes its way through the system and into the economy whereby the US banks can get back to printing their own profits via loans rather than having the Fed do it for them via QE.

“Teachers Hate Glowing Individuals that do it differently.”

I have two younglings. Both very smart. One of them is particularly free-thinking, very critically minded, highly analytical and wicked creative. The teachers try to shoot him down whenever possible because at 13 he sometimes knows more than they do. What you say is very true. He’s lucky his parents are conformist lemmings who bow at the feet of our so-called ‘educators.’

#38 Suede on 10.30.13 at 10:50 pm

Boomers are such a bad example to others! Winning awards for being bad, bad people. For shame….lol

Jimmy Page, Lennon and Clapton Illustrations

#39 Inglorious Investor on 10.30.13 at 10:51 pm

Not exactly. A fee-based advisor placing a client in a fund would likely be doing so with a F-class product, which pays no commission whatsoever. — Garth

True. But usually a higher MER.

Not in my experience. — Garth

#40 NotAGreaterFool on 10.30.13 at 10:51 pm

My snapshot assessment of the real estate market & macro environment today: distorted real estate data & false reporting, peak house prices, low rates, very little yet ugly product (Toronto), Bank of Canada Governor message suddenly at odds with Finance Department & OSFI.

Question: With an election not that far away, and likelihood debt-to-income ratio further spiking (even with some evidence the pace may have decelerated), what F and company do and what impact will this have?

Happy renting at this time but I am curious…

#41 Inglorious Investor on 10.30.13 at 10:53 pm

Whoops! Talk about a Freudian slip. Of course I meant to say: “He’s lucky his parents are NOT conformist lemmings who bow at the feet of our so-called ‘educators.’ “

#42 Retired Boomer - WI on 10.30.13 at 10:57 pm

#28 SHAWN

You have hit the source of the current problem. Here in the US 40 years of “conservative rule” starting with Nixon, broken by 4 yrs of Carter (idiot) and 8 years of Clinton (not awful) and now Obama (Bush lite in SO many ways!)

As a newly retired working stiff, who invested, and saved, and hates DEBT I can now shift that tax sheltered money for 15% to a tax free account for the rest of my, band my wife’s life. NOT a bad deal, put how does that pay for government?

We haven’t raised our $7.25 an hour minimum wage in quite a few years, yet give us Geezers a COLA every year?
Why aren’t minimum wages indexed to inflation? Those people are working for a living.

If I have investment gain in a taxable account, how come
it’s taxed at 15% sometimes less, or even not at all?

Here the tax code is so convoluted nobody including the revenue people can often give a definitive answer.

Marginal tax rates and EFFECTIVE tax rates are two wildly different thing here. I will assume much the same nonsense in Canada.

Were there but a simple, FAIR solution.

#43 Sir Finance on 10.30.13 at 10:58 pm

Garth,
Have you noticed the commercial about the government economic action plan? It mentions spending money to update your kitchen while talking about the TFSA. Maybe another sign why people use its benefits so poorly.

#44 not 1st on 10.30.13 at 11:01 pm

So conservative GIC savers are actually the ones responsible for the housing bubble. If there were less deposits, there would be less mortgages and therefore less horny property virgins.

#45 AxeHead on 10.30.13 at 11:03 pm

#34

You are wrong. Mutual Funds can rarely be sold in 3 days. When I jumped ship with mutual funds, [email protected] took more than a month and it cost me – never again. So maybe they aren’t the 8 track of the investment world, but they’re no better than cassette tapes.

#46 Jan on 10.30.13 at 11:05 pm

Sir
Recently I found out that I could not have more then 25500 in all tfsa combined but I inadvertently did by not knowing differently.
I had two in two different banks instead of just one with 25500 each because I did not know about the limit.
I am now scared as I await forms form CRA. ( I already called them to report it )

When I opened the second account with ING the salesperson did not tell me that its not okay to have another account even though He knew I was sending him a cheque for 25.500 and also knew I has another tfs account.
Is there any advice you could give me on this matter.
Btw – I am a long term immigrant with relatively good English and am worried that I could be in trouble here with this…thanks you

#47 Inglorious Investor on 10.30.13 at 11:06 pm

#34 VanDammeCouver on 10.30.13 at 10:35 pm

“If the fund has a track record of beating its index or peer group, then paying 2% can certainly be worthwhile.”

Not really. Funds that consistently beat the index are rare. Even the ones that do so for a while will eventually average out–or worse– and give you an index-like performance over time. If you realize a 7% annual return, then the lowly 2% MER (good luck with that) is actually eating up almost 29% of your returns. Compounded over time that’s huge.

“Mutual funds can be sold within 3 days, that’s pretty liquid”

ETFs can be sold within 3 seconds.

“Saying ETF’s can be 90% lower in management fees compared to some mutual funds is a bit of an exaggeration, don’t you think?”

No.

“if you’re going to say most mutual fund salesguys are scumbags, then you need to say the same thing about stock brockers, churning accounts and selling high-risk IPO’s to get huge spiffs…”

I’m shocked! Shocked that there’s gambling going on in there!!

“Mutual funds certainly have a place for some people.”

Uhhh… not really. If you can’t do it yourself, I’d go with a fee-based advisor. They are certainly not perfect, but better than the fund industry.

“If you’re a potential investor, do your research, find out why your guy is recommending the mutual funds he is recommending, ask to see the data and how its performed compared to its peers”

Typically irrelevant. They will even tell you: “Past performance not an indicator of future results.”

“And ask your guy how he gets paid.”

Good advice.

#48 Smoking Hot on 10.30.13 at 11:09 pm

The sexiest topic is retirement, because most people are seriously screwed.

What they don’t understand is how easily this can be fixed.

———————————————————-

Keep working

#49 Tiger on 10.30.13 at 11:15 pm

22 thanks no words need to be spoken! Does that sound proper , still giggling , am I dumb?$$$$$$$$$$$$$$$$$
Boss for life! Still giggling , can’t stop it.
My ex said i adht some disorder that my son was diagnosed with in k
Wow some fat lazy or not fat lazy ( see not preduice )
Mf said my son has this disease and perhaps there dad has it aswell I was still in love with miss frugal. Watched vid wtf go means governed official! I graduated like to finish what I started, my son hates school quit in -11dont blame him school is bs’ as far as my problem I still bought her the American dream house 500000 3000month to her and she’s said what. My son is in the 90 % range of his class taught by me!the ex still takes takes her checks from the hillbilly that lives in paradise . Oh her ass is getting huge, maybe can be a

#50 wallflower on 10.30.13 at 11:17 pm

Yes, VanDammeCouver, Garth’s right about the scumbaggy (my word) conflict-of-interest-thingy inherent in the mutual fund product. Even with the nicest, sweetest, most ethical of MF sales person, you got a problem: conflict of interest.

#51 Jon B on 10.30.13 at 11:18 pm

You mention that many people have the financial acumen of a Poodle. I believe this to be true, but I think it is deliberate. The forces that govern our world, political and big corporations, all derive significant benefits from a financially illiterate population. This ignorance has allowed the banks to acquire the role of master while it’s indebted clients are the slaves. I believe the banks to be quite happy about this reality. Consider Public schools in this country that must teach the French language, yet basic instruction on economics and personal finance are nowhere to be found. Who sets the educational priorities in this country? A number of very successful ancient civilizations maintained their empires by depriving the general population of knowledge. Knowledge was power back then and still is today. The more Poodles out there the easier it is for their government to control them while their pals in big banks and big business take advantage of their earnings. There should be no surprise TFSA’s are mostly empty.

#52 Basil Fawlty on 10.30.13 at 11:20 pm

“Sinclair is a discredited merchant of fear. When you lie like that just to hump gold, you deserve to be marginalized. — Garth”

Please tell, for what has Mr Sinclair been discredited and what has he lied about? In addition, who marginalizes the man?

#53 Seth on 10.30.13 at 11:22 pm

Garth, I agree with you on ETFs, but wouldn’t you agree that there’s a sort of portfolio value breaking point where indexed mutual funds would be a better option for those with a lower valued portfolio? Changing to ETFs only when the value can sufficiently outperform annual brokerage fees?

#54 Smoking Hot on 10.30.13 at 11:23 pm

As for Capital Gains Tax on Investments…

I’d like to see a stat but I bet 90% of Canadians don’t worry about capital gains tax because they have an unlimited amount of capital losses.

They’ve been carrying forward for these accumulated financial capital losses (stock market) for the last 20 years and who’s worried about capital gains tax.

I bet I’m not to far off with that stat either.

That’s why they all own homes as an investment, they can’t seem to lose on them and don’t have to worry about capital gains tax.

#55 MarcFromOttawa on 10.30.13 at 11:24 pm

People’s Trust (CDIC covered) is paying 3% for TFSAs.

Warning – I just opened an account there so they will most likely lower their rates shortly.

#56 Inglorious Investor on 10.30.13 at 11:25 pm

#43 Sir Finance on 10.30.13 at 10:58 pm

Good point. Governments do not help markets. They only distort them.

#57 Cici on 10.30.13 at 11:26 pm

#6 CrowdedElevatorfartz

Thanks, that was funny dude…but I still wouldn’t want to stand next to you in an elevator :-)

#58 "Callgirl" on 10.30.13 at 11:27 pm

14-Cici
Hello again!
The fees of course are a consideration but as a first step your bank still will have other, more attractive mutual funds on offer. Take a look at the other options and search them on Morningstar. They will offer a full analysis of each of the funds. Doing an interfund transfer may have far fewer fees than a transfer out. Your bank rep will of course be able to fully discuss the fees involved in any fund. I have seen some funds with reasonable MERs that have a variety of ETFs embedded within. Might at least be worth researching what’s on offer within the account you have now. Just a thought, not licensed advice!
http://www.morningstar.ca

Might just be a first step unless you are ready to pay the $375. Ouch!

Garth-Financial advisors as sales guys in drag.hee hee! I’m looking forward to an entertaining Halloween episode tomorrow. ..

#59 Franco on 10.30.13 at 11:27 pm

#1 Smoking Man — Right on the money, no wonder you are number 1. I have also said that anybody that bought RE 5 years ago are sitting in a good place financially, even if the RE market takes a 10% correction, not likely to happen, they would still be ahead and it’s totally tax free gains once they sale. So the renters move and the money stays behind with nothing to show for it.

#60 Tiger on 10.30.13 at 11:30 pm

Paul sorry if its not u but your mannerism is just like a retard from Coquitlam British Columbia , it’s a small world bro! And yaf. Ed . I know you won’t figure the lingo you realtard

#61 jimmy on 10.30.13 at 11:31 pm

For readers with young children who question if they are gifted, this is a good start:

http://education.alberta.ca/admin/supportingstudent/engagingparents/journey.aspx

Don’t expect to get any help from your average teacher/school.

SM gets an extra piece of candy tomorrow night.

#62 Cici on 10.30.13 at 11:38 pm

@24 KommyKim

RRSP transfer fees…the bank’s in question don’t have discount brokerages, so I can’t leave the money in those institutions unless I can think of a brilliant and legal way to cough up $50,000 x 3 just to make it worth my while to open a brokerage account with them (if you have any ideas, let me know, or maybe Mr. Genius Smoking Man can get involved and offer up some free advice).

#63 Inglorious Investor on 10.30.13 at 11:39 pm

#47 Seth on 10.30.13 at 11:22 pm

“[…] wouldn’t you agree that there’s a sort of portfolio value breaking point where indexed mutual funds would be a better option for those with a lower valued portfolio?”

Nothing will cost you more than mutual funds purchased thru a commissioned advisor. IMO they are the last resort for those who can’t DIY and don’t have enough capital for a fee-based advisor.

Look, in the end, your typical portfolio shadows the index anyway because fund managers and portfolio managers will typically spread the risk thru heavily diluted asset allocation.

Even Jack Bogle of Vanguard admitted that after inflation, taxes and fees, the mutual fund investor is basically left with nothing.

#64 "Callgirl" on 10.30.13 at 11:42 pm

John- No need to get nasty. You just don’t get what smoking man brings to the experience of visiting this blog.
We noticed when he went quiet for a week.

It’s easy to post from anywhere in the world on small device, doesn’t mean someone is sitting in front of their Commodore 64 twelve hours a day in order to post. It’s just part of the fun…and as Ying Yang pointed out, part of the fun IS wondering who he is.

It costs nothing to be polite and kind. Invest well.

#65 HAWK on 10.30.13 at 11:49 pm

In a world that’s…… TOO BIG TO FAIL :-)

http://www.zerohedge.com/news/2013-10-30/understanding-europes-delusion-dilemma-and-endgame-under-9-minutes

#66 "Callgirl" on 10.30.13 at 11:53 pm

Jan- sorry, me again! But lots to say on this topic.
I worked with a client last year who was penalized 1% per month for every month his TFSA was over. Please consult a qualified tax specialist but I am 100% certain this not something you want to leave sitting. Did you know you can set up a TFSA for family members 18 years of age? A TFSA is not contingent upon earned income like an RRSP. Please make sure you take care of this as soon as possible. Glad you realized you were over and are taking action.

#67 Ronaldo on 10.31.13 at 12:04 am

#28 Shawn – ”It’s time to raise taxes on the rich.”

That’s what your buddy Warren said too. About time you rich Albertan’s paid your share.

#68 Spectacle on 10.31.13 at 12:05 am

Thanks Garth!

And while I’m at it, thanks smoking man, call girl, kommykim, mustybasement and charts! Everybody adding to the blog

Nice transition today from real estate, to truth/fact about investment/tax utility! Thnx

#69 Mac on 10.31.13 at 12:12 am

Don’t you have any heartening insider news for us about F or OFSI doing something about all these buzzed home borrowers heading back to the bar?

#70 mousey on 10.31.13 at 12:17 am

The pumpkin pic and sign reminded me of the time some punk kicked over the snowman I painstakingly made in our front yard when I was 6 months pregnant. I actually saw the little rotter do it. I immediately stuck on my snow boots and ran outside and chased him down the street shouting a raw stream of expletives – which sounded very loud in the quiet snow covered tableau. I couldn’t catch the little bugger.

#71 Cici on 10.31.13 at 12:17 am

#57 Callgirl

Thanks for the feedback…I’m actually toying with that idea, although I have had pretty lame experiences with mutual funds in the past. It’s all those fees Garth keeps talking about.
But I admit, if I can find a decent option, it might be the way to go until I have enough to do the interbank brokerage transfer. But I just might take the hit and invest it more wisely elsewhere…in any case, I’ll let you all know what I did with it when I finally get around to doing something about it (yes, please put pressure on me…otherwise it’s going to languish there forever, LOL)

#72 Tiger on 10.31.13 at 12:17 am

DELETED

#73 Tiger on 10.31.13 at 12:19 am

Franko I just don’t like you

#74 drydock on 10.31.13 at 12:36 am

http://www.testosteronepit.com/home/2013/10/30/the-smart-money-denies-theyre-the-smart-money-as-they-franti.html

A short must read.

#75 Musty Basement Dweller on 10.31.13 at 12:39 am

#33 Inglorious Investor on 10.30.13 at 10:33 pm
#13 Musty Basement Dweller on 10.30.13 at 9:48 pm

“[…] it sure seems achievable at this point to get at least 5%. Per year.”

Historically, balanced portfolios with a skew toward stocks over bonds (say, 60/40) have averaged somewhere between 6% and 7%.

––––––––––––

“It definitely beats […] having my money tied up in a resource that is essentially sucking down my retirement savings.”

Have you not seen house prices in Toronto over the last decade or so? Nothing would surprise me going forward, but over that time period RE has been a great store of value. And rental props have achieved huge returns. And as for retirement, droves of boomer would be SOL without their homes at this point. Many will need to monetize their homes thru reverse mortgages to fund their retirements. Sadly.

I applaud your efforts to learn about investing and to muster the courage to ‘put your money to work’. Just maybe keep things in perspective.
==============================
Thanks for your comments inglorious investor. Yes your point is well taken and it’s a fair comment to recognize that real estate has had a great run. Between 2003 and 2010 my house appreciated approximately $60k which is definitely a respectable return on $200k. But considering the last three years where the decline has been steady and definite every year, and market fundamentals I am feeling much better about investing than home ownership. It’s tremendously liberating to not have all the issues of a house, at least for me on a personal basis. And financially, it seems a no brainer when you run the true cost of home ownership, and presently flat or declining value (at least that is clearly my bet) versus investing the same amount of money. And of course the biggest factor is where things are going in the future. I am definitely bearish on the housing market in western canada when you look at all the fundamentals, that this pathetic blog talks about almost every day.

#76 AB Boxster on 10.31.13 at 12:42 am

Garth,
Fully agree with the blog on real estate prices in the CDN market.

But why the flogging of the equities. The market is just as overpriced as the real estate market for the same reasons Low rates, ‘quantitative easing. Its a little ingenuous to slam the RE industry when the stock market is just as falsely overvalued.

I did not mention equities. — Garth

#77 Chaddywack on 10.31.13 at 12:56 am

HAHAHA Garth you are on FIRE tonight. Love the hormonal references!

#78 Cyclist on 10.31.13 at 1:22 am

Noooo……..

http://www.cbc.ca/sports/canadian-cyclist-ryder-hesjedal-admits-to-doping-1.2288323

I am so disappointed…..

Oh well, back to MFs. I like O’Shaugnessy.

#79 cynically on 10.31.13 at 1:24 am

#17 pinstripe – I hope your comment about Harper saving money on the Senate was said tongue-in-cheek because that entire body is a waste of money. However if you were serious then you are dumber than most Canadians who do realize its cost and ineffectiveness but do nothing about it, a major Canadian character flaw – inaction.

#80 It's diff this time on 10.31.13 at 1:27 am

USA at early 2000 prices
http://www.calculatedriskblog.com/2013/10/comment-on-house-prices-real-prices.html?m=1

#81 Vandamncouver on 10.31.13 at 1:53 am

My comments on mutual funds seemed to get some good talking going, so let’s continue.

@ AXEHEAD #34 – the fact that it took your bank a month or however long you said to sell your funds says nothing regarding the liquidity of mutual funds. It means [email protected] didn’t do her job, and you should have filed a complaint.

@INGLORIOUS INVESTOR #46 – There are mutual funds that beat the index and their peer group, and those are the only ones that warrant paying a higher management fee. Some fund managers really are good, in certain equity spaces (like small cap) can beat the index. Furthermore, if you’re paying 2% to get a 7% return net, you’ve paid 22% in fees, not 29% (2/9 = 22.22%)

Fee based advisors still use mutual funds which have an MER. Yes, you’ve eliminated the upfront commissions, but they still get paid their fee regardless of the performance of the fund. So now you’re paying for a MER + a 1% cost to your advisor…. works out the same.

Regarding past performance, it’s the only indicator we have, whether you’re in the mutual fund business or a stock broker. How’s a stockbroker going to sell his services to you? By showing you the returns he’s provided to his clients in the past…. that should be obvious and goes without saying

@Wallflower #49 – conflict of interest is built into EVERYTHING, welcome to the world. Everyone has a monetary interest in the service they provide to you. I agree with everyone that the mutual fund salesguys have a bad rap (and some should) but so do stock brokers…. the point is to find someone that is good, just like you want to find a good mortgage broker, a good insurance broker, a good home inspector, a good car salesperson… etc etc

@ SETH # 52 – Exactly…. mutual funds are not completely irrelevant. Actually, for a good portion of people, the ones who need the most help, mutual funds absolutely have a place in their investment portfolio.

Listen, regarding the mutual fund conversation. Garth, like anyone else, is arguing for his position and relevance in money management (and doing a damn good job I might add). But the point is, mutual funds are still highly relevant to a lot of Canadians. They can be safe and steady income earners. The industry is changing very fast. Fees are continuously going down in order to be more competitive. Fund companies are now hiring and training certified financial planners who can provide very valuable advice on many issues besides just mutual funds.

I maintain, the important thing is that you find someone who is trustworthy, who has a good track record, who is a certified financial planner (or is on track to that or has access to a CFP on their team). Getting good financial advice is about finding a good person, and some of those people still make commissions from selling products.

#82 Tony on 10.31.13 at 2:00 am

Re: #16 ILoveCharts on 10.30.13 at 9:54 pm

The problem is the Canadian dollar is being taken down by the U.S. dollar as we are America’s largest trading partner presently. As can be seen at least diversify into Australian dollars where interest rates are higher and they’re far, far away from America.

#83 Tony on 10.31.13 at 2:16 am

Re: #29 Stoopid Idiot on 10.30.13 at 10:26 pm

America will face stagflation not inflation or hyperinflation as the world’s reserve currency changes.

#84 Freedom First on 10.31.13 at 3:02 am

Nine million wrinklies house rich and cash poor. There will be a certain amount of Boomers who cash out by selling their homes. Of that there is no question. 1st question is when it will happen and how many will sell their houses, which leads to the 2nd question, will the numbers of boomers who do sell lead to a market of panic selling? Will be interesting. I do know one thing for sure, if anyone has made themselves financially vulnerable to what the RE market does, they are financially illiterate. No exception. The Banks, the RE industry, and all of their accomplices do not want the average Joe to know this. Follow the money. As always, Freedom First.

#85 Buy? Curious? on 10.31.13 at 3:14 am

Merry Christmas Everyone! Santa has come early and in the form of Garth Turner and his financial advice! I may be a bit of an asshole, but I’m not stupid. I’ve poured through this blog for the past few months and have extracted every piece of advice his laid out and I can tell you one thing, IT WORKS FOR ME! And if it works for me, any fool with a plaid lumberjack jacket can do it. Unless you’re Bigrider, who may need someone to dumb it down or at least use finger puppets.

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

#86 JWD on 10.31.13 at 4:54 am

“which is sort of like collecting condoms”

This is why we keep reading Garth. Classic.
Another great post today sir.

#87 Steve French on 10.31.13 at 6:07 am

I say more of Smoking Man… & less John (#36)

John is just being a Debbie Downer.

Some of Smoking Man’s posts are classics of non-linear thinking!

#88 Toon Town Boomer on 10.31.13 at 6:45 am

Garth come teach us , do one of your trips, make Saskatoon your first stop.

Has the snow killed the mosquitoes yet? — Garth

#89 bigrider on 10.31.13 at 7:22 am

Sadly for buy curious, he was in advertently pushed onto the subway tracks near his home in regent park. All 5 foot 2 inches of him bowled over as the crush of taller ladies behind him was to much for him to deal with.

Luckily for the raccoons, his home will now enjoy a reprieve from the numerous traps and poisonous bait.

#90 jeff on 10.31.13 at 7:28 am

#25 Smoking Man

#10 Nick on 10.30.13 at 9:51 pm
I’m with #6
We’re doomed.
………………………………………..

You guys kill me, its over when you got to pay for it. :(

You’re young, set sail damn it. do something…

______________________________________

most decent paying jobs have gone to Asia or Mexico….these people cannot “set sail”…..they don’t have boats…they’re barely making a living

#91 Smoking Man on 10.31.13 at 7:30 am

#36 john on 10.30.13 at 10:45 pm

JOHN
OR
REALTORS IN AN ALL OUT PANIC
OR

HA LAUGHINGCON

when you switch names try and change your writing style.

#92 Tony Right on 10.31.13 at 7:32 am

Who cares? [email protected]#$ the Boomers. They don’t give a shit about anyone else except themselves.

That was constructive. — Garth

#93 Capital One on 10.31.13 at 7:33 am

#14 Cici (and #80 Vandamn, I guess)

Check out Questrade. I just moved GICs from my wife’s RRSP account an RRSP account with Questrade. Give them a call (or iTrade).

Buying ETFs are free with these discount brokerages. And no fees (except an inactivity fee if your total equity is < $5k). All DIY, of course. So I can't really see any advantage of mutual funds over ETFs. I agree with our host – and may use his "8-track" line. Mark Twain could not have said it better!

#94 NYCer on 10.31.13 at 7:50 am

Yep, all I hear from my friends are GICs and “can you write off Mutual Funds from your taxes?”.

Sad really.

They also “own” houses. So apparently by buying a home, they can’t afford to take on “risks”.

#95 Ralph Cramdown on 10.31.13 at 8:00 am

#51 Basil Fawlty — “Please tell, for what has Mr Sinclair been discredited and what has he lied about? In addition, who marginalizes the man?”

For telling people to buy gold. Even if he had been right (yet tragically early…) about everything else, people who took his advice to buy gold have seen their stored wealth decrease by 30% plus inflation since the peak.

Gold is a commodity which pays nothing and costs money to own. It’s only a good investment when it’s going up. Right now, it’s going down, two years into a cyclical bear market and thirteen years into a secular one. As the Magic 8 Ball says, “Outlook not so good.”

#96 Steven on 10.31.13 at 8:14 am

Thanks to low rates, insolvent governments, idiotic real estate prices , low or no pay and bail in provisions it is use it or lose it time. Put your money in stocks and bonds and insiders of all descriptions will skin you alive and destroy your investment. All paper burns. All real estate is unaffordable. That just leaves the most undervalued investment in the world that is hated and dispised by all politically correct persons and entities.
Gold and silver bought , paid for and in hand and no paper.

And how’d that work out for you over the last two years? — Garth

#97 Ralph Cramdown on 10.31.13 at 8:14 am

#75 AB Boxster — “But why the flogging of the equities. The market is just as overpriced as the real estate market for the same reasons Low rates, ‘quantitative easing. Its a little ingenuous to slam the RE industry when the stock market is just as falsely overvalued.”

Well, congratulations on the pile you made when the market was going up. I assume you bought near the bottom? Because if not, just admit you’re a poor market timer and stick to the ‘diversify and rebalance’ mantra that Garth espouses.

#98 Inglorious Investor on 10.31.13 at 8:15 am

#80 Vandamncouver on 10.31.13 at 1:53 am

“Fee based advisors still use mutual funds which have an MER. […] So now you’re paying for a MER + a 1% cost to your advisor…. works out the same.”

Fee-based advisors usually buy mutual funds very selectively. They tend to stick with ETFs. Overall, based on my own experience with both mutual funds and fee-based advisors (and I did an extensive audit of returns and costs) commissioned-based mutual funds can cost as much as 50% more than a fee-baased service. Over the long-run, that’s very significant.

———–

“Regarding past performance, it’s the only indicator we have, […]”

And it’s also almost completely irrelevant. First of all, most cases of high alpha are usually just lucky timing, which never lasts. Second, fund companies use survivorship bias (fund companies will disregard the old loser funds and focus on new funds, which tend to do well in the early years due to new money flows and more flexibility) to massage the numbers. Third, they carefully select time frames that skew historical averages (e.g. 1982 to 2000).

#99 Inglorious Investor on 10.31.13 at 8:24 am

#74 Musty Basement Dweller on 10.31.13 at 12:39 am

In the end, you should always do what’s right for you, so point well taken.

#100 jess on 10.31.13 at 8:33 am

fee suckers

placement-agent fees
Former California Public Employee System CEO and Former Placement Agent Indicted for Conspiracy and Fraud
http://www.justice.gov/usao/can/news/2013/2013_03_18_calpers.indicted.press.html
Allegedly Concocted Documents to Obtain Millions in Fees and Then Obstructed Subsequent Civil and Criminal Investigations
http://www.fbi.gov/sanfrancisco/press-releases/2013/former-california-public-employee-system-ceo-and-former-placement-agent-indicted-for-conspiracy-and-fraud

Forensic investigations of pensions require access to evidence.
http://www.forbes.com/sites/edwardsiedle/2013/10/18/rhode-island-public-pension-reform-wall-streets-license-to-steal/
http://www.ricouncil94.org/Portals/0/Uploads/Documents/Rhode%20Island%20X.pdf
http://www.calpers.ca.gov/index.jsp?bc=/about/press/pr-2012/april/applauds-sec.xml

#101 Inglorious Investor on 10.31.13 at 8:44 am

#80 Vandamncouver on 10.31.13 at 1:53 am

“Furthermore, if you’re paying 2% to get a 7% return net, you’ve paid 22% in fees, not 29% (2/9 = 22.22%)”

I was assuming a (somewhat generous) 7% gross return for a balanced portfolio. Historically, the stock market has produced returns of between 7% and 10%, including dividends with DRIPs. However, a balanced portfolio of stocks and bonds will not get you that in the long run. Lower returns for lower risk.

60/40 balanced portfolio’s return, last 9 years (including 2008 meltdown), is annualized 7 per cent. — Garth

#102 Reddy on 10.31.13 at 8:49 am

Well Garth, you can’t say I don’t listen!! Sold the house in Toronto last week, closes tommorrow. I’ll see you in a few weeks to make a sizeable deposit into my account!!

#103 Buy? Curious? on 10.31.13 at 8:50 am

@89 Bigrider, speaking of short, guess what I am doing in a few hours? I’m shorting Facebook!

I bet you love Halloween.

#104 Ralph Cramdown on 10.31.13 at 8:50 am

“Right now, [gold’s] going down, two years into a cyclical bear market and thirteen years into a secular one.”

Oops, that should have read thirty-three years into a secular bear. My, how time flies.

#105 Just some guy on 10.31.13 at 8:57 am

@ #9 – Retired WI Boomer

I agree with you that there seem to have been some mathematical concepts that did not get taught adequately in school. The concept of compounding interest on a principal amount is certainly one that a lot of people fail to understand as is the concept of exponents.

Another concept that is not understood or perhaps never taught depending on what courses students take is that of the normal (or gaussian) distribution – the so-called bell curve. If one understands this distribution, one also understands how, within any population, things are distributed.

When I see a lot of people driving high end cars, I know that it is highly unlikely that they all have the income to really be able to afford such a purchase given what a normal distribution would tell us about the distribution of incomes needed to pay for expensive items. Clearly, some people are putting their immediate material wants above their future income needs. Here, religion can come into play if we consider the meaning of the phrase “robbing Peter to pay Paul.”

At the very least, the function of school should be to help us learn to think for ourselves so that we can make intelligent choices. We should also be equipped with the knowledge we need to understand how best to manage our money.

#106 Sinful Man on 10.31.13 at 9:00 am

Smoking Man, I’m with you re the mainstream educational establishment and the conformity crap they teach. But even morals aside, every teachers union fully supports unrestricted abortion, how dumb is that.

#107 Ralph Cramdown on 10.31.13 at 10:05 am

#75 AB Boxster — “But why the flogging of the equities. The market is just as overpriced as the real estate market for the same reasons Low rates […]”

Just a few data points.

Ten years ago investors were gladly buying BCE at a yield of 4%. It currently yields 5.1%. The average yield over the last ten years has been 4.9%.

Ten years ago investors were gladly buying Royal Bank at a yield of 2.9%. Today it yields 3.9%. The average yield over the last ten years has been 3.7%.

That is all.

#108 Whoa! on 10.31.13 at 10:06 am

The market is taking a serious turn.
The only sectors not in trouble yet are 416 Detached and Semis.

416 Condos-record low sales while the Avg price is going through the roof. (391K as we speak). Sales are going down seriously and the Med price is also going down. I feel that something serious is brewing here
905 Condos-same story as above but both Avg and Med prices are going down (287K and 265K)

905 Detached-avg and med going up (592K and 540K) but sales are worse only to Semis for 905.

905 Semis Avg and Med price almost identical values (419K & 417K) but experiencing a very steeped increase compared with the previous variations. This is a month when they should go down.

Judging by the aberrant behaviour (increasing prices and low sales) at least three segments of the market are in trouble:
-416 Condos–>low sales(maybe this is seasonal variation) but very high prices (high end units discounted and now moving) The MTD sales are at 1008 Apt condos and Around 22 Other types of condos. There is no way they will reach the 1141 units sold last year (which was down 14% compared with 2012)
-905 Detached–>very low sales, steadily increasing prices
-905 Semis –>very low sales, high prices

The above might be signs that finally the Toronto market is catching up with the reality.

#109 bigrider on 10.31.13 at 10:17 am

Mutual funds yuk, ETF’s passive but is their room for ‘smart -beta’ Garth. Think ‘Dimensional’

http://business.financialpost.com/2013/10/30/smart-beta-blocks-volatility/

#110 TimL on 10.31.13 at 10:27 am

Maybe they made a mistake calling it a “tax free savings account” instead of a “tax free INVESTING account”. Would have made the purpose more obvious.

#111 HD on 10.31.13 at 11:00 am

@ #71 Cici on 10.31.13 at 12:17 am

Good day Cici

Here is my 2 cent for what it’s worth:

I had a friend in a similar situation. She had around 10K in a MF (RRSP account).

I convinced her to pay the penalty fee to get out and set her up with a Couch Potato / E-series fund from TD Bank.

Look up the Global Couch Potato / Option 2

http://canadiancouchpotato.com/model-portfolios/

The cost is 0.44% per annum. Not too shabby.

Once your account reaches $50k and over, you can look into ETF options.

As per my friend, she can’t stop thanking me. Not only she recouped the penalty fee but her small portfolio is considerably up.

One last thing,

Read ‘Millionaire Teacher’ in order to understand the mechanics of passive investments.

Hope that helps.

Best,

HD

#112 Valyrian_Steel on 10.31.13 at 11:04 am

Just received a $500 dividend from my Canadian bank preferred share holding. Before discovering this blog, I had no clue what preferred shares were…. thanks Garth.

#113 Shawn on 10.31.13 at 11:18 am

SECUCLAR BULLS AND OTHER NONSENSE

Right now, [gold’s] going down, two years into a cyclical bear market and thirteen years into a secular one.”

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

I have as much use for talk of cyclical and secular bulls and bears as I do for astorolgy and the super bowl indicator for stock markets.

Utter garbage.

Buy investments that offer good value, Sell if they get too expensive. Studiously ignore all forms of technical analysis and worthless searches for patterns.

#114 Canadian Watchdog on 10.31.13 at 11:33 am

#95 Ralph Cramdown

Gold is a commodity which pays nothing and costs money to own.

By that logic, a Renoir painting would be worth the price of wood, paper and oil.

#115 Basil Fawlty on 10.31.13 at 11:37 am

Ralph Cramdown; “Gold is a commodity which pays nothing and costs money to own. It’s only a good investment when it’s going up. Right now, it’s going down, two years into a cyclical bear market and thirteen years into a secular one. As the Magic 8 Ball says, “Outlook not so good.””

Tell the Chinese! They continue to purchase over 100T per month and are on track for a another year of record gold purchases.
Your analysis implies that the Chinese are making an investment mistake. We shall see soon enough.

#116 Seth on 10.31.13 at 11:54 am

#63 Inglorious Investor, #81 Vandamncouver – really appreciate your feedback.

Where I’m coming from is that I understand that index mutual funds are an excellent choice for DIY investors with accounts less than $50,000.

The mutual account (I use TD) is still self-directed, and so only gets hit with a low MER, and not an advisor fee. This opposed to a brokerage account, needed for ETFs, where the returns would be washed away by annual fees due to the lower portfolio value.

When I hit that breaking point ($50k+), it makes sense to convert over.

I hope :)

#117 Shawn on 10.31.13 at 11:57 am

SOME THINGS WE KNOW….

60/40 balanced portfolio’s return, last 9 years (including 2008 meltdown), is annualized 7 per cent. — Garth

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

Past is past…

Of a certainty a 10 year government bond issued in 2003 provided a return of 5.0% (setting aside the small impact of reinvesting the interest payments at rates lower than 5%)

Of a certainty, a 10-year government of Canada bond purchased today and held for ten years will return 2.4%.

The point is bonds of terms of 10 years WILL return less in the next ten years than they did in the last ten years. This is certain. This occurs even if interest rates fall to zero. Ten year bonds will still mature at only par.

Other bonds of greater than 10 years or short term bonds could return more than they currently yiled (considering market value changes on long bonds and reinvestment opportunities on short bonds in the next ten years) But from their low starting yields they are unlikly to return as much as they did in the past ten years.

So will stocks provide MORE return than they did in the past ten or nine years to get us back to 7% for the balanced fund? Maybe….

With 40% in bonds that return about 3% you will need 9.7% from the 60% in stocks to get back to 7% balanced. Don’t count on that.

A naive assumption to believe a 60/40 portfolio is four-tenths comprised of government bonds. Your comments show a poor understanding of how a balanced, diversified portfolio is correctly constructed. Given current yields, a 5% exposure to government debt is adequate, and should be complimented with corporate bonds, real-return bonds and some high-yield debt. In total, bonds of these various types and durations are best kept to about 18%. Preferreds, both actual and in ETFs, would be an equal weighting. A 4-5% cash hold is prudent (in a high-yield, no-load money market fund), given the likelihood of emerging opportunities as US equities correct. And there’s your 40%. The yield on this portion of the portfolio would sit currently at just north of 5%. I’m relieved you are not an advisor, although you pretend to be on this blog. — Garth

#118 Smoking Man on 10.31.13 at 12:03 pm

#106 Sinful Man on 10.31.13 at 9:00 am
Smoking Man, I’m with you re the mainstream educational establishment and the conformity crap they teach. But even morals aside, every teachers union fully supports unrestricted abortion, how dumb is that.
………………

Obviously not businesses minded people, wanting to shrink their market share.

Just proves they are dumb.

#119 Spiltbongwater on 10.31.13 at 12:22 pm

I never thought there would be a day where the a fat guy was a cracker.

#120 Brian Ripley on 10.31.13 at 12:28 pm

Trick or Treat Garth

Blackstone is bidding against investors including Goldman Sachs for housing units being sold by Madrid’s regional government. The Spanish government last year introduced measures to increase demand in the rental market by abolishing tax breaks for individual home buyers, passing legislation to protect landlords by speeding up evictions of tenants who don’t pay, allowing owners to raise rents above the annual inflation rate and reducing the duration of leases.

More at http://www.chpc.biz/2/post/2013/10/spanish-inquisition.html

#121 broadway skytrain on 10.31.13 at 12:40 pm

rob ford – wow, just wow. cops got the vid – the paper was right on. a real live canadian cracker mayor of TORONTO. wow.

and we thought our mayor moonbeam was out there!

#122 Joe on 10.31.13 at 12:46 pm

#88 Garth
“Has the snow killed the mosquito’s yet…
Garth apparently according to some Sasitoon realtors those are baby hummingbirds.

It’s all about the spin for a win aka to lie for a buy.
Too much money at risk the banks and many involved lie and spin it’s baked in.

Look at the scandal down south with the mortgage’s its being attributed to fuelling the melt down.

Voice records of bankers/ brokers saying that “shit is going to hit the fan and they will be long gone…

By the way for those unscrupulous RE Agents out there, you sold a town house to a older couple and recommended a home inspector.
These trusting souls complied and have both since died from respiratory issues.

This townhouse was loaded with mold growing inside the walls.

For those RE agents bankers/ brokers / contractors who only care about the bottom line I can guarantee that you will reap what you sow.
You burn people you will get burned.
Universal Law.

#123 broadway skytrain on 10.31.13 at 12:49 pm

http://www.youtube.com/watch?v=cnzbZ2RA4qQ

very funny with the pure honesty of kids – I WANT CANDY!

#124 broadway skytrain on 10.31.13 at 12:54 pm

every teachers union fully supports unrestricted abortion, how dumb is that
————————————-
i imagine the very last thing any teacher wants is to have a student who has parents who don’t want to be parents.

#125 James Bond in Gold Finger on 10.31.13 at 1:00 pm

Looks like Alberta oil touching down to $63 again, not good news for Calgary’s inflated RE market. Might go below $50 this time around.

#126 broadway skytrain on 10.31.13 at 1:05 pm

interest rates –

can we now safely assume that even 5yrs in not enough time to completely unwind QE and therefore rates are not going anywhere for a very, very long time?

what is the likelyhood of another recession within the next 7 yrs?

will a shiny pony schoolteacher ex?pothead;) PM be positive for canadian economic growth ? he could never be as aggressive as the harper hairdoo…

happy Halloween to go

———-
breaking strong aug cdn GDP 2% , oil and gas leading the charge , thank dog we are loaded with resources.

#127 JimmyAAA on 10.31.13 at 1:13 pm

#114 Canadian Watchdog on 10.31.13 at 11:33 am
#95 Ralph Cramdown

Gold is a commodity which pays nothing and costs money to own.

By that logic, a Renoir painting would be worth the price of wood, paper and oil.

==================================
You can use THAT logic on many things. And there is many a fine piece of gold art that has been melted down for its strictly its component value. I recall a large theft from the Uffizi several years ago.

Most times, artwork ADDS value to component (commodity) pieces. Gold is a commodity. Possibly the most useless one (almost all it industrial uses can be done cheaper and /or more effectively by other commodities). That leaves it only value as jewellery (artwork) inputs and the so called inflation hedge.

#128 Buy? Curious? on 10.31.13 at 1:15 pm

Rob Ford’s audition video “So you wanna be a gangsta?” is out?

Gettoutofhere! Houses prices will go through the roof!

http://gawker.com/the-rob-ford-crack-tape-is-real-and-the-police-have-it-1456053442

#129 father on 10.31.13 at 1:20 pm

Is it possible that the fed might taper in january, they say it is a 45 percent chance

#130 Ralph Cramdown on 10.31.13 at 1:30 pm

#115 Basil Fawlty — “Tell the Chinese! They continue to purchase over 100T per month and are on track for a another year of record gold purchases. Your analysis implies that the Chinese are making an investment mistake. We shall see soon enough.”

And still the price falls. It ain’t rocket science. Here’s the fundamentals of the gold market: Gold is never destroyed. Pretty much every gram ever dug up is in a vault, a safe, a piece of electronics which will eventually be recycled, or the nostril of an Indian onion farmer’s wife. And we dig up another 2,800 tonnes every year. You can always find someone willing to sell you gold in exchange for your worthless paper dollars, and the best place to look is a goldbug’s website. Think about that.

Every goldbug, from the respectable ones at the World Gold Council to the loons at King World News, has 10,000 reasons why gold is a-gonna go up. I myself believe that gold will one day stop falling and start rising. But given the fundamentals above and the fact that money invested in gold is money that is not earning a respectable return elsewhere, the only sane way to trade gold is a trend following system, looking only at the charts and ignoring the idiots. Right now, any trend following system would recommend being short.

And I don’t want to “imply” that anyone, Chinese or not, made an investing “mistake” when they bought investment gold a year ago that is worth less today. I want to come right out and say it.

#131 jess on 10.31.13 at 1:46 pm

Engineers claim to prove risks of ‘contactless’ bank cards
Researchers say they can intercept data held on cards and other devices using ‘cheap, inconspicuous’ equipment at long distances

….”In an article published today in the Journal of Engineering, the magazine of the Institution of Engineering and Technology, researchers said they “successfully received contactless transmission from distances of 45-80cm using inconspicuous equipment.” The banking industry has always insisted the data on cards could only be read within 5cm distances.

The authors of the study said their findings “highlighted security concerns to personal data” and warned the “implications for consumers were significant”.

http://www.telegraph.co.uk/finance/personalfinance/consumertips/banking/10416659/Engineers-claim-to-prove-risks-of-contactless-bank-cards.html

http://digital-library.theiet.org/content/journals/10.1049/joe.2013.0087;jsessionid=3bggvbgimjqg9.x-iet-live-01

#132 Big Brother on 10.31.13 at 2:07 pm

#64 “Callgirl” on 10.30.13 at 11:42 pm

John- No need to get nasty. You just don’t get what smoking man brings to the experience of visiting this blog.
We noticed when he went quiet for a week.

It’s easy to post from anywhere in the world on small device, doesn’t mean someone is sitting in front of their Commodore 64 twelve hours a day in order to post. It’s just part of the fun…and as Ying Yang pointed out, part of the fun IS wondering who he is.

It costs nothing to be polite and kind. Invest well.

Ying Yang knows nothing about Smoking Man. But MKULTRA knows everything about him!
He has posted way too much about himself over the years while self induced in his wine and drugs. We produced him, we created him, we set him loose on the world. Beware of his minions.
Ha, ha, ha, ha, ha (scary evil laugh)!
I will be watching him at the Halloween party tonight. Smoking Man keep your eyes open for me I am the Mortifer, Spritus Raptor, Angelus Mortis, Pontifex Mortis.

#133 Cici on 10.31.13 at 2:25 pm

@ 93 Capital One

Thanks for the advice :-)

#134 Not 1st on 10.31.13 at 2:28 pm

So basically conservative GIC savers are responsible for the property bubble? We are to blame?

#135 Cici on 10.31.13 at 2:28 pm

@111 HD

Wow, thanks for all info HD! I’m definitely going to follow that path. Thanks for the book reference as well :-) The author seems really cool, and he apparently even wrote the book while battling cancer.

#136 Pulp Faction on 10.31.13 at 2:31 pm

“Especially nine million wrinklies – house-rich and cash poor.

Guess how that’ll turn out?”

…..Eat the house ?

#137 sciencemonkey on 10.31.13 at 2:55 pm

On the topic of ETFs versus the e-series TD mutual funds: Others have noted that ETFs are better for accounts with $50,000+, since then the transaction costs aren’t so high compared to the amounts invested. ETFs also give you more options and variety.

The downside to ETFs are the transaction fees associated with frequent rebalancing. Let’s say that one lacks the skill or effort to be a value investor like Ralph or Shawn, and wants to do the braindead couch potato rebalancing strategy. With (non front or end loaded) mutual funds, you could rebalance very often, for example monthly, and not suffer transaction fees. With ETFs in a big five self-directed account, you have fees for buying and selling. With ETFs in a questrade account, you only have fees for selling.

Which brings me to the question, what time length is optimal for rebalancing? If you rebelance too often, then you will dilute the benefit of run-ups, but if you don’t rebalance often enough, you will lose the gains from the run-ups.

#138 bob on 10.31.13 at 3:19 pm

I admit. I don’t come here for real estate or investment advice. Just the humor. The condom line will be a classic.

#139 HD on 10.31.13 at 3:30 pm

@ #137 sciencemonkey on 10.31.13 at 2:55 pm

These are valid points indeed.

This link should address all if not, most of them:

http://canadiancouchpotato.com/2011/02/24/how-often-should-you-rebalance/

Best,

HD

#140 Victor V on 10.31.13 at 3:39 pm

3 REITs Worth a Close Look Right Now: http://www.fool.ca/2013/10/31/3-reits-worth-a-close-look-right-now/?source=c75yhocs0040001

(or just buy through an ETF like XRE)

#141 jess on 10.31.13 at 3:46 pm

J.P. Morgan’s $5.1 Billion Settlement Is Tax Deductible TaxProf / The Wall Street Journal

http://www.bettermarkets.com/blogs/fact-sheet-jamie-dimonjp-morgan-chase-settlement-department-justice

Bank Could Save Nearly $1.5 Billion in Taxes. See also: Discussing the JP Morgan “Settlement” on Democracy Now naked capitalism. See also: Nobody Should Shed a Tear for JP Morgan Chase Rolling Stone / Taibblog

#142 :):(Ying Yang on 10.31.13 at 3:50 pm

#132 Big Brother on 10.31.13 at 2:07 pm
#64 “Callgirl” on 10.30.13 at 11:42 pm
John- No need to get nasty. You just don’t get what smoking man brings to the experience of visiting this blog.
We noticed when he went quiet for a week.

It’s easy to post from anywhere in the world on small device, doesn’t mean someone is sitting in front of their Commodore 64 twelve hours a day in order to post. It’s just part of the fun…and as Ying Yang pointed out, part of the fun IS wondering who he is.

It costs nothing to be polite and kind. Invest well.

Ying Yang knows nothing about Smoking Man. But MKULTRA knows everything about him!

……………………………………………………………………….

Lets not bring me into this battle Royal. Smoking Man knows what he knows. I know that Smoking Man knows that we know what he knows and doesn’t know that we know it! So there! BTW my brother in Hong Kong is an expert code Monkey and a crafty hacker. He knows everything about Smoking Man and he thinks Smoking Man has a path that he must follow to prove his theory s.

#143 :):(Ying Yang on 10.31.13 at 3:52 pm

Oh BTW Rob Ford comments anyone? That is enough to bring the market to a standstill. Oh Ya, going to be interesting around the Ford table tonight. Oh to be a fly on the wall at that humble abode!

#144 jess on 10.31.13 at 4:02 pm

liar loan fuel : slavery fuel

The DeWolf Family

Filmmaker Katrina Browne is descended from the DeWolf family (also spelled D’Wolf and DeWolfe) of Bristol, Rhode Island. The most prominent member of this family, James DeWolf (1764-1837), was a U.S. senator and a wealthy merchant who was reportedly the second-richest person in the country when he died. In the 1790s and early 1800s, DeWolf and his brothers virtually built the economy of Bristol: Many of the buildings they funded still stand, and the stained glass windows at St. Michael’s Episcopal Church bear DeWolf names to this day. Across the generations, their family has included state legislators, philanthropists, writers, scholars, and Episcopal bishops and priests.

The DeWolf family fortune was built in part on buying and selling human beings.

http://www.pbs.org/pov/tracesofthetrade/background.php

#145 Life's a supermartingale on 10.31.13 at 4:14 pm

So Garth, I take it that you don’t have much faith in the permanent income hypothesis?

You strike me as an odd one, Garth. You tell people to invest in passive index portfolios (advice I agree with) and then you go on and on about how everyone is irrational and stupid (which I don’t agree with). This is really quite silly and inconsistent.

The Canadian housing market is NOT irrational. Financial theory tells us that we should expect low returns on housing for at least a decade (and maybe more), but that does not mean that the market is irrational for holding it at today’s prices. (BTW, I don’t own a house or a condo, and I am not looking to buy one, probably ever. So no plugging for housing here.)

In fact, if you think about the logic of the permanent income hypothesis, housing in Canada might be perfectly rational. Over the next 15 years, the largest intergenerational wealth transfer in the history of this country is going to occur. Permanent income logic tells us that people should look to smooth their expected increase in consumption possibilities today. People have limited ability to use debt instruments to access that future wealth transfer – except one: a mortgage (by gov’t policy).

So, if people are looking to smooth consumption from future inheritances, we should expect the use of debt today, even if it means low future returns on the assets they acquire. Moving the consumption forward is worth the low returns – it accomplishes the goal on income smoothing – and that is completely rational. (BTW, pricing this problem for the Canadian market would make great PhD thesis in financial economics. Interested students, give it a try!)

Economics is not so easy, Garth. Read more.

Never have I called people stupid (although you qualify as insolent). As for the giant wealth transfer you’re awaiting, it is largely myth. The combination of life expectancy and financial illiteracy among your parents’ set means most wealth will be chewed through with alacrity. Common sense, like humility, not so easy. Think more. — Garth

#146 Inglorious Investor on 10.31.13 at 4:23 pm

#116 Seth on 10.31.13 at 11:54 am

While I prefer ETFs over MFs, I hear good things about TD E Series funds, though I’ve never looked into them myself. You might also want to look into Vanguard funds for their very low MERs as well. I would just advise that you understand what you are buying. Not all funds are the same. Read the fine print.

#147 Deb on 10.31.13 at 4:42 pm

I am glad that you used the word “swell” in relation to the annual increase in TFSA contribution room, which will be coming our way shortly. When the TFSA was introduced, we were talking about planning to invest $5,000. On January 1, that figure will have grown to $32,000, which is a fairly decent amount for many people, and even better if you are a couple.
I hope that the majority of investors view the TFSA as only one part of the big personal finance planning picture. Although I am happy to see total contribution room growing, there is also a growing concern as to maintaining one’s TFSA as a 100% Canadian content vehicle, particularly for those with relatively small investment accounts. This is of particular concern when we learn that Canada represents only about 4% of total global stock market capitalization.
We have been told to avoid having dividend-paying foreign stocks in a TFSA due to the 15% non-resident withholding tax levied by most countries. Over time, I think this witholding tax will have a worse effect on one’s investment return than the dreaded high-MER mutual fund.
The short-term solution is to have TFSA holdings 100% Canadian, and have U.S. and global investments held in a non-registered account. But as TFSA contribution room grows and grows, I fear that many will contribute less to their TFSA and more to their n-r accounts in order to maintain balance to their Canadian/Foreign assets.
In this regard, I am not so much concerned about 2014 as I am about 2020, and planning accordingly.

#148 tkid on 10.31.13 at 4:47 pm

I bought $10,000 of CIBC MANAGED AGGRESSIVE GROWTH PORT CLASS T8 (CIB947) after Garth and most of the blog dogs thrashed and trashed it (2.5% mer). It’s currently up $1000 plus paying me $60 every month.

I sure hope that is not more than 3% of your holdings. — Garth

#149 lee on 10.31.13 at 4:48 pm

Not being an agent I can tell you I am amazed how many of you refer to agents as Realtards. I bet the top 2 per cent earn more than the top 2 per cent of other professionals.

#150 tkid on 10.31.13 at 5:13 pm

I sure hope that is not more than 3% of your holdings. — Garth

About 4%.

You pass. – Garth

#151 Ralph Cramdown on 10.31.13 at 5:18 pm

I’m with Shawn, but I totally understand Garth’s position.

Fixed income is a desert right now. Some preferreds are OK, and emerging market debt pays. But investment grade corporates and government bonds? The best you can say about them is that if the stock market tanks…. at least you didn’t have all your money in the stock market. Over in the junk world we witness the return of PIK toggle bonds, about as sure an indicator as any that the marginal investor is a moron.

On the other hand, an investment advisor’s job is to shepherd the client through the markets. Most clients don’t have the intestinal fortitude required to withstand the downside volatility possible in an all-equities portfolio, so they must be convinced to keep a significant fraction in bonds, no matter the cost.

Me, I like the Canadian high yield equity space right now. I think there’s a lot of investors who are avoiding equities, and among those that are in, there’s a lot who are avoiding all but the big names. But note my earlier post showing that even the big names aren’t expensive. And of course the caveat that what’s right for my situation may not be right for yours.

#152 TurnerNation on 10.31.13 at 5:20 pm

SHORT.

#153 Ripped on 10.31.13 at 5:33 pm

Poor “boom bust” Alberta buying those 500k smart homes

Bryan Sheffield, a third-generation oil wildcatter in Texas’ Permian Basin, knows what he’ll do if crude drops to $80 a barrel: shut down half his drilling rigs and go on a takeover hunt for weaker rivals. He’s among producers who have invested $150 billion in the Permian since 2010, seeking a piece of a shale-oil trove estimated to be valued at as much as $5 trillion. As the money pours in, risks of a bust are mounting; some analysts forecast that crude is heading down to $70 a barrel next year.

http://www.businessweek.com/articles/2013-10-31/a-texas-oil-bubble-could-pop-due-to-low-prices?campaign_id=yhoo

#154 Dean Mason on 10.31.13 at 5:38 pm

To #44 Not 1st

Real estate and debt junkies, real estate agents and industry, banks and other financial institutions, CMHC all created the Canadian housing bubble not people that save money in savings accounts and GIC’s.

Savers and GIC depositors are getting ripped off and you say they are the root of the problem.

This blog attracts a lot of idiots and people living in their own fantasy world.

The real only problem Canadians have putting money their money into savings accounts, GIC’s is they are so scared to lose any money that if they don’t save at least 25% of their gross income, they will never be financially ahead.

Maybe 5% of Canadians at most can save such a high savings rate for decades. We all know they will not do that anyways.

It is such a small majority that would even do such a thing in 2013 and after.

We need more people to save money and invest money. GIC’s paying maximum 3.00% are not a good investments but if you are paying 3.50% for a mortgage, line of credit, 5% to 6% for car loans, student loans and 11% to 30% for credit cards you are will always go backwards financially.

This is why people have a tough time just surviving these days.

They are addicted to stuff and think they deserve everything acting just like spoiled children, brats.

They have no liquid cash, investments etc. in TFSA’s, RRSP’s, non-registered accounts that pay income and compound interest, dividends etc. but they do have all their savings going into real estate or multiple properties believing that these are easy money making machines.

This is making them vulnerable to a life of piling on more and more debt, payments etc.

Most Canadians believe that a $500,000 house will be worth at least $2,000,000 in 25 years when their mortgage is paid off of close to being paid off.

Good luck with that Not 1st and all you real estate, debt junkies.

#155 espressobob on 10.31.13 at 5:38 pm

#58 “callgirl”

Just keep in mind that the ‘ratings’ from Morningstar & Globeinvestor are in hindsight, where vision is 20/20!

#156 Canadian Watchdog on 10.31.13 at 5:48 pm

#130 Ralph Cramdown

Despite all your effort to find quality information on gold, you're still badly misinformed or just plain polluted with so much guff coming from fake Austrians (Mises, Hayek, Paul, Schiff, et al ) that you can't see any opportunities.

The place to put one's money in gold or other hard assets hasn't changed for nearly one hundred years now. And it's still blowing total stock returns out of the water, to date.

When one can figure out why certain commodity products and hard assets that don't have futures exchanges, like onions or diamonds, are going through the roof, and know where to obtain quotes and how to measure value in a  flexible exchange rate world — you'll make money —  lots of it, in real terms. What's taking place hasn't happened since the mid 1930s, and that is global price dispersion caused by free market quoting.

Those who rely on MSM quotes and government statistics will be a majority who lose a good chunk of their wealth. Those who do well are just losing money slowly. And those who are aware and set apart from the herd will be arbitraging high-return investments. They exist in many forms. Only that most investors can't find them because they'd rather be told what their investment is yielding then quantifying real value by themselves.

Always remember to look at value, not prices.

#157 Obvious Truth on 10.31.13 at 5:51 pm

I’m a seller over the next four months. Probably to 50 percent cash. More of an across the board trim of sectors than favouring one. Too hard to call favoured sector. This market has been torrid for years. Think final bond allocation to equities happens Q1.

Everyone comes at this from a different angle based on where they’ve been invested.

True signs of a ramp in growth or inflation get me back to 100% invested.

#158 eddy on 10.31.13 at 5:58 pm

#143 :):(Ying Yang on 10.31.13 at 3:52 pm

Oh BTW Rob Ford comments anyone?

____

1- Ford wants to scrap the Land Transfer Tax created by the former Mayor David Miller, the one that killed the upgrade market in 416
2- The Toronto Star and Bill Blair cannot be trusted
3-Ford was democratically elected, fair and square

#159 JimmyAAA on 10.31.13 at 6:12 pm

#145 Life’s a supermartingale on 10.31.13 at 4:14 pm

In fact, if you think about the logic of the permanent income hypothesis, housing in Canada might be perfectly rational. Over the next 15 years, the largest intergenerational wealth transfer in the history of this country is going to occur. Permanent income logic tells us that people should look to smooth their expected increase in consumption possibilities today. People have limited ability to use debt instruments to access that future wealth transfer – except one: a mortgage (by gov’t policy).

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

As for the giant wealth transfer you’re awaiting, it is largely myth. The combination of life expectancy and financial illiteracy among your parents’ set means most wealth will be chewed through with alacrity.

— Garth

====================================
That intergenerational transfer you speak off, it happened. The boomers got it too. My Dad collected just over $200,000 from an aunt he had not seen for 15 years. He’s 65, been retired for 4 years, has a $100,000 mortage on a condo worth maybe $150,000. And maybe $50,000 more in consumer debt. Where did the money go – who knows, but it is gone. Thank God he is one of the few left with a corporate pension. He may be on the extreme, but he is uncomfortably close to typical than you would like.

My office of 90 people has 8 people today that qualify for a full pension. Almost 66% of their current salary. 2 of them have valid reasons for not retiring (disabled adult child still at home). The other six – the scuttlebutt is they simply cannot afford any cut in salary, they must either wait until 60 or 65 to go (when other Canadian pensions kick in). And this an office were the average annual salary is $90,000. Good Grief.

#160 Devore on 10.31.13 at 6:15 pm

#27 Stoopid Idiot

Cryptocurrencies (like Bitcoin) are interesting. It is unclear from the article whether this MintChip is a separate currency, a digital representation of CDN, or if it is a true cryptocurrency at all.

Why would the Mint do this? It is a government organization, and in Canada we already have legal tender. That’s CDN. What is to be gained from introducing another currency? Will it become legal tender? What will be the exchange rate? What will its value be based on?

The baseline value behind cryptocurrencies comes from the value of computing power; which takes real resources and energy to provide. Without private third parties having the ability to plug into the system and create their own MintCoins, the supply will be heavily choked, so MintCoins, if they become popular, will carry a hefty speculative portion on top of their baseline value. Ideally you want their value to be close to the baseline value, to avoid volatility. Bitcoins had another problem, in that they became a fad. The demand rose far faster than supply could keep up.

Theoretically, the idea is sound, I think, unless you object to expending energy to provide value to a currency. I don’t think we’re at the point where this is a necessity yet. Some day traditional currencies might lose their appeal, if central banks don’t reign in the system and it blows up. The follow up might well be a “hard” currency, but I doubt it would be gold. The problem with gold currency is that it will quickly require a large amount of trust into third parties to virtualize/digitize it, so that you could conduct transactions without transporting the physical representation all over the world.

#161 Victor V on 10.31.13 at 6:26 pm

#149 lee on 10.31.13 at 4:48 pm

Not being an agent I can tell you I am amazed how many of you refer to agents as Realtards. I bet the top 2 per cent earn more than the top 2 per cent of other professionals.

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

It is also true that in Ontario 40% of realtors earn zero. Hard to call these folks ‘professionals’ ?

#162 Devore on 10.31.13 at 6:41 pm

#52 Basil Fawlty

Mainstream dig up Sinclair when they need to run with a doom & gloom story, and Marc Faber is not available. Seems pretty marginalized to me.

#163 tkid_firefly on 10.31.13 at 6:53 pm

Oh Ya, going to be interesting around the Ford table tonight. Oh to be a fly on the wall at that humble abode!

Ok, I’m a member of the Ford Nation. Given these credentials, I believe the mayor does crack & his family already knows about it. But such are the incompetent bunch of lunatics that comprise Toronto City Council, that I might just vote the crackhead in if he’s silly enough to run for mayor again. Who else can you vote for?

The only fool left is that TTC broad who kaiboshed the Sheppard subway extension, was then howled at by irate Scarberians, and now is voting in every subway extension she can get her hands on as a result of said howling at. I don’t trust her.

Yep, Ford for Mayor next election.

#164 Canadian Watchdog on 10.31.13 at 6:56 pm

#160 Devore

According to Wiki, MintChip is backed by the Government of Canada and denominated in a variety of currencies.

I'm not sure what their motive was cause this turkey currency will never fly. Bitcoin is king until they take it down.

#165 Shawn on 10.31.13 at 7:16 pm

Me and Kevin O’Leary

I’m relieved you are not an advisor, although you pretend to be one on this blog. — Garth

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Like O’Leary I happen to know a lot and feel a certain compulsion to try to educate and advise others. No license or registration is required for generic advice not specific to any individual.

My return over the last 10 years, about 15% compounded.

This year to date, 28% or $340k… (some luck and some skill involved…)

I prefer cash for safty and for ready funds to invest and eschew fixed income.

#166 torontonian on 10.31.13 at 7:16 pm

Is it true that a lot of foreign money are washed on the toronto real estate as banks here are very relaxed on where from and why the money are coming here? Would this inflate housing market to the disadvantage of local people buying power? If true – is it sustainable on long term and with what effects?

#167 Shawn on 10.31.13 at 7:17 pm

Thanks for the great Platform, it is enjoyable to post things and debate…

#168 lee on 10.31.13 at 7:36 pm

#161 Victor V

The ones who work full time at it don’t make zero. It’s better to make money than to have a title. I’d rather be the realtard making money than the professional working for nothing.

#169 espressobob on 10.31.13 at 8:04 pm

#165 Shawn

This is why “advice” can be so destructive.

http://www.theglobeandmail.com/report-on-business/streetwise/kevin-oleary-denies-fund-woes-disputes-redemption-value/article4219783/

#170 Ronaldo on 10.31.13 at 11:25 pm

”The combination of life expectancy and financial illiteracy among your parents’ set means most wealth will be chewed through with alacrity. Common sense, like humility, not so easy. Think more. — Garth”

And let’s not forget the casinos which are filled with boomer parents which will ensure that many boomers expecting large inheritances will be sorely disappointed.

#171 sue on 11.01.13 at 4:20 pm

I think a lot of the boomers will fall for the reverse mortgage and their kids will be screwed over.

#172 Mr. E on 11.02.13 at 1:15 am

Hi Garth;

If a family is balanced, but has spread out the investments over his and hers accounts to be tax efficient (for example, bonds and interest generating investments in RSPs, and Canadian dividend ETFs in non-registered accounts), when it comes time to collapse the accounts, how would it work out for rebalancing? Wouldn’t they theoretically end up melting down their non-registered Canadian dividend accounts and end up with nothing but bonds and interest bearing investments in their RSPs? Thanks for your thoughts.

#173 How Are Canadians Using TFSAs? A Visual Breakdown on 11.02.13 at 9:12 am

[…] read this post on Greaterfool.ca where Garth Turner breaks down that stats on how Canadians are using TFSA […]