It’s a date

CHILDREN modified

OK, knock it off. Enough shortbread, eggnog and being nice to relatives. Reality beckons. We have work to do here, people.

In a week it will be 2014, time once again to get serious about your finances. There are three deadlines to remember. First, you have until Tuesday to shove money into your kid’s education savings plan in order to get a government grant this year. Generally speaking, if you contribute $2,500, F will hand over $500. Seriously. Where else are you going to get a guaranteed 20% return on your money?

Note that the deadline is the end of the year, not Junior’s next birthday. Also if you’re just starting this, get the right RESP. The last choice, unless you like fat fees and skinny returns, should be one of those squirrely, pre-packaged deals flogged by the baby-sniffing salesguys hanging around hospitals, working for any company with the word ‘scholarship’ or ‘knowledge’ in it. Instead, open a self-directed plan which will allow you to pack it with efficient, low-cost ETFs.

By the way, Tuesday is also the deadline for settling trades  involving tax-loss selling. Yes, time to unbridle yourself of that RIM stock you bought at $92.50, or anything to do with gold. At least those turkeys will give you a bloated capital loss to offset the gains you scored on US equities – a loss which can also be carried forward and utilized in any future year. (Remember that investment losses cannot be used to reduce your taxable income from employment or dividends, or rental revenues – only capital gains.)

Another deadline is March 1st. That may seem some distance off, but if you’re planning on an RRSP contribution for 2013, start putting money aside now. While you can contribute up to 18% of what you earned this year, and get a honking big refund for doing so, most people don’t. Not even close. The average is more like 5%, and only one in three people  even do that. This is what you get when houses suck off everybody’s cash flow.

RRSPs, by the way, are not just for retirement. Their greatest use is for tax-shifting. Dump money in while you’re working, in other words, and take it out when you’re not. You get to claim the refund from income when you’re making money, then withdraw the funds at little or no tax later. Great for that screwing-off-on-the-Harley year. Or a mat leave. Or going back to school. Or insurance against an uncertain future.

By the way, a spousal RRSP is ideal for income-splitting. If your spouse makes less, will retire sooner than you, is working on a baby or plans on staying home and eating bon-bons, you can use this sucker to save on household taxes. Contribute to his or her plan up to your own limit, deduct the amount from your taxable income, and after three years in the plan it becomes the property of your spouse, who can withdraw at a lower rate. You get to reduce tax on your high income, the spouse gets to take it out and hopefully pay nothing. And remember you can use a ‘contribution in kind’ to do this, which means you don’t need actual money. Cool.

Finally, on Tuesday you can dump another $5,500 into your TFSA. Or $11,000 between you and your squeeze. Or $22,000 more including your two useless adult children living in the basement. If you do nothing else in 2014 to look after your financial wellbeing, this is it. If you make an RRSP contribution, use the refund to stick into your TFSA. If you have money in a pathetic high-yield savings account in the orange guy’s shorts, move it out and into a TFSA. Hoover your chequing account, the couch cushions or your wife’s secret divorce cache to get enough to max your 2014 contribution in January.

Most folks don’t get this, as you know. A recent survey found 81% are ignorant of the contribution limit, 89% don’t know what can go in a TFSA, and fewer than half even have one – with the bulk of the money sitting in dead-end junk like GICs and savings accounts. Bad. After all, this is the only place you can grow money through capital gains, for example, and never, ever pay a cent in tax. In the coming decades the TFSA will become the primary vehicle for funding the second half of your life, and yet the majority squander it.

Why? Maybe it’s because they get their TFSA advice at the bank, which grows fat from every GIC funded. Maybe it’s ignorance, lethargy, financial illiteracy or inbreeding. Maybe it’s Remax’s fault. Or the schools. Beats me.

But I understand this. The wealthy have assets, and the rest have a mortgage. The divide between them is turning cavernous. Rich people never have the bulk of their net worth in a house. And they sure know what the date is.

85 comments ↓

#1 vatoDETH on 12.25.13 at 5:58 pm

Merry Christmas Garth!

#2 newbie on 12.25.13 at 6:05 pm

I read elsewhere that Dec 24th was the final day for tax loss selling? You say its the 31st? Which is right. Is it T+3 for tax loss selling or just T? T+3 would have been the 24th I think.

Must settle by the end of the year. — Garth

#3 Randy on 12.25.13 at 6:09 pm

waz a mortgage ??

#4 World According To Garth on 12.25.13 at 6:12 pm

Christmas in the free world today.

http://armstrongeconomics.com/2013/12/24/christmas-delayed/

Merry Christmas Garth and thanks for all you do here.

#5 Holy Crap Wheres The Tylenol on 12.25.13 at 6:22 pm

Well another Merry Christmas, I’ve recieved gifts and I’ve gave gifts but the best was watching my Children and grandchildren gather around the family room. Now that is a gift you can not put a price on. So to all I wish you a Merry Christmas! Now I’ve got to go and celebrate a birthday! thanks Jesus for everything!

#6 I'm richer than I think on 12.25.13 at 6:28 pm

I come here for the quick read of the article, but always get hooked in for hours by the comments.

#7 Derek R on 12.25.13 at 6:35 pm

Hope Santa was good to you!

#8 newbie on 12.25.13 at 6:35 pm

Found this on the net:

The last trading date for 2013 for Canadian publicly traded stocks is December 24th, and the exchanges close early, at 1 pm Eastern Time, which is 10 am Pacific Time. The Canadian stock exchanges, such as the TSX, are closed on both Christmas Day (Dec 25th) and Boxing Day (Dec 26th). Canadian stocks purchased or sold after this date will settle in 2014, so any capital gains or losses on sale apply to the 2014 tax year.

The last trading date for 2013 for US publicly traded stocks is December 26th. The US exchanges, such as NASDAQ, NYSE and CBOE, are not closed for Boxing Day.

Yes, all trades must settle by the last day of the year. — Garth

#9 Ret on 12.25.13 at 6:42 pm

To help you with those weighty financial decisions, here are links to the best personal tax tables for 2013 that I could find. Sorry BD’s, only Ontario and Quebec available.

http://www.desjardins.com/en/particuliers/evenements/declaration-revenus/ontario_2013.pdf

http://www.desjardins.com/en/particuliers/evenements/declaration-revenus/quebec_2013.pdf

#10 pinstripe on 12.25.13 at 6:56 pm

Belated Merry Christmas to Garth.

Why are you wasting so much bandwidth trying to educate the hornies? What is in it for you to be doing this? Is there some type of government grant available to promote educating the hornies?

The hornies are inbred to self destruct. History will continue to repeat. Any attempt to educate them in finance will only lead to more destruction.

There is more to gain by promoting the hornies and then pulling the rug out from them. The realtors have this process mastered and are doing well financially. Who are the smart ones?

on a side note: duffie has the right idea to peal an additional 25K in expenses while everyone else is pointing fingers at the senators. Who is the smart one?

The time is now to make that New Years Resolution.

#11 DaveS on 12.25.13 at 7:01 pm

Thanks for the info Garth, it has served as a reminder.
We’ve seen some heavy tax loss selling in CDN equities this December, offering a good chance to buy some good plays and throw your stink bids in during the tax loss season while you have room to contribute into a TFSA, RRSP, or other brokerage account. Hopefully the plebs take advantage.

#12 Retired Boomer - WI on 12.25.13 at 7:20 pm

There’s the sharp-tongued blog host we’re used to reading. Yesterday’s Sugar-coated post, while seasonally appropriate, was enough to gag a maggot.

Good advice for year-end planning. I love to both save taxes while working, and hose the tax-man for all time with those Tax Free Savings Accounts! Have not tallied this year’s results yet, we are looking dangerously close to 30% Gains on equity portions.

Nothing beats making money with a few astute moves!

#13 KC on 12.25.13 at 7:31 pm

I enjoy Christmas, I just wish people wouldn’t keep trying to drag religion into it.

Happy Festivus to all.

#14 Sim Lee on 12.25.13 at 7:44 pm

I have given up on Santa Claus, and his mental competence to logically distribute gifts.

Last year he gave me ‘Team Jacob’ boxer shorts for Christmas. I sent a nasty letter to him at the North Pole, calling him an idiot and every other name in the book.

This year for Christmas I received a note apologizing for the mix up, and ‘Team Edward’ boxer shorts instead.

#15 Freedom First on 12.25.13 at 7:46 pm

Such a simple yet ultra-valuable post Garth. Yes, RRSP’s & TFSA’s…….both are excellent, and the TFSA Garth, I don’t know how you got that one pushed through for us in your other life Garth, but “Thank You!”. Of course, every Jan. is load up my TFSA. My TFSA is turning into real money now.

What you wrote about TFSA ignorance is true, sadly. I can’t tell you the # of people I have tried to inform about the TFSA’s who have given me a look back as if I was trying to hoodwink them, or I didn’t know what I was talking about. I know if I wrote here what I have done with my RRSP’s and TFSA over the years I have been able to fully take advantage of their distinct features, which you have described numerous times in great detail over the years(thank you:), most of the Canadian public would not believe me, and still not believe how fantastic both are. I look forward to the decades of tax free growth in my TFSA (Best financial gift to Canadians ever!). And my RRSP’s over the years, finessing a high tax return going in, and a low tax bill coming out, and after growth too, sweet. Side note, to do with RE, as a renter in a Bull crazy RE market, and a former owner of RE property(s) in RE bear(cheap) market until selling into a RE bull market, it is super sweet to own REITS that pay dividends while paying no: property tax, maintenance costs & all the other costs that go with home ownership, while at the same time, losing so much liquidity, diversity, and balance. I too, am not against home ownership, I am against financial insanity.

#16 Tony on 12.25.13 at 7:46 pm

A TFSA wouldn’t fund the second half of a dog’s or cat’s life. Maybe a parrot’s and definitely a goldfish’s.

In two decades it will rule. — Garth

#17 walltiger on 12.25.13 at 7:54 pm

All the best in the new year Garth, and everybody else. better health, more money and enjoy life.

#18 jess on 12.25.13 at 8:28 pm

… 8 year old Laney’s last wish Christmas wish was to hear carolers at her door. By way of social media and the local news, her family put the word

guess how many showed up?
http://truth-out.org/opinion/item/20832-laneys-christmas

#19 SpareMe on 12.25.13 at 8:30 pm

This post reminds me how out of touch, not only politicians, but also former politicians, are with the financial realities of the average Canadian. Greater Fool braggart minions exempt, of course.

You can ignore me and stay average, but why would you wish to? — Garth

#20 Holy Crap Wherw The Tylenol on 12.25.13 at 8:47 pm

Here’s a meet little tidbit of information for all of you out there who have a mortgage, the word mortgage is French and when translated to English it means death contract! Who knew….,

#21 DP on 12.25.13 at 8:54 pm

Garth – Merry Christmas and all the best in 2014.

Re spousal RRSP. I have maxed out my contribution room and plan to put extra money into spouses RRSP before March 1. I thought this was okay as I am not over contributing to my RRSP but, instead, putting the “overage” it into my spouse’s RRSP.

Have I got it wrong?

You must gift the cash to your spouse, who then must have enough personal RRSP contribution room to accept it. — Garth

#22 Avi on 12.25.13 at 8:55 pm

Would you mind explaining what do you mean by a self-directed RESP?
Thank you

A plan you administer on your own (or hire someone to do it) in which you control the assets placed. For example, it can be at a bank or (better) set up through an online brokerage or run as part of your investment portfolio by an advisor.

#23 DP on 12.25.13 at 9:03 pm

Garth – Merry Christmas and all the best in 2014.

Re spousal RRSP. I have maxed out my contribution room and plan to put extra money into spouses RRSP before March 1. I thought this was okay as I am not over contributing to my RRSP but, instead, putting the “overage” it into my spouse’s RRSP.

Have I got it wrong?

You must gift the cash to your spouse, who then must have enough personal RRSP contribution room to accept it. — Garth

Is the deduction then at my (higher) rate or spouse’s (lower) rate?

Your spouse’s rate. Since your contribution room is gone this is hers alone with no connection to you. — Garth

#24 Habbit on 12.25.13 at 9:13 pm

Thanks for the post Garth. Now go have a drink and put your feet up man!

#25 TS on 12.25.13 at 9:33 pm

Don’t listen to Garth.

I have it from an inside source that he spent this Christmas with his best friend Eric Sprott and is thinking about putting all of his money into silver bars.

#26 Ogopogo on 12.25.13 at 9:40 pm

#16 Tony on 12.25.13 at 7:46 pm
A TFSA wouldn’t fund the second half of a dog’s or cat’s life. Maybe a parrot’s and definitely a goldfish’s.

In two decades it will rule. — Garth

Dude, do you have any idea how much longer than a cat, dog or just about anything without roots a parrot lives?

Close to a century. Yeah, that’s right, be sure to name your parrot as your beneficiary when you open a TFSA.

Oh, before I forget and since I wasn’t around for the previous blog post: Merry Christmas, Garth, and merci beaucoup!

#27 Piccaso on 12.25.13 at 9:41 pm

#16 Tony on 12.25.13 at 7:46 pm
A TFSA wouldn’t fund the second half of a dog’s or cat’s life. Maybe a parrot’s and definitely a goldfish’s.

In two decades it will rule. — Garth
………………………………………………………………………

In twenty years I’ll be asking who my son is 5 times at the same sitting.

#28 Calgary Conditional Owner on 12.25.13 at 10:01 pm

Hey Garth, if I put money on the spousal RRSP plan I opened for my wife and it stays there for less than three years, but within that period I lose my job and need to take it out, would it be tax free? Technically it doesn’t belong to her yet and I’m not making any money. Thanks.

Any money taken prior to three years is attributed to you and is taxable income. — Garth

#29 Calgary Conditional Owner on 12.25.13 at 10:16 pm

Thanks for that Garth. Also, what is a “contribution in kind”? How do you request it and/or get it approved?

An RRSP contribution need not be in cash. You can transfer a security already owned (ETF, stock, GIC) into a plan and it yields the same result. However the move might trigger a capital gain. — Garth

#30 Whinepegger on 12.25.13 at 10:17 pm

Another Spousal RRSP deadline to be aware of: make your contribution before Jan. 1. CRA looks at the CALENDAR date of the contribution, not the tax year it is contributed. (i.e. contribution made Dec 31/13 may be tapped into by your spouse in 2016, whereas contribution made Jan1/2014 may only be tapped into by spouse in 2017.) Doesn’t matter if the contribution is claimed for 2013 tax year or 2014 tax year.

http://www.theglobeandmail.com/globe-investor/personal-finance/what-are-the-rules-on-withdrawing-money-from-spousal-rrsps/article536063/

#31 RayofLight on 12.25.13 at 10:29 pm

I have confidence that the TFSAs will remain essentially as they are now in the future. I doubt the contribution amounts will be increased, but I doubt they will become taxable. I am not,however, confident that my tax rate will stay the same, but rather the rate will most likely be increased in the future . Even though I do not have to with draw from my RRSPs for another 9 years, I think it would be wise to finance the TFSAs through RRSP with drawls now . I know what the rates are now.

#32 thinker on 12.25.13 at 10:40 pm

You are wrong about RRSP’s. My folks are now stuck with money in RRSP at retirement and cannot really take anything out.

1) Take a lump, get a heavy tax bill
2) Get ripped off by annuity from big insurance company

If you must contribute to an RRSP, it should only have your fixed income assets and TSFA should have your equity assets.

Over the long run, the smart thing to do would be to have three accounts

1) TFSA – Long Equity
2) Trading Account – LONG SPY
3) RRSP – Long Bonds – SHORT SPY

This way you can get your tax savings, have a loss in your rrsp (no future tax bill) while your after tax dollars gain in account 2 are only taxed at the capital gains rate.
This has done great for my folks account this year as it basically transferred 30% out of RRSP into useable cash today.

I said the RRSP is best for tax-shifting. If your folks received a lifetime of tax refunds for making contributions, they should expect to be taxed on the withdrawals. The rules were always clear. Did you explain them? — Garth

#33 quebec economist on 12.25.13 at 11:03 pm

Was thinking of going in the financial service business (since the age of 14).
My question for you Garth is if you recommend self directed ETFs for your clients how do you get paid?

Good write up tonight…good check list.

True advisors are paid for knowledge and actions. They do not collect commission for selling products. — Garth

#34 T.O. Bubble Boy on 12.25.13 at 11:37 pm

#16 Tony on 12.25.13 at 7:46 pm
A TFSA wouldn’t fund the second half of a dog’s or cat’s life. Maybe a parrot’s and definitely a goldfish’s.

In two decades it will rule. — Garth
—————————————-

Tony – as of January 1st 2014, you will have $31,000 + gains available for investing in a TSFA.

My TSFA (where I wasted the first year sitting in the orange guy’s shorts) is sitting around $36,000 — which will be $41,500 as of January 1st… assuming say 10% gains, that is over $4000 per year in gains tax-free!

Even putting this amount in a 3% GIC, that is over $1000 per year tax free!

Forget 20 years like Garth is saying, this thing is a big benefit today.

#35 Nemesis on 12.25.13 at 11:40 pm

AwRi’Then, AuldPol – here ya go:

http://youtu.be/VLs09J_x6-c

[NoteToGT: That was a ThematicChallenge… Right? NoteToSaltyDogz: Bet you didn’t know that was recorded in the Depths’OWinter, eh?]

#36 Nemesis on 12.25.13 at 11:53 pm

BonusKinkyZen:

http://youtu.be/fvDoDaCYrEY

[NoteToSaltyDogz: They’re Hopping from IceFloe to IceFloe on TheRiver today as SiberianWolves GiveChase & GaleForceWinds have the Boffins minding the ThamesBarrier wondering whether to push the buttons… OhYes, Terry&Julie were, like, so VerySweet. I’ll bet they’re on ‘Ol OxfordStreet right now… BoxingDayBargainHunting.]

#37 Sideline Sitter on 12.25.13 at 11:57 pm

Merry Christmas, everyone… a couple of questions.

1) My wife and I both have room to contribute and a lot of cash sitting mindlessly in the bank. It’s been a great year, as I’ve made double what my wife made, but I know that gravy train is over (I switched jobs, less better but better long term opportunity). The cash in the bank is both of ours, so is there any benefit to me giving the wife money for her RRSP? It’s going to happen either way… what am I missing here?

2) Should I really max out my TFSA in January? I just withdrew over $29K from it, and plan to put that plus the $5500 back in, but was going to spread it out over the year ($2880/mo) in a really short-term way to “dollar cost average”. Is the reasoning that my profits year-long will outweigh the DCA?

Any and all feedback, send it over!

Enjoy the quiet folks!

#38 Bob Rice on 12.26.13 at 12:04 am

I’ve read teachers, civil servants and other public sector workers who’ll receive very good pensions shouldn’t bother with RRSPs.

Is this accurate info? Thoughts?

People with DB plans are smart to invest mainly in their TFSAs and non-registered account. — Garth

#39 skored on 12.26.13 at 12:39 am

Hey Garth…re: deadline #2 – tuesday to settle trades, with a 3 business day settlement window, was the deadline not the 24th?

Also, a couple of end of year bonuses which seem to work every year that I tend to take advantage of – I buy certain no load real estate funds mid december where the final week of the year they pop 1-2 % based on some sort of adjustment or year end distribution. Then I sell first week of Jan. Also Boston pizza income fund earns you 2 dividend payments in december. So you only need to own for a week to gain 2 months of income. I played with both of these the last number of years, and can score a couple extra points without fail. Bpf tends to be higher a couple weeks after divy earned, so I haven’t lost yet.

#40 KommyKim on 12.26.13 at 1:38 am

RE: #37 Sideline Sitter on 12.25.13 at 11:57 pm
2) Should I really max out my TFSA in January? I just withdrew over $29K from it, and plan to put that plus the $5500 back in, but was going to spread it out over the year ($2880/mo) in a really short-term way to “dollar cost average”.

Throw as much cash into the TFSA as you can. If you want to dollar cost average, store the cash within the TFSA in whatever vehicle you want; High interests savings, GIC, etc, while waiting for that stock/ETF to drop.
I’ve read studies which state that if you have the cash on hand, it is best to invest it straight away (balanced portfolio) rather than holding back and DCAing it.

#41 Flamed out in Kitchener on 12.26.13 at 1:39 am

Boxing day already … ready, set … shop. Okay, never mind. If you are buying a new car in 2014, don’t forget to cash out the equivalent non-reg investment dollars, buy the car, then borrow back the money on a HELOC , buy your securities back … now you have a tax deductible car loan (interest portion) … you’re welcome. Happy New year.

#42 KommyKim on 12.26.13 at 1:51 am

Everyone should check how much TFSA room they have before contributing in 2014. Don’t rely on your “memory”. It is easy to check at the CRA’s site:
http://www.cra-arc.gc.ca/esrvc-srvce/tx/ndvdls/qckccss/menu-eng.html

What you’ll need to log on:

Your social insurance number;
Your date of birth;
The dollar amount you calculated and entered at line 150 (Total Income) of your most current filed and processed income tax return from the previous two tax years.

#43 TEMPLE on 12.26.13 at 2:02 am

Finally, on Tuesday you can dump another $5,500 into your TFSA. Or $11,000 between you and your squeeze.

Hi Garth, a quick and possibly stupid question (blame it on the turkey bloat if it is stupid). Anyhow, is the reason we can transfer $5500 to our TFSAs on Tuesday because the cash won’t actually move until the next business day? I thought TFSA contributions could only be made in the new year (assuming they are maxed yearly at the start of each year).

Thanks, and happy Mythmas!

TEMPLE

#44 JJ on 12.26.13 at 3:43 am

Garth whats your take on giving stocks to charity at the end of the year for getting par value on them plus a refund for giving to a charity? Any thoughts and what are the mechanics of it exactly? Can you avoid capital gains on your stocks and get a refund for gifting to a charity? I have not seen you mention this before.

#45 Freedom First on 12.26.13 at 4:13 am

#25 TS

I thought it was silver bells?

#46 thinker on 12.26.13 at 5:22 am

Hi Garth,

Tax shifting comment sure, but you write in your post that tax at old age is basically zero, not the case. Income is income, no matter what your age. But at least I left you with a “tax liability shifting” example. Think about that one

Not even close to what I wrote. — Garth

#47 FTP - First Time Poster on 12.26.13 at 7:32 am

Well Garth,

Another year has passed and another year of me MOSTLY agreeing with you and your message. Now we just need to get you into schools and universities where young nimble generations need heavy influence to save this country. It’s been taken over by nitwits and morons who have become professional public servants.

It’s time to put power back into the hands of the people through financial literacy and an education that actually teaches you something.

All the best to you and yours in 2014.

#48 live within your means on 12.26.13 at 9:23 am

A belated Merry Christmas to Garth, Dorothy & Bandit & the BD’s. Best wishes to all for good health, happiness & prosperity in 2014.

#49 Paul on 12.26.13 at 9:40 am

13 KC on 12.25.13 at 7:31 pm

I enjoy Christmas, I just wish people wouldn’t keep trying to drag religion into it.

Happy Festivus to all.
————————————————————No you don’t

#50 Jay on 12.26.13 at 10:00 am

Thanks for the tip on capital losses. I’ll be taking some of this year.

#51 TurnerNation on 12.26.13 at 10:25 am

The Queen, the Pope and Smoking man have all released their official Christmas messages of hope. I see his blog.

Gold/Silver has put in a short term bottom – will help the TSX outperform the S&P 500 in 2014. (Sounds like an early prediction.)

Following this sentiment chart roughly:

http://scharts.co/1c8HcB0

#52 Individual Stocks on 12.26.13 at 11:33 am

Garth, you advice against individual stocks without having 7 figures+ because diversification isn’t possible but how does one become truly wealthy with just 6-8% annual growth.

The risk/reward doesn’t seem attractive. I risk 100% of my portfolio in diversified ETFs only to gain 8% but to lose up to 40% in a market crash/correction.

Me and my friend have been using this other strategy of keeping portfolio 80%+ cash at all times as savings and about 20% in well-researched, hi-growth individual stocks (mid cap size with consistent QoQ growth). So only 20% of capital is being risked as opposed to 100% making it easier to sleep at night and returns on the 20% have been in multiples of 2-10x. I.E. Tesla, recent Fannie mac, Alimentantion Couchtard, etc etc. Total returns in this strategy yield 20%+ as opposed 6-8% in the risk all your capital strategy.

What do you think? Will our strategy hold long term ? I only started last 2 years but my friend’s been doing it since 2003 when he finished uni with success.

Your total return number looks bogus and the strategy’s ridiculous. — Garth

#53 TurnerNation on 12.26.13 at 11:39 am

We are living in the frozen North where there’s no replacement for displacement. Life or death.
If I lived in a house would invest in one of these quiet Honda generators. Sufficient for small electric heater in one room and charging. (With monoxide detector and 150′ extension cord, natch.)

http://powerequipment.honda.ca/generators/inverter-series/eu2000kc2

Keep a large can of gas in the shed – add bottle of fuel stabilizer to it – good for one year of storage. Each year, dump old gas into tank of neighbour’s Kia and refresh.

Luckily my rental kando has a rooftop generator for common systems (no power in-suite) but power remained on.

#54 Smoking Man on 12.26.13 at 11:42 am

I made a Bobo again, induced by Crown Royal.

The most scathing, factual assessment of the family ever written. Posted live on Facebook for the world to see.

Drinking and texting just as dangerous as drinking and driving.

Reading that post today in the light of sobriety

Perfect

It felt great,

#55 Dual Citizen in Canada on 12.26.13 at 11:51 am

As a dual citizen I was advised to not have a TFSA because the IRS would consider any gains as taxable income, plus, tons of paper work for my tax filing. Garth, I have a substantial 401k, should I be transferring that to Canadian RRSP when I turn 55 1/2? My financial advisor, who is also a dual citizen, seems to think it’s the thing to do.

Why wait? Transfer it now. You can utilize existing RRSP room to effect a tax-free rollover. — Garth

#56 Ernest on 12.26.13 at 12:05 pm

Without Jesus there wouldn’t be any Christmas!

Yesterday, dude. — Garth

#57 EvilMagpie on 12.26.13 at 1:40 pm

What of RRSPs and TFSAs if I’m moving to the USA for 3 years at least? Prices are completely upside down and the price/rent ratio in my neighbourhood is something like 8-9. And yet, my rent is still lower than what I’m paying in Calgary. Sure, I’ll have a 401k and Roth IRA, but which type of account’s the best to grow cash for 12-18 months if I want to save the 20% down?

#58 Shawn on 12.26.13 at 1:52 pm

Individual Stocks

Individual stocks at 52 described a strategy:

Me and my friend have been using this other strategy of keeping portfolio 80%+ cash at all times as savings and about 20% in well-researched, hi-growth individual stocks (mid cap size with consistent QoQ growth). So only 20% of capital is being risked as opposed to 100% making it easier to sleep at night and returns on the 20% have been in multiples of 2-10x. I.E. Tesla, recent Fannie mac, Alimentantion Couchtard, etc etc. Total returns in this strategy yield 20%+ as opposed 6-8% in the risk all your capital strategy.

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

Most people have no ability to pick well-researched hi growth individual stocks that are not already priced for growth to the moon.

BUT for those who can, there is opportunity.

I agree with the strategy of keeping a lot of cash. I use cash as a stability factor because I am not aware of any short term bond-like investments that both return much more than cash and offer no risk of capital loss.

Most of this year I was one third cash and two thirds in a very few carefully selected stocks (Canadian Tire, Wells Fargo, Toll Brothers, Melcor, Stantec, Walmart, Berkshire Hathaway, Bank of America and a few others. These were blue-chip type stocks that happened to be “on sale”.

I do a bit of trading, buying on dips selling on rallies. I sold out of some of these completely during the year. (They are not necessarily good buys at this time)

My gain in 2013 has been 32% on the entire portfolio.

There are many different strategies in individual stocks that work. But most people have no time or ability to do the research. Be VERY careful if you go this route.

The vast majority of people need an advisor.

#59 Individual stocks on 12.26.13 at 1:52 pm

Your total return number looks bogus and the strategy’s ridiculous. — Garth

Here are the numbers:
Age:Late 20s. 100k in savings.

Acc. to strategy: Hold 80k as cash. 20k in stocks.
Risking only 20% of capital -> Sleep well
20k goes up by 3x to 10x. (Ex. TSLA, ATD.B, Freddie MAC, etc.). Assuming modest 4x (conservative calc)
Capital gain before taxes: 60k
60k / 100k = Total return of 60% with max risk of 20%

Already beating the “risk entire portfolio” for a paltry 6% return strategy by 8 years (1.06^8 = 1.6)

The key is finding these winners.

One may not find them every year to get 60% return every year but as long as you find them just ONCE every 8 years or less, you already beat the annual 6-8% return and the roller coast rides/headaches associated with risking all your capital.

Just an idea. Looking to bounce ideas.

Another thing about the 6-8% return that doesn’t make sense to me is how a diversified portfolio is suppose to beat a diversified US GDP of 3% in good times by 2X consistently/long-term without leverage 2X leverage or pure-long portfolio.

Only way I see making that kind of return is if investing 100% of your portfolio in EM where one does see yoy GDP growth of 7-8%

that it’s beating US GDP of

#60 Indstocks on 12.26.13 at 2:11 pm

Your total return number looks bogus and the strategy’s ridiculous. — Garth

Thanks for the feedback Garth.
I’m looking to bounce ideas.

So here are the numbers:

Late 20s. Savings of 100k
Acc. to strategy: Hold 80k in cash. Risk only 20%.
So 20k in individual stock (s ).
Return of 3x-10x. (See TSLA, ATD.B, FMCJK, etc.).

Assuming modest return of 4x. Profit: 60k
60k/100k = 60% total return before taxes.

Beats the “risk-it-all” strategy in a balance portfolio by 8 years (1.06 ^ 8 = 1.60)

The key is to find these winners.

One may or may not find them every year for that kind of return every year. But as long one can find them just ONCE every 6-8 years or less, by researching high growth mid-size companies with sound real-economy and fin-statements analysis knowledge, you’re beating the other strategy without risking all your capital and avoiding the roller-coaster rides/headaches that one doesn’t need, specially when saving for retirement.

Also, Garth, what I don’t get about your strategy is how one can manage to get 6-8% in a balance portfolio consistently/long-term when the highly diversified US economy grows only 3% at it’s best.

Are you assuming 2X leverage ? Or are you investing 100% of your portfolio in a diversified EM economy like China returning 7-8% GDP growth YOY ?

#61 Indstocks on 12.26.13 at 2:17 pm

Be VERY careful if you go this route. – Shawn

One has to be always careful but assuming losing a ridiculous 50% of your high risk high growth individual stocks, you have only gone down 10% of your portfolio.

The strategy has a strict rule of never investing the 80% cash you hold so you will ALWAYS be safe even if the stock blowsup.

So guaranteed cash upon retirement

Sounds great if you already have a couple of million. BTW, no financially educated person believes stocks will blow up. — Garth

#62 Mr Harper on 12.26.13 at 2:35 pm

Don’t forget, on Jan 1 possession of incandescent light bulbs will become a felony in Canada, trust me I know what I’m doing.

PS, I got a laptop for Christmas, there is a merciful Santa

#63 Ralph Cramdown on 12.26.13 at 2:38 pm

#52 Individual Stocks — “[…] Total returns in this strategy yield 20%+ as opposed 6-8% in the risk all your capital strategy.”

So calculate your IRR’s and Sharpe Ratios and post them. Then we can see whether your returns have exceeded the expected returns for the amount of risk you took.

#64 Squatter on 12.26.13 at 3:21 pm

#59 Indstocks: Also, Garth, what I don’t get about your strategy is how one can manage to get 6-8% in a balance portfolio consistently/long-term when the highly diversified US economy grows only 3% at it’s best.
—————————————————–
You’re mixing up GDP growth and company profits.
Even if GDP growth is zero, the companies may have decent profits.

#65 Ralph Cramdown on 12.26.13 at 3:35 pm

WORLD’S TALLEST SMALL INVESTOR ATTEMPTS TO OVERCOME WORLD-RECORD HURDLE RATE:

“The strategy has a strict rule of never investing the 80% cash you hold so you will ALWAYS be safe even if the stock blowsup.”

Assuming a long-term average annual rate of inflation of 2%, the 20% of your portfolio that you risk needs to generate 10% a year just to keep the whole portfolio even in real terms. At 3% inflation, you need to generate 15% just to break even. Good luck with that.

You like momentum strategies? Read Loeb’s “The Battle for Investment Survival” for prototypical theories on momentum investing and how much depends on inflation protection, and to see how little has changed over the years.

You have to be a very good stock picker to outperform the broad index if you’re often 80% in cash. If you’re ALWAYS 80% cash? I’ll go so far as to say it can’t be done over a ten year period.

#66 Squatter on 12.26.13 at 3:40 pm

#52: Individual Stocks:
Me and my friend have been using this other strategy of keeping portfolio 80%+ cash at all times as savings and about 20% in well-researched, hi-growth individual stocks (mid cap size with consistent QoQ growth).
————————————————————
I’d be curious to know what you mean by “well-researched”?

#67 Mister Obvious on 12.26.13 at 3:46 pm

#31 RayofLight

“Even though I do not have to with draw from my RRSPs for another 9 years, I think it would be wise to finance the TFSAs through RRSP with drawls now . I know what the rates are now.”
——————————————–

I have been doing exactly that ever since TFSA’s began. Maximum contribution from RRSP each and every year. Yep, you’re quite right. I know what my taxes are now. I don’t expect them to be less in the coming years.

I don’t need to withdraw any RRSP funds for 8 more years. Even with maximum contributions I’ll never get it all transferred but I’m doing the best I can.

BTW, the PM was on TV last night. He figures the budget will be balanced in the next year or two. I remember he once said that might allow a doubling of the maximum TFSA limit. Should be interesting.

Oh yeah… and about that senate stuff… he didn’t know anything about it.

#68 not 1st on 12.26.13 at 3:54 pm

IndStocks, you are are wasting your time. Stock picking or day trading is a lose lose game. You think you have better research than Wall Street does? Can you execute penny trade differentials faster than warehouses of computers? You are just finding flash in the pan stocks hoping to ride the wave before you can identify an exit point ala RIM and others.

Everyone I know who has tried that has lost. They don’t know when to get out so they average down and down and down and ride it lower.

Meanwhile your cash hoard is losing 3 percent or more each year.

#69 not 1st on 12.26.13 at 3:58 pm

I calculate that earning 20% return on 20% of your money less 3% to inflation on the remaining 80% is pretty much the same deal as earning 6-8% on the whole shebang and then getting out of the basement. Plus a whole lot more piece of mind.

#70 Nemesis on 12.26.13 at 4:16 pm

QuantitativeBoxingDayMischief:

“With international shoppers, particularly from China, Russia and Nigeria, spending on average four times more than domestic shoppers, retailers can look to boost Christmas trading by tailoring their in-store experience to these high-spending tourists.” – Gordon Clark, UK manager of Global Blue

[UK Telegraph] – International league of nations boost British sales on Boxing Day

…”Chinese shoppers are the biggest spenders in the UK of all foreign nations. However, shoppers from Middle Eastern nations top the charts for the most spent per transaction.

Qataris spend the most on average – £1,714 per transaction – followed by those from the United Arab Emirates, who spend an average of £1,372.

The Chinese spend £1,367 on average per transaction but are more likely to return to the tills with more goods, according to shopping tourism company Global Blue.

Shoppers from Russia, Nigeria and India are also among the highest spenders, while the amount spent by Thai shoppers has risen 42 per cent year-on-year.”…

http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/10538346/International-league-of-nations-boost-British-sales-on-Boxing-Day.html

vs….

[UK Telegraph] – Half of high street retailers in danger of closing down: Half of all high street chains in Britain are at “serious risk of failure” a major report on the future of British retailing will claim this week.

“More than 11pc of shops in Britain, or 40,000 units, currently stand empty.”

http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/10278443/Half-of-high-street-retailers-in-danger-of-closing-down.html

#71 Shawn on 12.26.13 at 4:38 pm

RRSP and TSFAs

TSFAs are great. Some people will amass large fortunes with TSFAs over 30 years or more and they won’t have to worry about tax. (If the rules remain unchanged).

RRSPs are also great.

The biggest advantage of an RRSP is actually that most people will treat it as untouchable money.

In certain situations like mat leave or job loss it might be okay to cash some. However I notice that marginal tax rates hit 20% (Ontario) as soon as the personal exemption of around $11,000 is used up.

So unless you have less than $11k other employment type income in a year you are hit with a minimum 20% marginal tax on RRSP withdrawals. That can still work out if you will have RRSP or TSFA room to put that money back into a tax sheltered vehicle before long.

If you get your hands on the 80% (100 minus 20% tax) and get that into TSFA and avoid paying 35% tax sometime in the future that definitely works out.

If you could have maxed your TSFA in any case (from other funds) then it would be best not to cash the RRSP.

Anyhow the point is people mostly tend to leave RRSP money untouched and COMPOUNDING until retirement. That is a huge advantage of the RRSP. It is considered an untouchable savings account.

TSFAs are easily accessed and probably half the contributors or more will be tempted to grab the cash and spend it long before it can compound up to a significant amount.

Again both the TSFA and RRSP are great if handled properly. The RRSP is simply a lot more idiot proof and that is an important benefit.

To get really rich, max ’em both out if you possibly can. 30 years of doing that (all savings and no play) will make Jack a rich boy (not a dull boy)

#72 Shawn on 12.26.13 at 4:38 pm

Okay meant TFSA, Smoking Man at least will understand…

#73 IndyGuy on 12.26.13 at 5:16 pm

Squatter,

I figured profit growth of an index of matured companies in an ETF would correlate with GDP growth over long term because:

Once a business is beyond its initial stage, cost/unit or cost/project are already known. For the company to grow its profits YoY from which valuations are determined, actual revenues have to grow. So the company needs to expand business or turnover to expand profit. But this is only possible for yonge or high growth companies. A basket of bluechips in ETFs or indexes will not experience this kind of sales growth as they are already saturated. Their growth will be closely correlated to the general growth of the economy or the GDP. Profits YoY won’t grow by themselves if sales growth = GDP growth

With highly researched, I focus on one or just a few sectors that I know something about. Look at the profit margins, sales, sales growth, profit growth, management, market value of the entire sector and see how much growth potential does a particular have to increase its market share while keeping costs constant over time and per unit. That’s how you can determine if the profits and therefore valuations are likely to grow or not. If yes, and consistently, the stock has no choice but to shoot up over time resulting in 100%+ gains.

And only focus on companies with positive cash flows. No speculative small cap stocks not producing any cash. I avoid mining since commodity prices are volatile and too closely related to macro and the Fed printing, etc. Would also avoid bluechips -> Saturated

Basically, apply private equity principles to securities.

#74 IndyGuy on 12.26.13 at 5:32 pm

Meanwhile your cash hoard is losing 3 percent or more each year.

Cash hoard losing a paltry 3% is much better than losing 30-40% in a correction when you panic and sell. It’s also much better than living a rollercoaster life with all your life savings and hard work on the line.

Plus, is the time you spend on investing, managing and thinking about your capital and finances just to beat the 3% really worth it? Many people can work a bit of overtime and save much more annually than the 3% “dead money” which will be there for you guaranteed when you need it.

True. Researching individual stocks does also take tons of time. But if you do it once every 5 years, you’re already beating 6% annual returns as my earlier calc showed.

#75 devore on 12.26.13 at 5:35 pm

Me and my friend have been using this other strategy of keeping portfolio 80%+ cash at all times as savings and about 20% in well-researched, hi-growth individual stocks (mid cap size with consistent QoQ growth). So only 20% of capital is being risked as opposed to 100% making it easier to sleep at night and returns on the 20% have been in multiples of 2-10x. I.E. Tesla, recent Fannie mac, Alimentantion Couchtard, etc etc. Total returns in this strategy yield 20%+ as opposed 6-8% in the risk all your capital strategy.

With only 20% invested at any one time, and 20% total returns, means each trade is netting you, on average, 100%. I’m with Garth calling BS on that. Even if you make “just” 20% on each trade (which is probably what you mean) on a consistent basis, you should start your own fund and make millions investing other people’s money.

So, BS on your story, and know what the terms you use actually mean before you use them.

#76 recharts on 12.26.13 at 6:25 pm

Also, Garth, what I don’t get about your strategy is how one can manage to get 6-8% in a balance portfolio consistently/long-term when the highly diversified US economy grows only 3% at it’s best.

Common sense tells you that it is not possible
Garth, Ralph & Co will tell you that it is.

It is all RE sale tactics applied to something else.
RE is overvalued. Stocks are not. Why? “Because we say so.”
Free money goes only into housing. Other assets are not vulnerable to overvaluation because of cheap money. Why? “Because we say so”

#77 Shawn on 12.26.13 at 6:41 pm

IF YOUR SO GOOD WHY HAVEN’T YOU STARTED YOUR OWN FUND?

Devore just above asks our individual stock picking star:

Even if you make “just” 20% on each trade (which is probably what you mean) on a consistent basis, you should start your own fund and make millions investing other people’s money.

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

I can’t speak for Individual Stocks at 52, but I do know that starting a fund is not easy.

It requires licensing which in turn requires education and I believe five years of full time apprenticeship. The total regulatory burdens are HUGE. (As they should be)

Then there is the difficulty of marketing a fund.

Obviously, some people really do make high returns. I did not see any claim to making 20% on each trade. rather it was a claim to have experienced making 2 to 10X on certain well-researched stocks/. And some names were given. That is 100% to 900% on certain stocks.

Of course some people have experienced that. And of course one should be skeptical of such claims and certainly one should be highly skeptical that it will continue.

But it might for some people. The Bell curve is wide. Even if you look at a ten year period there will be a few people at the ends of the tail on either side. They got their by luck or skill or some combination thereof.

#78 down and out on 12.26.13 at 6:48 pm

here in southern Ontario we pickup both USA and Canadian news ,tried a social experiment about coping with the blackout .Americans in Michigan using generators almost working with the linesmen ,thanking them ,giving them coffee etc. Now Canadians in Toronto surrounding Mayor Ford making a political grudge out of it almost blame OPG for negligence . Apply this to housing prices and you can see why here in Canada when prices meet reality how it is going to go everyone will get blamed but the greedy seller for his fate.

#79 not 1st on 12.26.13 at 6:59 pm

Lets take 1 million dollar portfolio, 20% invested and 80% cash.

Expecting a 20% return on $200,000 = $40,000 annually

Less 3% due to inflation, less another 4% opportunity loss on $800,000 = $56,000 loss

6% return on 1,000,000 = $60,000

Not only does your strategy make less money than Garths ETF approach, if you value inflation and opportunity loss correctly, you are losing money. You need help.

#80 Nemesis on 12.26.13 at 7:03 pm

AuthenticZen being in short supply today… this will have to do:

[UK Indepedent] – Ni hao ma? PM Cameron wants Mandarin to replace French and German in schools

…”Marcus Roach, co-author of the Dragons in Europe resource used at RJ Mitchell primary, said: “China is now a dominant force in the global economy and is investing in and also acquiring significant UK businesses. Schools are recognizing the need to equip their next generation with the skills to prosper in the global economy, and interest in Mandarin Chinese is high.”…

http://www.independent.co.uk/news/education/education-news/ni-hao-ma-children-as-young-as-five-set-the-pace-with-a-love-for-mandarin-9026343.html

[NoteToSaltyDogz: HM (née Haus Sachsen-Coburg und Gotha) was overheard to remark, “We are not amused.”]

#81 Squatter on 12.26.13 at 7:04 pm

IndyGuy:
I meant that 0% growth doesn’t mean 0% return on a stock.
Example: You find a company that grows 0% but has a profit large enough to give you a 10% dividend.
You get a 10% return with 0% growth!

#82 not 1st on 12.26.13 at 7:06 pm

On top of that companies like Tesla don’t pay dividends, so you have capital gains tax to realize your return which means you sell some stock eventually.

Canadian ETFs spin off all that tax free income up to $54,000 per individual, double that for couples.

Your returns are minuscule to negative because your vision is clouded on what wealth really is. You might as well go to Vegas cause you are gambling.

#83 Derek R on 12.27.13 at 2:39 am

#56 Ernest on 12.26.13 at 12:05 pm wrote
Without Jesus there wouldn’t be any Christmas!

Sort of true. But there would be a Yule or a Saturnalia instead. So the feasting would be the same; the gifts would be the same; the family and friends get-togethers would be the same. Would there be a difference? Probably. Would it amount to much? Probably not.

#84 Daisy Mae on 12.29.13 at 12:34 pm

#32 Thinker: “This has done great for my folks account this year as it basically transferred 30% out of RRSP into useable cash today.”

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

Wouldn’t they pay income tax on that 30% transfer?

#85 Daisy Mae on 12.29.13 at 12:43 pm

#39 skored: “Hey Garth…re: deadline #2 – tuesday to settle trades, with a 3 business day settlement window, was the deadline not the 24th?”

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

That is the deadline for TRADING. Which must be wound up by the 31st of December. Isn’t that the way it goes?