Venus & Mars

MOWER modified

Women hate debt. Men crave stuff. No wonder the divorce rate is half.

Books and sites on debt elimination are catnip to many females, while the testo crowd is drawn to the ‘hot tip’ junior mining stock destined to rise 600% in a week. Women seem happy in little houses with no mortgages. Men like vast spaces, status, and consider massive debt the bank’s problem.

In normal times, she wins. But these days are anything but. Cheap money has spawned elephantine debt, made house prices insane, created a wealth effect as real estate bloats, and convinced everyone this is the new normal. So, what’s the best course of action? Load up on loans to buy stuff you’d otherwise never afford, or take advantage of this historic rate break to pay off indebtedness fast?

Well, depends how much you’ve gambled on your house. For example, if you ignored my Rule of 90 (ninety minus your age determines how much net worth should be in a home), and put all your money into a down payment then took on a fat mortgage, you need to recover.

There are effective ways to do that. Making annual lump sum payments, or adding 10% extra to each monthly cheque, for example. You can chop down on the amortization period every time you renew. You can switch to weekly payments and trash the mortgage years sooner. (Ensure you get the right kind of weekly – installments equal to 25% of the monthly.) Or, invest your new savings for growth, then dump a bigger amount against the principal at the end of the term.

The goal should be not only to pay down the mortgage faster, if a house is your only asset, but to ultimately reduce debt servicing costs so you can diversify. That’s what wealthy people do. They don’t have all of their eggs in one basket, at one address, in one city. With real estate values at historic highs and household debt extreme, the odds of a reversal are great. Besides, a one-asset strategy is just gambling in a world where nutbars shoot down airliners and the climate’s screwed.

Diversification means having financial assets as well as real ones. They should first go into your TFSA, then a non-registered account and some RRSPs (best used for income-splitting). I’ve written at length on what to buy, and in what proportion – including bonds, preferreds, trusts and equity ETFs. For most people: no gold, no individual stocks, no GICs.

And once you do build up a reasonable amount of liquidity, the strategy of busting your mortgage is far less compelling. Sorry, girls. But in a world where real estate debt is cheap, and often tax-deductible, you might actually want more of it.

A survey published a few days ago shows lots of people get this. Done by Investor’s Group (yes, those guys with the 1.99% three-year home loan deal) it asked Canadians with at least $500,000 in investible assets (besides their house) about mortgages. The poll found almost 70% of these high net worth folks could pay off their mortgages with cash if they wanted to, but many chose not to.

Huh? Isn’t it the holy grail of people like Gail Alphabet and almost everyone with estrogen and a Bichon Frisé to get that home loan trashed, above all?

Nope. Not the wealthy ones. And there are two big reasons.

First, investors with financial assets have done extremely well over the last five years. Stock markets are up over 150% and balanced portfolios have been delivering roughly twice the annual returns seen in real estate. Even those with conservative portfolios half in fixed income have seen 10% or better gains, and sailed right through the 2008 fugliness.Why would they cash in all of it, triggering capital gains taxes, just to pay down a mortgage at less than 3%?

Remember the latest inflation number? It’s now about 2.5%. So isn’t a mortgage at anything less than prime pretty much free money?

Secondly, wealthy people know about diversification. They like to own lots of assets, instead of shouldering debt on just one. So if you have a $400,000 mortgage costing you 2.4% (TD’s new two-year rate) and your $400,000 balanced portfolio is making 13% (the YTD 2014 return, annualized on a 60-40), why pay debt off? That would simply consolidate all of your net worth into one asset – a mistake the kids make – and exacerbate risk.

Says an IG guy: “Mortgages provide access to lower-cost funds than many other lending facilities because they are seen by the lender as being fully secured, and have a built-in cushion (equity portion) in the event that the value changes over time.” And he’s right. In our house-horny culture even the bankers have been smitten by the false security of real estate.

Of course, lots of wealthy people also happily incur mortgage debt when the interest can be deducted from taxable income. So, the minute some folks pay off their mortgage they take a new one for up to 65% of the equity, invest the money in financial stuff, and create a fat tax break.

In short, a house and a mortgage are part of an overall financial plan. They are not a plan on their own.

He wins. Ouch.

137 comments ↓

#1 TurnerNation on 07.20.14 at 1:44 pm

Is this blog still hosted from Uranus? Just checking email…super early time zone today.

#2 Big English on 07.20.14 at 1:48 pm

I’m happy renting, wife wants to buy half duplex and ‘trade up’ in a few years. Scared to be on the side lines, wants to take on debt. Even when investment account up 6% since March :-(

She’s talking about the house you’re going to buy after the one you haven’t bought yet? Run. — Garth

#3 Smoking Man on 07.20.14 at 1:57 pm

http://latino.foxnews.com/latino/news/2014/07/18/spanish-controller-working-in-ukraine-claims-govt-brought-down-plane-but-does/

I got to admit to you, you bearded beast. I followed your advice, unloaded all my property’s back in 2009.

Bought a small bung, invested the proceeds and made a killing in the markets, far surpassing what I would have made had I just keeped the property’s.

Kind of owe you for that.

See above link.
There story circulating on line that a Spanish aircraft
controller was tweeting in real time, fighters when escorting mh17 and that it’s on radar and on voice Com with atc. His Twitter account vanished, he vanished, and now stories about this guy are vanishing

#4 Andrew Woburn on 07.20.14 at 1:58 pm

China has stepped up its purchases in the U.S. treasury market – that despite tensions and expectations that the country would pull back. “The Chinese government has increased its buying of U.S. Treasury this year at the fastest pace since records began more than three decades ago, data released Wednesday show,” reports Min Zeng for the Wall Street Journal.

http://world.einnews.com/article/214578076/swm3k9U8d8MlKUu_

#5 Love this Blog on 07.20.14 at 2:08 pm

“Women hate debt. Men crave stuff. No wonder the divorce rate is half.”

This is the first thing I have disagreed with you on, lol. You got the genders mixed up?

#6 DocInWaitingRoom on 07.20.14 at 2:17 pm

Give it a few years 5 to 10 and we will be buying homes at 70% off. I laugh at my co workers driving 3 hours per day in traffic while I walk to work.

Rent now and enjoy with minimal headaches , reap the drop later

#7 Frustrated on 07.20.14 at 2:21 pm

Hi Garth, what are your thoughts on BRICS and how could that effect Canada if any ?

#8 The original dave on 07.20.14 at 2:23 pm

MARK…..

Can you list your 5 favourite investment books?? It’s been asked here but never answered

#9 T.O. Bubble Boy on 07.20.14 at 2:30 pm

Wow – early post today Garth!

Here’s my question: what if you’re already without a mortgage (either paid off, or renting), and already diversified to be under the Rule of 90?

For example, let’s take one of those people from the survey, and say they are age 40 with:
$500k in investments
$500k paid off house

The house is 50% of net worth, which fits the Rule of 90.

Since mortgage rates are still near zero, is the recommendation here to take on a HELOC etc. to take advantage of tax-deductible interest and add even more investments?

#10 BEN on 07.20.14 at 2:46 pm

Just recently found your blog, and find it very informative. Thank you. What i love most are your replies to the comment section, love the humor.
P.S what is the rule of 90? i am 27

#11 Ralph Cramdown on 07.20.14 at 2:52 pm

Bearish.

When Investor’s Group thinks it’s time to redefine High Net Worth down to $500k in investable assets, do a survey, and send their salesmen door to door convincing people with paid-off houses that it’s time to lever up and buy some high fee mutual funds (“See, rich people do it!”), how can the end not be nigh?

On the other hand, their website is pushing mortgages for home renos pretty hard, too. Just to get the salesman’s foot in the door, or to get Great West Lifeco’s money out there earning a bit more than nothing?

#12 T.O. Bubble Boy on 07.20.14 at 2:55 pm

#10 BEN on 07.20.14 at 2:46 pm
Just recently found your blog, and find it very informative. Thank you. What i love most are your replies to the comment section, love the humor.
P.S what is the rule of 90? i am 27
—————————–
BEN – just google “rule of 90” site:greaterfool.ca
(there are many times this has been described by Garth)

If you are 27, the max % of your net worth in a home should be 63%.

#13 kabloona on 07.20.14 at 3:05 pm

#11 Ralph, some good commentary….when did $500k become “high net worth”…? Half-a-mil won’t even buy you a crack-shack in most Canadian burgs….

Investor’s Group motto:

“We make money, even if you don’t!”

:-)

#14 sue on 07.20.14 at 3:14 pm

Every guy I’ve ever dated and/or married (until now) has been financially reckless. I am allergic to debt and letting go of money..lol I also love sports and am a little messy. I should probably check my chromosomes..lol

#15 ILoveCharts on 07.20.14 at 3:21 pm

Hi Garth,
What do you recommend for someone who can’t include real estate in their portfolio because it is too expensive in Vancouver and so it would break your rule of 90. Would they be well advised to buy a small condo or house in a cheap part of the country (or another country,) and rent it out?

No. Try some REITs. — Garth

#16 bgs906 on 07.20.14 at 3:31 pm

@ # 8 …The Oringinal Dave

Here is my top 5 book list in best order of reading
Enjoy if you have not already read them !!

1. Millionaire Teacher – Andrew Hallam
2. The Clash of the Cultures – John C Bogle
3. The Intelligent Investor – Benjamin Graham
4. The Big Short – Michael Lewis
5. Code Red – John Mauldin

#17 Smoking Man on 07.20.14 at 3:32 pm

#14 sue on 07.20.14 at 3:14 pmEvery guy I’ve ever dated and/or married (until now) has been financially reckless. I am allergic to debt and letting go of money..lol I also love sports and am a little messy. I should probably check my chromosomes..lol

……

Several kinds of debt.. The bad, debt for things.

Say you could borough 100 million at 3% you invest that getting 8%

5 million a year ain’t bad for doing nothing.

#18 SHELTER THE MONEY NOT THE PEOPLE on 07.20.14 at 3:46 pm

If the long term bond market is driven by investors.
and the Short term market is set by Government.
Does it really mean that the Government has to raise its interest rates if the Long Term bond market rises.
Why can’t they do what they were doing a few years ago when there were not enough buyers for the Short term bonds. Simply buy them with Government paper!
So if this is correct the US would never have a real problem if Interest rates rose.
As I understand it the US has so much debt that if interest rates went to 5.7% (the average of the last 20 years) it would consume all personal income taxes collected in their country just paying the interest on debt.

http://www.cnbc.com/id/101062461

Will some of you pundits clear me up on this.
Could this happen?
What would the consequences be?
My understanding of the bond market is weak.

#19 OttawaMike on 07.20.14 at 3:47 pm

#3 Smoking Man on 07.20.14 at 1:57 pm
See above link.
There story circulating on line that a Spanish aircraft
controller was tweeting in real time, fighters when escorting mh17 and that it’s on radar and on voice Com with atc. His Twitter account vanished, he vanished, and now stories about this guy are vanishing
———————————————

Smoking Man: If you keep writing about this stuff on the internet– they will find you, then come and ge

#20 SHELTER THE MONEY NOT THE PEOPLE on 07.20.14 at 3:51 pm

I meant to add this link to my last post.

http://globaleconomicanalysis.blogspot.ca/2014/01/when-will-interest-on-us-national-debt.html

#21 Linda Pearson on 07.20.14 at 4:05 pm

for Shaun re: #148 Shawn on 07.20.14 at 12:25 pm

Questions[edit]

The Junto’s Friday evening meetings were organized around a series of questions that Franklin devised, covering a range of intellectual, personal, business, and community topics. These questions were used as a springboard for discussion and community action. In fact, through the Junto, Franklin promoted such concepts as volunteer fire-fighting clubs, improved security (night watchmen), and a public hospital.

List of questions[edit]

This is the list of questions Franklin devised to guide the discussions at Junto meetings (from Franklin’s papers, dated 1728, and included in some editions of his autobiography):
1.Have you met with any thing in the author you last read, remarkable, or suitable to be communicated to the Junto? particularly in history, morality, poetry, physics, travels, mechanic arts, or other parts of knowledge?
2.What new story have you lately heard agreeable for telling in conversation?
3.Has any citizen in your knowledge failed in his business lately, and what have you heard of the cause?
4.Have you lately heard of any citizen’s thriving well, and by what means?
5.Have you lately heard how any present rich man, here or elsewhere, got his estate?
6.Do you know of any fellow citizen, who has lately done a worthy action, deserving praise and imitation? or who has committed an error proper for us to be warned against and avoid?
7.What unhappy effects of intemperance have you lately observed or heard? of imprudence? of passion? or of any other vice or folly?
8.What happy effects of temperance? of prudence? of moderation? or of any other virtue?
9.Have you or any of your acquaintance been lately sick or wounded? If so, what remedies were used, and what were their effects?
10.Who do you know that are shortly going [on] voyages or journeys, if one should have occasion to send by them?
11.Do you think of any thing at present, in which the Junto may be serviceable to mankind? to their country, to their friends, or to themselves?
12.Hath any deserving stranger arrived in town since last meeting, that you heard of? and what have you heard or observed of his character or merits? and whether think you, it lies in the power of the Junto to oblige him, or encourage him as he deserves?
13.Do you know of any deserving young beginner lately set up, whom it lies in the power of the Junto any way to encourage?
14.Have you lately observed any defect in the laws, of which it would be proper to move the legislature an amendment? Or do you know of any beneficial law that is wanting?
15.Have you lately observed any encroachment on the just liberties of the people?
16.Hath any body attacked your reputation lately? and what can the Junto do towards securing it?
17.Is there any man whose friendship you want, and which the Junto, or any of them, can procure for you?
18.Have you lately heard any member’s character attacked, and how have you defended it?
19.Hath any man injured you, from whom it is in the power of the Junto to procure redress?
20.In what manner can the Junto, or any of them, assist you in any of your honourable designs?
21.Have you any weighty affair in hand, in which you think the advice of the Junto may be of service?
22.What benefits have you lately received from any man not present?
23.Is there any difficulty in matters of opinion, of justice, and injustice, which you would gladly have discussed at this time?
24.Do you see any thing amiss in the present customs or proceedings of the Junto, which might be amended?

#22 Freedom First on 07.20.14 at 4:05 pm

Seeing and participating in the income survey of Blog Dawgs taken recently, you are posting this to the right crowd Garth. To the house lusting general populations world wide, the already fleeced, and the about to be fleeced, this posting, as wise as it is, comes across as an irritant. Because RE was or still is their Holy Grail at any cost. We have eyewitness proof that the “was” group received a financial screwing of epic proportions. The “is” group is still in the dark as hard as it is to believe, for many of the financially prudent.

However, thankfully Garth, we have been able to observe from your comment section + your posts on your Blog, that you are getting through to some of the formerly financially perverted house worshipers who have since become financially stable. I enjoy reading their stories/comments of gratitude for their new found financial solvency. We need your blog Garth. Happy riding.

#23 D.D. Corkum on 07.20.14 at 4:07 pm

“In short, a house and a mortgage are part of an overall financial plan. They are not a plan on their own.”

This really does sum it up. Some people will swear to their grave that a house is the best possible investment — and they might be on to something! But not if its their only investment.

I still can’t believe how many times people told me I’m finally going to start building “equity” now that I just purchased my first home. Sure, I’ve been renting since I was 18. But since when was a house the only form of “equity” that counted?

It gets even sillier when people say “in a couple years when you move up, you should keep this place and rent it out.” If I reply “well, I actually prefer to rely on REITs for that kind of income” they get all deer-in-the-headlights-look. Sigh.

#24 deaner on 07.20.14 at 4:11 pm

“Women hate debt. Men crave stuff. No wonder the divorce rate is half.”

#5 Love this Blog on 07.20.14 at 2:08 pm
This is the first thing I have disagreed with you on, lol. You got the genders mixed up?

Women prefer men to have debt in order to keep up with the Joneses.

Men taking on debt to buy shiny cars and mortgaged houses is like the inverse of fake breasts or bulimia. It hijacks the animal instincts of the opposite sex so efficiently even though logical reasoning should conclude that debt/fake breasts would be unattractive.

#25 Andrew Woburn on 07.20.14 at 4:24 pm

#3 Smoking Man on 07.20.14 at 1:57 pm
There story circulating on line that a Spanish aircraft
controller was tweeting in real time, fighters when escorting mh17
===================

That link is already dead but the Guardian says:

“A variety of media, including the official newspaper of the Russian government, quoted the Twitter account of a “Spanish dispatcher” supposedly working for Ukrainian air traffic control, suggesting that two Ukrainian fighter jets shot down MH17. The Spanish embassy later said the account was fraudulent and denied that any Spanish person had worked as an air traffic controller in Kiev.”

http://www.theguardian.com/world/2014/jul/19/mh17-russian-media-ukraine-government

#26 Freedom First on 07.20.14 at 4:26 pm

#3 Smoking Man

First, congrats on your making a killing.

Second, your humility is always inspiring.

Third, the Smoking Man is a hoot.

#27 T.O. Bubble Boy on 07.20.14 at 4:28 pm

@ #15 ILoveCharts on 07.20.14 at 3:21 pm
Hi Garth,
What do you recommend for someone who can’t include real estate in their portfolio because it is too expensive in Vancouver and so it would break your rule of 90. Would they be well advised to buy a small condo or house in a cheap part of the country (or another country,) and rent it out?

No. Try some REITs. — Garth
———————-

Probably need some more detail on this point… the “Rule of 90” would not apply to REIT investments (i.e. you shouldn’t buy 60% REITs if you are 30 yrs old). Up to say 10% REIT exposure is great, but % should be driven by overall asset allocation approach and not Rule of 90.

#28 Not an economist on 07.20.14 at 4:31 pm

“lots of wealthy people also happily incur mortgage debt when the interest can be deducted from taxable income”

Sure, “happily” give the bank 5 dollars to keep the government from getting 1 (assuming Ontario+federal capital gains taxes at the highest brackets). The Conservative-minded irrational hatred of paying any taxes whatsoever runs deep.

Taxes aren’t your enemy. Getting paid like shit is your real enemy, but for some reason Canadians don’t like discussing what they earn, yet love to bitch about taxes. If you work for a living, chances are pretty good that someone’s robbing you, but it’s not the government.

#29 Italians love real estate on 07.20.14 at 4:42 pm

I’m all for diversification as Garth preaches and all for using 65% equity in your home to buy other assets.

I have diversified into a rental triplex, condo and cottage

#30 JSS on 07.20.14 at 4:43 pm

Some of the best financial advice ever given to me:

Make sure your house is the cheapest asset you own…(other than vehicle, of course)

#31 devore on 07.20.14 at 4:52 pm

#28 Not an economist

Sure, “happily” give the bank 5 dollars to keep the government from getting 1 (assuming Ontario+federal capital gains taxes at the highest brackets). The Conservative-minded irrational hatred of paying any taxes whatsoever runs deep.

You’re certainly not an economist, that’s for sure. The government won’t get their 1 if there is no investment. What Garth is saying is that borrowing from home equity to invest can make sense even in a low return environment, if tax deductibility brings the cost of money near 0. The investments will generate capital growth and dividends, which are taxable.

Maybe if you could think things through more than 1 step ahead, you wouldn’t be so convinced everyone’s trying to rob you.

#32 JSS on 07.20.14 at 4:59 pm

@ #15 ILoveCharts on 07.20.14 at 3:21 pm
Hi Garth,
What do you recommend for someone who can’t include real estate in their portfolio because it is too expensive in Vancouver and so it would break your rule of 90. Would they be well advised to buy a small condo or house in a cheap part of the country (or another country,) and rent it out?

No. Try some REITs. — Garth
———————-

D.UN (formerly Dundee REIT) is currently paying around 7.75% with monthly distribution. These guys own more office towers than anyone else in Canada.

#33 Guy on 07.20.14 at 5:01 pm

From what I’ve read. Don’t invest through investors group but buy the stocks and bonds yourself so you have the stock certificates. Should an organization such as investor group becomes insolvent, the stocks would go to the creditors.

Money in an indexed fund tends to out perform managed funds on a regular basis.

Having enough gold bullion to cover two to three months of living expenses in the event of high inflation and/or a run on the bank is a good safety valve. For emergencies only.

I have lived through some hard times in my life and have a low risk tolerance. I used to work at the Salvation Army and have seen a number of people pulling up to the soup kitchens and food banks in expensive BMW’s and Mercedes. Why, because they are so far in debt that they could not afford food. Image is expensive.

That has caused me to learn about finances and I am still learning.

And you have a long way yet to go. — Garth

#34 devore on 07.20.14 at 5:03 pm

#24 deaner

Well, one school of thought has it that men buy expensive things because they think that’s what women like. They may or may not, we’ll never know, because they won’t tell us what they want. Even if they did, they would be lying. Women’s predisposition to plausible deniability and freedom from guilt is well established.

#35 Shane on 07.20.14 at 5:14 pm

Garth,

If one thing has bugged me about your blog it is your rule of 90. You need to explain it better.

Let us assume one is 40 years old. Then no more than 50% of their net worth should be in a house. If the average house price is $500,000 then unless a 40 year old has a million dollar net worth, they should not be a homeowner.

If a 30 year old is considering buying a $300,000 townhouse, then they need a net worth of $500,000 to be a buyer (90-30=60% of a net worth of $500k = $300,000).

Based on your formula nobody ever needs a mortgage either, unless you purchase more than 10 years before you are born. What am I missing????

You are missing how to calculate net worth. NW = assets-debt. — Garth

#36 Linda Mulligan on 07.20.14 at 5:15 pm

Garth, question about your rule of 90 – does that apply ‘per person’ or does that apply per household, regardless of the number of income earners? Also, if you bought when house prices were relatively low does the rule of 90 apply to the original purchase price of the property or the current assessed value of the property? For those of us who buy & stay, time alone sees us breaking the rule of 90 simply because our home values have increased even as we grew older…..

Household income, and current value. — Garth

#37 Woman hate debt on 07.20.14 at 5:19 pm

I dont know what debt hating women you are talking about but hook me up with one of those. You can be my wingman.

#38 james on 07.20.14 at 5:34 pm

Venus and Mars. A good description and Putin and the Rest right now.

I find it hard to focus on real estate right now. It really looks like the world is going to head to war. All the news channels and radio today say this event is a quantum leap from everything else that has happened in recent decades.

#39 TurnerNation on 07.20.14 at 5:42 pm

Round up of quotes from last week’s patio/networking circuit:

– Two utterances of “Renting is throwing your money away”. One from a Realtress. (I did not redress her).
– One person with an ‘investment property’ but will be closing on a new build and must sell it else cannot afford the closing. Richer than he thinks?

– Not much talk of balanced ports. My middling workplace RRSP with its choice of pathetic mutual funds is up 9% in a year; rebalanced heavier into bonds over a week ago.

#40 Catalyst on 07.20.14 at 6:04 pm

“Women hate debt. Men crave stuff. No wonder the divorce rate is half.”

I know you don’t believe that Garth. You have harped many times on the men with no backbone who have cave into a mountain of debt to satisfy their spouse’s house lust.

There are no shortage of examples on both sides, but from my experience I would say on average women outspend men handily. Does Louis Vuitton do $9B in sales because men crave stuff?

#41 A Yank in BC on 07.20.14 at 6:06 pm

Based on my experience, you have the genders exactly backwards in the first two sentences. Lord almighty.. do you ever!

#42 Rainclouds on 07.20.14 at 6:09 pm

#10 Ben P.S what is the rule of 90? i am 27

I hope you dont work anywhere, near anything, that requires basic english comprehension

Look UP ^: Paragraph 4, Sentence 2

Unbelievable……

#43 wrongwrong on 07.20.14 at 6:39 pm

Your generalizations about the sexes do not become you garth. I think in many relationships you have the sexes exactly backwards. Don’t stereotype based on your own personal life or whatever! My wife brought 80k of debt to our relationship, but I love her anyways.

It was your choice, not mine. — Garth

#44 AndyK on 07.20.14 at 6:54 pm

@#32 JSS on 07.20.14 at 4:59 pm
D.UN (formerly Dundee REIT) is currently paying around 7.75% with monthly distribution. These guys own more office towers than anyone else in Canada.

Really, this is the best example you can come up with?

– you paid $3197 for 100 stocks one year ago
– received $171 in distributions since then
– sell today for $2892

You are $134 short after being “investor” for one year and this is not counting any brokerage fees.

I can get you this kind of return without owning one single office tower.

#45 BG on 07.20.14 at 7:04 pm

“Women seem happy in little houses”

Yeah, right…

“…with no mortgages,” I said. — Garth

#46 dissapointments on 07.20.14 at 7:08 pm

I am 38 with a four year old. Have been working since 23. Supported husband though college and his Phd. he came out without a single debt in school. his tuition and household expenses were supported by me. I believe in not having a single debt and living within your means. that is what my parents taught me. dont have any debt now.

now he has left me, I have a child to take care of. my youth, energy, so much money is gone. moreover i am very angry.

I have managed to put full money in Tfsa–have 40,000 in total. Have 10,000 is rrsp and 15000 in savings. my daughter has 15,000 in resp. my tfsa and resp did very well in last three years as i diversified like you suggested. also, i rent.

I save around 800 bucks in month and have no debt. I live frugally and feel doing well considering my “welthy friends’ who seem to have everything but no disposable cash.

you blog dogs have any suggestion how I can do better. I get very anxious thinking about my future. I feel at old age i will end up in homeless shelter. I am scared of getting into a relationship. If I get into another relationship, how can I save myself from financial ruins.
is doing prenup enough. has anyone in the blog gone through similar experiences.

#47 waiting on 07.20.14 at 7:09 pm

“Gail Alphabet”
you crack me up…

#48 pinstripe on 07.20.14 at 7:10 pm

This blog has been sticking with the notion that interest rates will be going up and house prices going down. This has been the theme since 2008. to date there is no movement upward.

The facts are that no government cannot not survive an increase in interest rates. Too much debt.

I keep money in GIC’s where a 2% interest on a 5 year gic is sufficient for me. No debt and I cannot spend what I have.

My living expense for one year is 28000 dollars. A can of sardines is my biggest expense for a day. at age 86 I have more than I need.

The young people today will have many challenges on their shoulders.

Glad you like sardines. — Garth

#49 omg on 07.20.14 at 7:15 pm

#18 SHELTER THE MONEY NOT THE PEOPLE
As I understand it the US has so much debt that if interest rates went to 5.7% (the average of the last 20 years) it would consume all personal income taxes collected in their country just paying the interest on debt.
—————

I keep hearing this scare mongering. Likely from some guy selling a doomer newsletter or gold coins.

US debt is not like one big variable mortgage – its spread out in tiered-term bonds from 1 month terms to 30 year terms (they may even issue 50 year bonds).

So even when rates rise most US government debt is locked in for years.

The debt calculation also usually includes what’s on the Fed’s books – which is not really debt but liquidity facilities which will be retired over the next few years.

This gives the US years to adjust if they need to – how will they adjust?

They can pump up the inflation rate to reduce the real value of the bonds.

They can raise taxes

Or the central government’s favourite – download to lower levels of governments by cutting transfers.

#50 Smoking Man on 07.20.14 at 7:25 pm

Ottawa Mike

If you think my above post was bad, not a day ago I told you, putin will retaliate against the lynch mob by out 911 facts.

We here is the start. From the zero guy…. Sorry garth I know your not a fan, but I couldn’t copy the link to the YouTube of a Congress men, basically stopping short of saying, inside job..

We are in uncharted waters.

http://www.zerohedge.com/news/2014-07-20/i-was-absolutely-shocked-what-i-read-congressman-calls-release-secret-911-documents

#51 Ralph Cramdown on 07.20.14 at 7:26 pm

“Diva Gaze Lax Lo!”
Her own name is a plot summary for her show!

#52 Josh Renning on 07.20.14 at 7:42 pm

To #48 pinstripe

Be careful and don’t tell too much information about you being able to live fine with 2.00%, 5 year GIC’s because they will try to give you less and less interest.

This way the will try to convince you to buy bank shares instead so you will have no CDIC insurance for your hard earned money.

Just to let you know, there are a few financial institutions that pay 2.85% and 2.90% for 5 year GIC’s.

You are willing to lock up money for five years at under 3% when inflation is 2.4%? Seriously? — Garth

#53 Italians love real estate on 07.20.14 at 7:48 pm

Based on Garth’s point of view on women and men, I think bearded oracle that you
may be from Mars or Venus and have not yet learned the ways of the female gender

#54 Retired Boomer - WI on 07.20.14 at 7:48 pm

Your assertion that women hate debt, but men like to live large is…. unsupported.

Perhaps a generational divergence, or more likely have it 100% backassward.

Without regard for the piddling, neither gender has a lock on fiscal sanity, that’s why so many of us gravitate here, for our daily dose.

I said women are debt-averse and men acquire, regardless of debt. Living large is not necessarily a part of that equation. — Garth

#55 Frustrated Kiwi on 07.20.14 at 8:00 pm

#2 Big English

I’m not sure if your wife will be convinced by numbers but I suggest you run them to show her what a terrible idea the “trade-up in a few years” strategy is unless you make some pretty heroic assumptions on house prices. The transaction costs of buying and selling are huge – in normal housing markets it usually takes at least five years to break even. Suggest you run the numbers to see how high you have to assume that house prices rise for the trade-up strategy to be a clear winner. Then point out the down side risks if house prices decline or even just stabilize. With a big enough decline you don’t even get to buy because you no longer have a deposit for the new place.

#56 Josh Renning on 07.20.14 at 8:08 pm

When you don’t have $400,000 to $800,000 mortgages ,debts and can live on $28,000 a year today and $36,000 a year in 10 years then 3.00% to 4.00% interest bearing investments like GIC’s and government bonds are more than enough.

Trying to sustain an 8% to 12% annual rate of return is not a reality for 90% of the population.

Money is a very personal subject matter so everyone can do whatever they feel is right for themselves.

Pinstripe has made up his or her mind. This is the only way he or she can sleep well at night.

His loss. Surviving is not the goal. — Garth

#57 Sam on 07.20.14 at 8:09 pm

>>“Women hate debt. Men crave stuff. No wonder the divorce rate is half.”>>

Garth, you must be drunk when you wrote. It’s just the opposite in my case.

#58 Keith on 07.20.14 at 8:11 pm

@ #46 disappointments

If you continue on your present course, following the blog suggested investment strategy earning the predicted 7% in the long run, this is what will happen.

The 65,000 you have today will grow to 462,426 in 29 years at age 67.

The 9600 per year you are currently saving will grow to 838,526.

The lump sum of 1.2 million will earn 84000, and your combined CPP/OAS will bring in at least 15,000.

First things first: stop worrying so much about money. You are a single parent in your thirties with no debt, balanced assets and the ability and self discipline to grow those assets into a more comfortable retirement than the vast majority of Canadians. Congratulations on your accomplishments so far, you are miles ahead of most people. Your ability to save, invest and increase your net worth is a very valuable asset to you and your child.

Make sure you review your insurance needs in order to take care of your child in case you can’t. Do your own homework online, and be cautious when talking to advisors.

Prenups, asset protection in future relationships – muddy waters to me, hopefully others have some answers.

Give yourself credit for what you have achieved, most thirtysomethings I know are drowning in debt.

#59 Josh Renning on 07.20.14 at 8:28 pm

It worries the financial industry when survival is all that the ordinary citizen needs because they can’t brainwash people to live beyond their means and be in debt to their eyeballs.

The less parts in a car means the less things can brake down and go wrong.

Taking more risk financially and living beyond ones means is what makes people not able to sleep at night.

Savings will last and will not run out as the financial industry tries to scare people into all different ways of making their lives complicated and not peaceful.

The simple life or simpler life is what we used to have as a society and that is what they don’t want us to have.

Zero to do with the financial business. Our greatest asset is time, and money helps enhance it. I am sad for those who deny themselves opportunities and experiences because they fear risk. — Garth

#60 Teulon on 07.20.14 at 8:29 pm

Keith @ 58

Good advice to disappointments @ 46.

She needs to budget some of her disposable income for pleasure for herself and child.

#61 takla on 07.20.14 at 8:38 pm

,wow garth,why do I get the sense your little lady is reading your blog today?
Browny points don’t always get you some….
My extensive experience has been what most of the other dogs here have articulated ie women don’t mind debt,especially if the other half is paying ;]

It would be refreshing if someone were to comment on the actual topic. — Garth

#62 Smoking on 07.20.14 at 8:47 pm

Just noticed in my hood, listing have exploded.

You basement dwellers might get your wish… Let’s see what the July sales are.. With all this product available if no big spike in sales.

And let’s see if listing are pulled or price drops.

#63 John Prine on 07.20.14 at 8:53 pm

5 Love this Blog on 07.20.14 at 2:08 pm
“Women hate debt. Men crave stuff. No wonder the divorce rate is half.”

This is the first thing I have disagreed with you on, lol. You got the genders mixed up?

I agree, it is the other way around with many we know. (60ish crowd)

#64 007 on 07.20.14 at 8:54 pm

The opening few sentences of today’s blog and your general direction of thoughs would have me believe you want Canadians to all turn into Pussies ?

#65 Nemesis on 07.20.14 at 8:55 pm

#ItWasAVeryGoodYear. #Paul&Linda’s… #Venus&MarsShow. #Jet. #NotThatOneSmokingMan.

http://youtu.be/lNn5Q7H-FeA

[NoteToGT: Funny OldWorld, by a strange coincidence I was once answerable to a direct descendant of the Suffragette Pankhurst… Even funnier, was the RightRoyale GoatToasting he earned… for shagging his PA on his desk. His wife was not amused. Shocking lack of discipline. Everyone knows you’re only supposed to do that sort of thing while OffDuty… and most decidedly not in DoggieHQ [the Firm’s RangeRover – while your driver is otherwise/elsewhere preoccupied with Kebabs – has always been the safer choice. Or Brighton…]. Right? I guess that’s just Venus&Mars for ya… http://en.wikipedia.org/w/index.php?title=Emmeline_Pankhurst ].

#66 wayne on 07.20.14 at 8:56 pm

#46 dissapointments

Date someone in a better financial position than yourself. In most of the world, marriage is about money, not love. So if you’re dating for love, just don’t get entangled (eg. don’t marry).

Even if you did or co-habitat for over two years, the most you can be forced to give up is half of what you earned while living together. Anything you brought in with you is still yours. Any new kids together is a separate story of course.

#67 James on 07.20.14 at 9:10 pm

The wife and I are saving about $700 a month, but our net worth is 80% in the house currently. The outstanding amount on the mortgage is 339,000.

We are putting $100 into lump sum payments and $600 into a spousal RRSP. My marginal tax rate is at 36%. We will put 100% of the tax refund into our TFSAs.

Should we put more of our $700 a month into the mortgage, or keep it where it is at?

#68 Porsche on 07.20.14 at 9:12 pm

She waited till I paid off the house, dumping 20K extra a year on it… this is back when a house was 1/4 million and not 1/2 a million.

Then left me and took half.

Are they smarter then men?

Hmmmm

#69 Josh Renning on 07.20.14 at 9:16 pm

The best opportunities and experiences in life is ones own and not based on a false one like debt, high financial returns and trying everything one tells you.

There are too many so called experts today trying to put doubt in peoples minds. Technology has its good uses but providing too much information is not one of them.

I feel sad for those that believe they can have whatever they want and think that there are no consequences and future costs.

Being delusional is more dangerous than trying to protect oneself and their family.

Consumers and clients that buy a good, service should always be on the look out for their best interests and situation.

#70 Sheane Wallace on 07.20.14 at 9:45 pm

#49 omg

Inflation would be raised to erase debt, so don’t hold it/the debt.
A bigger inflation could come with decline of the usage of the dollars in international trade. That’s why everyone ‘hates’ the Russians while in reality China is calling the shots. And they are buying gold.
We could easily settle with Russia but not so with China, no matter what Zbigniew Brzezinski thinks (he has dementia already).

Do what the wise man do in moderations.

#71 AB Boxster on 07.20.14 at 9:55 pm

#59 Josh Renning

Thanks for a fresh perspective.
The race for higher yields, in a horribly indebted world will likely not end well whether it be housing or equity markets.
Some people can live comfortably on 3%, (to cover inflation) and they ‘have enough’ to live comfortably without the risk required to gain more.
But what if inflation goes to 10%?
Well then buy the 10% GIC like we did in the 80’s.

Oh and stop buying crap and do a little saving.
Spending less and saving more is a far better hedge than seeking ever higher returns in a volatile world.

The concept of living in balance where having ‘enough’ is sufficient, is contrary and dangerous to our economies which are no longer built on savings and production but on massive consumerism and overconsumption, and spending on services that the populous has been brainwashed into believing they need.
Monthly examples:
Cell bill – $180 ($60 for 2 adults and the kid)
Cable bill – $70
High Speed Internet – $60
Monthly maid service -$75
Lawn Care service $75
Netflix – $10
News Services – $10
Exessive Gas for the guzzler – $200
Eating out $250

All basic needs now and only @$800 per month. ($1000 pre tax)

That is why there is such a frantic search for return, since so much money is spent on services that at one time never existed.
Do they make life better? Perhaps.
Do they make life $10,000 per year better? Hardly.

Until the consumer discovers that they don’t really ‘need’ the newest iphone, or the new 5 litre hemi, or the $80,000 kitchen reno or until the debt taps turn off the taps to fund the party, the search for higher yields, and accompanying risk, will continue.

For those that can live on 3% and be comfortable, ‘good on ya mate’.

#72 Retired Boomer - WI on 07.20.14 at 9:57 pm

I stand corrected for ‘paraphrasing’ the men analysis.

Still, “men like vast spaces, status, and consider massive debt the bank’s problem,” would be considered ‘living large’ in my opinion.

Why quibble, I believe you this bassackwards from my vantage point.

The pint though, is making money, perhaps by taking back a HELOC and investing it in assets that return more than the cost of the money rent. Could be VERY smart.

I for one would probably not ‘qualify’ for a HELOC as there is no income other than dividends, and a government pension. Besides, I wouldn’t feel comfortable doing this.

Guess I am just destined -by choice- to remain a lesser well off.

#73 Andrew Woburn on 07.20.14 at 9:58 pm

#50 Smoking Man on 07.20.14 at 7:25 pm
We here is the start. From the zero guy…. Sorry garth I know your not a fan, but I couldn’t copy the link to the YouTube of a Congress men, basically stopping short of saying, inside job..
========================

You mean you don’t believe two airplanes can knock down three buildings? Soon you’ll be telling us you don’t believe in fairies.

#74 Doug in London on 07.20.14 at 10:15 pm

Garth;
Did you just emerge from a worm hole that brought you back from some world many light years away? It’s the women who want all the stuff, and a big house to put it all in, and the big mortgage to go with it. Men are the ones who want the smaller house and be debt free so they can actually enjoy life and don’t have to work until they drop dead having to pay for it all. I’m male, always have been (no gender change operations) and have NO DESIRE AT ALL to get into debt to acquire more stuff. If anything I’m getting rid of excessive stuff.

@Sam, post #57 and A Yank in BC, post #41: You’re both quite right with your observations.

#75 Ontario's Left Coast on 07.20.14 at 10:21 pm

Opposite in my house, too. When it comes to spending large and small, I’m the brakes and she’s the gas.

#76 Jon B on 07.20.14 at 10:37 pm

Taking a loan that is secured with real estate to buy financial assets is pure gambling, just like all investing is, except the bank interest on the loan is added to the overall loss or deducted from the gain. Wealthy people don’t borrow to invest generally speaking because they already have the cash and diversification. It’s the wannabe wealthy folks that will borrow to invest. Borrowing to buy the bank issued mutual funds during RRSP season is an annual scam the banks push hard. There is no good form of debt. The masses have been brain washed into believing that old fashioned “earning” of wealth is the long and hard way to riches. Everyone can and will get rich by purchasing stocks. Suckers wanted.

#77 stop lying on 07.20.14 at 10:40 pm

#28 – most people that you say hate paying ‘any’ taxes pay more than you’d ever dream of, so put a sock in it.

the ontario government has taken its finances and taxpayers for granted. they have raised taxes more times than i can remember only to reward the current taxpayers and the next generation of taxpayers with more debt and a deficit that can’t be fixed.

first they hit everyone who bothers to work for a living with a punitive health tax. then they try to even out by raising taxes on those making over 500k, and nobody blinks because those rich pigs can pay right? but when that doesn’t work now they have lowered that amount to 220k, added a new level at 150k, and then said those limits will not be indexed effectively raising taxes each and every year from now to forever.

garth says to be weary of rrsps because taxes will go up in the future… the future is already here

#78 Smoking Man on 07.20.14 at 11:09 pm

As we debat real estate, across the Atlantic, psychopaths on both sides hidden in there bunkers, sending other people’s kids into battle.

The bravery of the leaders.

I’ve always advocated putting to most extreme elements of every phyco tribe in a stadium, with clubs and chain.

Let them go at it… Leave other people’s kids alone..

#79 Spectacle on 07.20.14 at 11:21 pm

Great blog tonight Garth, Thank You…again!

I’ve actually been anticipating this exact article, and it falls on Sunday nights deaf ears.

Caveat: there is a lot of political distraction going on.

What I appreciate Garth, ( the take-away tonight )

“Even those with conservative portfolios half in fixed income have seen 10% or better gains, and sailed right through the 2008 fugliness. Why would they cash in all of it, triggering capital gains taxes, just to pay down a mortgage at less than 3%?”

Garth, please do feel free to revisit this technical topic and the mechanics of it, again soon! It’s an important risk management component that is much appreciated.

Regards all…

#80 lurker on 07.20.14 at 11:30 pm

Got to agree with Garth, my wife is so supportive of us living within our means. She always reminds me to stop looking at sweet houses online.

#81 KommyKim on 07.20.14 at 11:50 pm

RE: #46 dissapointments on 07.20.14 at 7:08 pm
now he has left me, I have a child to take care of. my youth, energy, so much money is gone. moreover i am very angry

But surely you are soaking him for child support are you not?

#82 Linda Mulligan on 07.21.14 at 12:25 am

Garth, thanks for the clarification.

#83 Linda Mulligan on 07.21.14 at 12:36 am

Regarding women vs. men on debt – I don’t think men embrace or like debt more than women do. I think men might be more comfortable with debt, be more willing to take risks with their financial security than women might be. Also men traditionally have earned higher aggregate income than women & even now tend to have higher lifetime earnings on average. That higher income may in part explain why men in general more comfortable carrying higher debt loads.

#84 Mr. Reality on 07.21.14 at 12:38 am

The comments section is very positive this evening. This worries me as this is a contrarian signal. Prepare for stock market crash this week.

afix tin foil hat…..carry on

Mr. R.

#85 No more debt on 07.21.14 at 12:43 am

Paid off my mortgage this year. No way I’m going back into a mortgage to invest. If your property “corrects” like Garth has been saying here for ages along with your investment you’ll be left twisting in the wind with the debt.

#86 Spaccone on 07.21.14 at 12:50 am

Like a few here, after everything I’ve seen I have a very low opinion of female financial discipline, spending habits (even deceiving future hubbies about not having expensive tastes) , and status-seeking/worshipping behaviours.

#87 Mr Buyer on 07.21.14 at 1:14 am

I can tell you my Japanese wife more than hates debt. I was standing with her in a bank in Osaka a long time ago trying to figure out the mortgage rate which I could not believe as it was below 1%. When I figured it out I turned to my wife and said lets borrow a pile of cash an buy a few houses. My wife replied “BORROW money?” Whit a look on her face that may have been the same if she had just caught me putting live bunnies in a blender. Needless to say I never mentioned it again as she is a keeper and logged object lesson 38749821-9b in the library.

#88 AACI Home-Dog on 07.21.14 at 1:26 am

Leverage…that’s what we used to call it…reduce your equity (increase your mortgage), and buy more, more, more (real estate). That was fine ’til the 18% interest rate bomb hit in 1981. With the current high real estate values & low rates, the well off can use the equity to buy REITS, preferreds, & stocks (in my case), but if a high interest rate environment happens again, the assets can be sold in short order if needed, to pay off the debt, as opposed to going belly up in real estate. My mortgage is coming up…I will be opting for the 2 year 2.4% deal. Sweet !

#89 Mr Buyer on 07.21.14 at 1:27 am

I do have to point out that every time I found a house (I am a victory house kind of guy circa 1946 to 52) my wife turned her nose up at it. She liked the bigger bungalows with the sparkly appliances. I personally cannot identify with a man that needs much more than a roof and a place to put his tools and computer. My wife thinks I am from the dump and she is from someplace much more sanitary and at least presentable.

#90 Learning Man on 07.21.14 at 1:35 am

Need some advice out there.

Bought a condo last year and renting it out while living some place cheaper in T.O. Using the principal residence exemption (Subsection 45(2) of the Income Tax Act) to deduct mortgage interest and what not to kill the extra rental income I have to declare. Plan to do this for 5 years as that’s the max # of years the exemption allows.

Question is, how should I pay off the mortgage faster? Make lump sum payments every year (month?) or free up that money to invest and then make a (presumably) larger dent in the mortgage in 5 years time when my term ends?

Situation:
– Interest @ Prime – 0.4 % (Variable / Closed)
– Savings / Month @ ~2k
– Looking @ Couch Potato TD e-Series strategy (but with only 20% bond allocation – as I’m still relatively young and looking to be a bit more aggressive in the market)

Thanks for any help!

#91 Flawed on 07.21.14 at 2:26 am

#28 Not an economist on 07.20.14 at 4:31 pm

Taxes aren’t your enemy. Getting paid like shit is your real enemy, but for some reason Canadians don’t like discussing what they earn, yet love to bitch about taxes. If you work for a living, chances are pretty good that someone’s robbing you, but it’s not the government.

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

If getting 60% of your paycheck stolen by the govt in some sort of tax, levy, fee, toll or otherwise as we do in BC as a normal family of 4 with a house is NOT robbery by the govt, please tell us why?

Hell were paying property tax for education while the teachers are yet again on strike here. Oh but its for the kids right? It’s always for the kids – and the teachers $3000 a year allowance for back massages paid for by me the private sector worker who gets no such benefit.

Canada has the shittiest education, healthcare, infrastructure and productivity in the OECD yet we are taxed 60% in BC. Sorry but it sounds like robbery to me.

#92 American Express on 07.21.14 at 3:05 am

Just a friendly reminder that if you live in Asia, you can buy a $3.6 million dollar Vancouver home with one swipe. Two swipes for a $7.2 million home.

This will bypass capital control limits of $50,000.

Or you can buy an ancient teacup for $36 Million. But over 10 swipes.

http://mobile.bloomberg.com/news/2014-07-18/chinese-gets-422-million-amex-points-with-36-million-cup.html

Don’t believe everything you read on blogs. Truth is that billions of $$$ are leaving China every month.

#93 dosouth on 07.21.14 at 4:40 am

56 Josh Renning on 07.20.14 at 8:08 pm says:

When you don’t have $400,000 to $800,000 mortgages ,debts and can live on $28,000 a year today….

————————————————————–

Not sure where you live Josh but here on Vancouver Island (not Victoria) a basic 1400sq ft bungalow costs 1600 per month ($19200), rental insurance ($750), Heat and light ($2160), gas for cars to get to work ( $3600), Insure the cars ($3200)that’s $28,910 and we haven’t started to feed the dog or us or to pay for water/sewer or for cable/internet or winter tires or prescriptions or haircuts or an evening out or the vet or even, god forbid, a ferry across to the mainland for a break.

Your $28,000 may work in Saskatchewan but I doubt it works in most of Canada

#94 Happy Renting on 07.21.14 at 4:47 am

Debt addiction = poverty
Debt-free = comfortable middle class
Strategic use of leverage = wealthy

Realistically, most people aren’t smart enough or ballsy enough to use debt to increase profits. But if we could get more people into the no/low-debt camp we’d eliminate a lot of personal financial stress and economic volatility. The person driving a Beamer to the soup kitchen is the ultimate planning fail.

#95 Happy Renting on 07.21.14 at 5:01 am

#46 dissapointments on 07.20.14 at 7:08 pm

How far are you into researching and negotiating divorce details? Are the assets you list after your ex has lopped off his half of the pie? Did he leave you before getting a highly-paid, post-graduation job?

Do some reading on your province’s family law to learn, in your circumstances, if either of you is likely to claim and receive spousal or child support (yes, it’s possible you could be paying alimony.)

Unless you already have a new boyfriend, don’t worry about relationships for now and focus on getting your life together and getting over your failed marriage. You face further disappointment otherwise, as angry, over-35, single moms are not exactly a hot commodity in the dating market. Wait until you’ve worked through your bitterness. What you’re going through sucks and I’m sorry you’re experiencing it, but you sound more than smart and capable enough to overcome these temporarily-crappy circumstances.

#96 The real Kip on 07.21.14 at 6:55 am

Women hate debt? You don’t get out much do you? They hate debt if a man wants a new truck, garage, Harley or the like but many would happily trade all that for a walk-in closet full of clothes racked up on credit. Can you say MasterCard?

No, but you can say misogynist. — Garth

#97 neo on 07.21.14 at 7:20 am

Subprime Bubble Part Deux

http://dealbook.nytimes.com/2014/07/19/in-a-subprime-bubble-for-used-cars-unfit-borrowers-pay-sky-high-rates/?_php=true&_type=blogs&_php=true&_type=blogs&ref=us&_r=1

This “recovery” Garth praises has warts. The system can’t recover if it is still broken Garth. The only thing banks and financial institutions has learned is there is no punitive repercussions for their actions.

Not too mention the student loan bubble…

Meanwhile unemployment tumbles, the deficit drops to an 8-year low, productivity increases, real estate values climb and corporate profitability remains robust. — Garth

#98 PJ on 07.21.14 at 7:38 am

There’s been a housing correction in Rockland 25 min from Ottawa, Ontario. I bought a beautiful 1700 sq ft single family home fully loaded with fluff on a 50 ft lot for 300k, originally for sale at 339000. With a 10% down payment and interest rates locked in for 5 years at 2.94%, cheap dough allowed me not to dip into my investments and came down much cheaper than rent. I also own a diversified portfolio which as opposed to Garth’s recommendations, also include gold and silver. I think he is dead wrong on the economic cycle we live in, and metals are the one true contrarian investment. In the end, when the money printing stops one of us will be wrong of course, but depression or no depression, be it a Picasso, investment diamonds, gold, silver, what can I say, I favor real things to paper. I do agree with Garth however that all real estate is local. In Cities where all the manufacturing companies are vanished and gone, house prices are crumbling. It’s practically impossible to pinpoint when it’ll hit bottom, but as Canada’s economy is slowing down, the world burns and Obama is vacationing, the writing is on the wall for further downside.

#99 Dwily on 07.21.14 at 7:46 am

Hi Garth, you say in the post that “most” people should not own gold. Could you coarsely describe the conditions under which you would support someone owning gold?

In a war-torn, wretched country with a failed financial system, hyperinflation, lawlessness and, occasionally, zombies. — Garth

#100 jess on 07.21.14 at 8:10 am

tax inversions tit for tat ?

=======
…If an american company becomes a foreign corporation and gives up it’s U.S. “citizenship ” then why is it entitled to receive Medicaid and Medicare payments?
Tax dodge should cost corporations their political rights (21 Jul 2014)
http://www.sfgate.com/opinion/reich/article/Tax-dodge-should-cost-corporations-their-5631471.php

20 shifts since 2012
http://www.bloomberg.com/news/2014-07-18/abbvie-to-buy-shire-for-54-8-billion-as-drug-deals-surge.html

Everyday Money
Hey, If Companies Can Change Their Citizenship To Get a Tax Break, Why Can’t I?
http://time.com/money/3004744/abbvie-merger-tax-inversion/

#101 cto on 07.21.14 at 8:36 am

.#5 Love this Blog on 07.20.14 at 2:08 pm
“Women hate debt. Men crave stuff. No wonder the divorce rate is half.”

“This is the first thing I have disagreed with you on, lol. You got the genders mixed up?”
.
I completely agree! Garth, in my experience, you definitly have the genders reversed.

Women in my world tend to crave the biggest houses, and crave shopping as there favorite past time, leaving little money left over for saving or paying down debt. they send little time thinking about finance and need forced savings programs to keep them focosed.

#102 neo on 07.21.14 at 8:55 am

Meanwhile unemployment tumbles, the deficit drops to an 8-year low, productivity increases, real estate values climb and corporate profitability remains robust. — Garth

Meanwhile the workforce is at 1978 levels. The Millennial generation have the highest unemployment rate in decades and they account for 40% of the new/resale home buyers and they aren’t purchasing, so this housing recovery is going to spin its tires until they “recover” and accelerate family formation. Take a look at what companies like Intel and IBM are doing in terms of buybacks to financially engineer the P in EPS and get back to me. We all know Wallstreet is doing bananas. Mainstreet on the other hand is a different story. As far as the deficit being the lowest is 8 years, please Garth, the Fed’s balance sheet has gone from $500 million 8 years ago to $4 trillion. I would hope the deficit would be lower after that transfer. Good luck “unwinding” $4 trillion dollars though. Again, you ignore the corruption taking place like it is business as usual. The GDP the first half of this year will either be negative or barely positive. How is that 3% growth for the whole year you were looking for going. You still sticking with that.

Yup. — Garth

#103 OttawaMike on 07.21.14 at 9:08 am

#97 PJ on 07.21.14 at 7:38

Yeah good deal but its Rockland. Figure out your transportation costs. You could have bought in urban Ottawa for the extra 400$ month saved in fuel and time.
Less chance of depreciation on the property to.
When and if they build a 4 lane link highway to your new community you will be a winner.

#104 ETF FAN on 07.21.14 at 9:26 am

Great post. The personal finance entries are my favourite.
I agree that paying off the house is just the beginning. The real excitement occurs when using some of the equity, within your comfort level, to borrow from the heloc to invest. I once heard Lou Schizas from BNN suggest that we work during the week and our home works on weekends. I prefer that my house works every day of the week.

As I wait to pay this home off, I do borrow intermittently using my heloc to pick up the odd high yielding etf at a 52 week low to make a medium term flip. Even if the etf drops in value the yield more than covers the interest on the heloc. I usually keep an eye on ZUT, FIE, XEG, XUT etc. I like to have a little lower-risk speculating fun when the market is oversold.

#105 H&R Blockhead on 07.21.14 at 9:53 am

#89 Learning Man

How is a rental condo that you purchased last year considered your principal residence when you have never lived in it and are deducting expenses?

You may be in for a painful lesson.

#106 bdy sktrn on 07.21.14 at 10:22 am

Just noticed in my hood, listing have exploded.
————————————–
of course they have in ”your hood’ , you live 3 hrs north of whitehorse, right?

please give your comment some meaning by mentionng if you live on baffin island or leaside or somewhere in between.

#107 rosie "moving forward" in the knowledge that, "this won't end well" on 07.21.14 at 10:38 am

Some excellent pointers for the less diverse amongst us.

http://www.marketwatch.com/story/what-to-do-if-you-havent-saved-for-retirement-2014-07-18?link=MW_home_latest_news

#108 Daisy Mae on 07.21.14 at 10:53 am

#53 Italians love real estate: “Based on Garth’s point of view on women and men, I think bearded oracle that you may be from Mars or Venus and have not yet learned the ways of the female gender…”

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

It’s really neither here nor there. Financial difficulties are the chief cause of divorce.

#109 Smoking Man on 07.21.14 at 11:10 am

Popcorn and beer. Watching the show unfold.

Russia has radar proof a Ukraine fighter was tailing MH17
Has proof Ukrainians shot it down… China, and bricks backing Russia…

Ukraine not letting investigator in..

NWO Hits a huge setback..

The USA proof, a CIA audio clip, from the bin Laden studios uploaded to Web….

Oh this Is so good… Watching amateur bull shitters in action..

They should have hired me… They know I’m good..
I’m I am the DB

#110 -=jwk=- on 07.21.14 at 11:11 am

@ #89 Learning Man.

Using the principal residence exemption (Subsection 45(2) of the Income Tax Act) to deduct mortgage interest and what not to kill the extra rental income I have to declare.

My advice is to read 45(2) again, as what you’ve described is now what it is for. The purpose of 45(2) is to not switch the property from primary to investment. That way, later ,when you move back in you can claim the primary exemption for the years it was rented. That means you cannot claim CCA, or interest expenses against the income while the 45(2) is in effect. If you wanted to claim expenses while renting you would NOT have done a 45(2) and you could have done a deemed disposition at FMV on the day you started renting it, you would owe capital gains tax on that, if any.

You can’t have it both ways. Either you accept a gain on transfer of usage, then you get to deduct expenses as an investment OR you file a 45(2) to defer the transfer of use but then you can’t deduct expenses.

#111 Kazoo the Clown on 07.21.14 at 11:15 am

Garth…genders mixed for sure

Ex wife was a specialist in debt and spending

from constant Reno’s to boob jobs,
and when she had squeezed out all the toothpaste

The circus got evicted.

#112 Flawed on 07.21.14 at 11:27 am

Tax Freedom Day in Canada is in June. And of course they are not going to take into account the fees, levies and tolls like we are scammed with here in ScamC on the HAMcoast. So I stick with my number of 60% taxes here for the “normal” working person making a decent wage with a family.

http://armstrongeconomics.com/2014/07/16/is-there-a-revolution-brewing-over-taxes-oecd-says-yes/

Sure is going to be interesting to see what happens when those public sector pensions kick in soon that are owed 600 billion dollars that does not exist……

#113 45north on 07.21.14 at 11:34 am

men and women , stuff and debt

you’d have to be God to figure that out

disappointment: now he has left me, I have a child to take care of. my youth, energy, so much money is gone. moreover i am very angry.

PhD sounds arrogant to me. As for you, you sound like you’re doing fine.

oh and Than Merrill is giving seminars in Ottawa:
https://www.facebook.com/photo.php?v=267101200143875

Than (that’s his first name) does a lot of seminars in the US so I guess he’s studied up on the Canadian housing market. Thank me later.

#114 Learning Man on 07.21.14 at 12:19 pm

#109 -=jwk=-

“The purpose of 45(2) is to not switch the property from primary to investment. That way, later ,when you move back in you can claim the primary exemption for the years it was rented. That means you cannot claim CCA, or interest expenses against the income while the 45(2) is in effect.”

– ITA 45(2) doesn’t say you can’t deduct current expenses; only that you can’t deduct CCA. And yes, you’re right, I meant to say keep the property as principal residence using 45(2) but also to deduct current expenses (as the CRA doesn’t say I can’t).

http://www.cra-arc.gc.ca/E/pub/tg/t4036/t4036-e.html#P1734_97806

“You can’t have it both ways. Either you accept a gain on transfer of usage, then you get to deduct expenses as an investment OR you file a 45(2) to defer the transfer of use but then you can’t deduct expenses.”

– I don’t believe it’s trying to have it both ways as I still have to declare the rental income.

#115 -=jwk=- on 07.21.14 at 12:23 pm

@109 Just noticed in my hood, listing have exploded.
————————————–
of course they have in ”your hood’ , you live 3 hrs north of whitehorse, right?

please give your comment some meaning by mentionng if you live on baffin island or leaside or somewhere in between.

————–

Its well known in these parts that SM is from the W06. I am from there myself and confirm listing are crazy now – never seen that many.

#116 Pre-Retiree on 07.21.14 at 12:34 pm

Best thing is that both people in the couple, of whatever gender, agrees on how to handle money.

Re: the 90 formula: To what age group does it apply best? I can only think that starting at 70 or so, an age at which most people are retired, it does not apply anymore. What about at 90? That would be 0%.
At 70-90, one needs less to live on, and the percentage of net worth locked into a house may not matter, that is of course, if you have no debt, and sufficient money to live on. Accumulating wealth at that age might be a fun sport for those who like, but I think the focus at that age should be to enjoy life (at any age probably).

I agree with above #84 No more debt. I would loathe to take debt on my house which is now completely paid off. I would rather work a little longer, and invest wisely (may need to come see you Garth one day – I am lousy at it – can’t be good at everything!). But then again, I am a woman, so there you go – I hate debt. But I know without a doubt that my husband feels the same way.

#117 pinstripe on 07.21.14 at 12:42 pm

I don’t know where the numbers are coming from in regard to house prices trending downward.

In the past month I made a trip to the both Nova Scotia and Vancouver Island to follow up on property in those areas. If anything, the prices are increasing, but I must admit, at a slower trend. I plan to make a revisit come Sep/Oct.

My wife, at age 85, is more conservative with money and the older she gets the more stubborn she is. She keeps a wad of money at the local bank in a savings account. I keep telling her to buy some gic’s but she will not budge. On the last bank statement she had several hundred thousand in savings. She likes the [email protected] and listens to her advice. First name basis. Excellent service.

What can I say.

Your assertion house prices in Nova Scotia and Vancouver Island is not based on fact, is it? The data says otherwise. — Garth

#118 prairieboy43 on 07.21.14 at 2:25 pm

Don’t marry a princess. She will think she actually is. I married a farm girl. One that likes to get her hands dirty. She likes results! She has 5 brothers, learned to defend herself pretty good. Does not like debt.
She is old school. Pay everything cash. She learned well from her 99 year old grandma, that went through two world wars.
The next years are going to be interesting!

#119 Mr. Frugal on 07.21.14 at 2:34 pm

#118 prairieboy43 on 07.21.14 at 2:25 pm

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

You chose wisely. Best wishes!

#120 pinstripe on 07.21.14 at 2:41 pm

Your assertion house prices in Nova Scotia and Vancouver Island is not based on fact, is it? The data says otherwise. — Garth

——————————————————-

At this point I do not know what is fact and whatever I read is very confusing. When my boots are on the ground and I talk to the property owners, they keep telling and showing me that nothing is going down in price. These are FSBo and I think they should know what they are talking about.

I have been doing this since my 80 birthday and I am not getting any younger. My wife keeps telling me “the hell with them”. I am not williung to give up that easy.

I enjoy your blog but most of the posts are during the night. I seem to hit the pillow at 730 pm the latest and miss the action.

The last people who know what a market is doing are FSBOs. Especially the greedy ones trying to sell an old guy something. — Garth

#121 devore on 07.21.14 at 2:56 pm

#102 neo

Take a look at what companies like Intel and IBM are doing in terms of buybacks to financially engineer the P in EPS and get back to me.

Using profits and cashflow to buy back shares and increase my equity? Wow, that sounds terrible.

#122 dosouth on 07.21.14 at 3:13 pm

#117 pinstripe on 07.21.14 at 12:42 pm says:
“…In the past month I made a trip to the both Nova Scotia and Vancouver Island to follow up on property in those areas. If anything, the prices are increasing, but I must admit, at a slower trend. I plan to make a revisit come Sep/Oct….”

———————————

Get a new realtor on Vancouver Island. Even Victoria which has the highest prices has YOYear declines since 2010. If you have the time please post the llinks to these properties that are increasing and what area you are looking at. If you are following the VIREB Franken numbers than MOMonth are all over the place and Port Alberni is the place to be.

Maybe you have properties on the east and west coasts and trying your darnedest to hype them….. Just wondering what makes you say this stuff other than to get a rise out of people like me…..

Of course maybe you should buy now or be priced out forever.

#123 Ralph Cramdown on 07.21.14 at 3:29 pm

OK here’s something that I didn’t notice when announced the other week. TD is outsourcing its mortgage underwriting department, for the broker channel only (i.e. not for loans originated at TD branches), to First National, a non-bank lender that does stated income, cash back, and other interesting mortgages that have recently become more difficult to obtain at banks.

Now I’d have thought that mortgage underwriting would be, like, a CORE COMPETENCY for Canada’s #2 bank with a hunger to get to #1. I guess not.

Said Ed Clark, TD’s outgoing CEO, “The dog ate our back office, but I’m sure all the loans we wrote were good ones. Anyway, I’m outta here! The new guy’s just going to have to grin and Bharat.”

http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2014/07/td-outsources-broker-underwriting-to-first-national.html

#124 killaboy49 on 07.21.14 at 3:35 pm

Don’t be sexist.

#125 pinstripe on 07.21.14 at 3:50 pm

The last people who know what a market is doing are FSBOs. Especially the greedy ones trying to sell an old guy something. — Garth
—————————————————————–

I disagree with your analysis regarding FSBO and Gics.
I bought many properties ove the past 60 years using FSBO. I had great success.

As for gics, I have some 5 yr gics that have been rolled over 8 times. non redeemable. interest compounded annually. Here again, the gics have served me well.

Why should I change now?

#122 dosouth. Of course maybe you should buy now or be priced out forever.
—————————————————————

twenty years ago I had the chance to buy a house in both Victoria BC and chester NS. At that time the price was 250 grand each, which was a reasonable price at the time for the areas. At that time I was young and stupid and decided to wait becaquse the housing crash of the eighties was still on my mind, plus my wife was not totally in agreement with my decision to purchase.

The young people today do not know how to work. I have a high school student cutting my grass. It takes me one hour to cut the grass, whereas it takes him three hours. one hour to cut grass and two hours on the I phone. It drives me nuts watching him work. He insists that I purchase a riding mower and get rid of my 20 year old sears mower. Who is willing to pay for that type of performance?

#126 Sheane Wallace on 07.21.14 at 4:31 pm

In a war-torn, wretched country with a failed financial system, hyperinflation, lawlessness and, occasionally, zombies. — Garth

Do the central banks know that? Why are they net buyers of gold lately?
This is the way modern economists and mainstream media portrait gold lately, as a disaster insurance . In reality it is a decent inflation hedge and ‘a tradition’ (Bernanke).
Nobody ever got hurt by putting 2-3 % of their value in gold. If we pretend to be truly contrarian we should pay attention.
It would be worth something even in 100 years. As for the ‘growth in the economy’ we are exploring the boundaries, it might be time for some preservation however little it might be.
You know that according to Marxism the washrooms floor would be golden as gold worth be worthless. Guess what, just checked my corporate’s washroom and no. the floor is not golden….

Anybody with 2-3% of their net worth in gold lost 30% of that position in the last three years. What are you smoking? — Garth

#127 Sheane Wallace on 07.21.14 at 4:36 pm

darn spellchecker,

gold would be worthless…

#128 Sheane Wallace on 07.21.14 at 4:40 pm

no comment:
https://ca.finance.yahoo.com/video/playlist/canadian-original-videos-playlist/perks-being-prime-minister-111241074.html

#129 Sheane Wallace on 07.21.14 at 4:52 pm

Anybody with 2-3% of their net worth in gold lost 30% of that position in the last three years. What are you smoking? — Garth
……………………………………
Only if you bought at the top, at 1900 and if you sell now.

I am doing none of that, I hold 5 % in mining stocks bought at rock bottom. So far works great. I will tell you in 10 years how it worked out.

And 1 % potential loss would no concern me either, not at all, considering the amounts I pay for car, health and life insurance that would be peanuts even if I lose.

#130 backwardsevolution on 07.21.14 at 4:54 pm

#93 dosouth – “Your $28,000 may work in Saskatchewan but I doubt it works in most of Canada.”

Yes, inflation rears its ugly head. Every single central bank (Europe, China, U.K., U.S.) is increasing the amount of money in circulation. We are getting hammered. $28,000.00? Yeah, right! dosouth, I totally agree with what you said.

Start getting angry about this, people. They are trying to bail out the banks. Everything is about the banks. Call or write your representatives and tell them to put a stop to this mindless inflation.

Yup. That’ll work. — Garth

#131 calgaryPhantom on 07.21.14 at 4:59 pm

Not so long ago, you did a survey here. It gave valuable insight about your audience.

You forgot to ask the gender in that survey?

Now you know. lol

#132 Exurban on 07.21.14 at 7:14 pm

#123 Ralph Cramdown

Now I’d have thought that mortgage underwriting would be, like, a CORE COMPETENCY for Canada’s #2 bank with a hunger to get to #1. I guess not.

Not a banking expert but I have a relative who is a manager in one of the Big 5. IMO the upper executive management is simply crazy about outsourcing and will outsource everything they possibly can. Offshore if possible, but to Canadian contractors if necessary. Seriously, it would not surprise me to see the branches get outsourced.

#133 Vancouver Refugees on 07.21.14 at 8:44 pm

Age 38/28
Net Worth = 488,603 (includes DB pension)

Assets = 503,910
Liabilities = 15,307

Real Estate Exposure: 0

Left small Vancouver apartment. Now renting a nice place with ocean views far away from that hell hole…and paying a little more than what we paid for the old one bedroom…

#134 Teacher's Ass-istant on 07.22.14 at 4:56 am

“His loss. Surviving is not the goal. — Garth”

Jesus, He’s 86 happy and content. I’ll never make it that far but I doubt he need be to concerned about building huge wealth at this point. I hate sardines though.

#135 World Traveller on 07.22.14 at 8:48 am

in my experience women have no clue with money.

You obviously choose well. — Garth

#136 Doug in London on 07.22.14 at 10:52 am

@prairieboy43, post #118:
You did well marrying the farm girl, like you won the lottery. I think those kind of women are much sought after, and married off within minutes after the stroke of midnight on their 18th birthday!

#137 JimH on 07.22.14 at 11:03 am

#129 Sheane Wallace

“… I am doing none of that, I hold 5 % in mining stocks bought at rock bottom. So far works great. I will tell you in 10 years how it worked out…”
——————————————————

Sheane, gold miners (GDX) generally peaked in Q3 of 2011, and have since tanked a whopping 60% at today’s prices; 76% if you’re talking of the latest “rock bottom” of last winter. (The previous “rock bottom” was Q4 2008: If you bought at that “rock bottom” and didn’t sell at the peak in Q3 2011, then you’re not doing “great”.

Picking “rock bottoms” is about as challenging and about as much fun as guessing the future antics of a crack-whore.

The rapidity with which the miners dropped down from their highs to test the 2008 lows last winter presents us with a cautionary tale: there is a good chance that those lows will be tested again, and perhaps that test will result in a much lower “rock bottom”.

If you’ve had a good run YTD in the gold miners, perhaps consider taking some profits to rebalance, and wait for another “rock bottom”. My guess is you won’t have to wait 10 years!

Cheers