Entries from December 2015 ↓

Big things

UGLY modified

Big things can change in a wee amount of time. For example, yesterday I mentioned oil fell 3% on Monday. On Tuesday is gained 3%. Understanding you have no clue what comes next is why investing is different than gambling – a lesson most people never learn.

Buying options, futures, gold or even individual stocks (especially the ‘juniors’ that a friend of your BIL’s  cousin is hyping) constitutes gambling. The people who roll the dice and occasionally score come to blogs like this to brag about it. The 98% who lose their shorts never utter a peep. This is human nature. Almost everybody blows their money when they buy a lotto ticket. You ever only hear about the winners.

Investing, on the other hand, is making money slowly, predictably, tax-efficiently and with substantially less risk. Success is within everyone’s grasp. This blog has often extolled the virtues of balance (between fixed income and growth assets) as well as global diversification (be careful about maple). Hell, I’ve even broken down a model portfolio with weightings by asset class, and told you all about ETFs. If you’re still dicking around with high-fee mutual funds or a bank-brokerage portfolio of 28 stocks, you have nobody else to blame. Not even [email protected] or the advisor with the nice Porsche.

Today let’s review ways The Government actually makes investing easier and more profitable. Yes, I realize I’ve been a little querulous about the Hot One lately, but that’s simply because I’m too gnarly to fall for the hopey-changey thing. I’ll await proof T2 was a good choice and not merely the anti-Harper. Meanwhile here are five things I doubt he’ll screw up much more:

The TFSA. This is still a gift, even though the contribution limit was imperiously, politically and needlessly bobbed. So starting on Friday you have $46,500 in available contribution room, which is damn near a hundred grand between a couple. It boggles the mind that millions have billions in mutual funds sitting in online brokerage accounts, and 93% of all TFSAs have not been maxed.

Do they think these are savings accounts? Or that you can’t make a contribution in kind? Meh.

Well, two key points. The TFSA is gold if you are young, or old. For the kids it’s the best way of growing money for the future – maxing it yearly and investing in moderate growth ETFs will yield a great result. Start with $5,500 and add a hundred bucks a week for 30 years at a 7% return and you end up with $576,000 of which $414,000 is taxless growth.

This brings us to the old part. Money taken from a TFSA as income (the amount above will yield $3,300 a month in non-reportable cash flow) is not considered taxable. It doesn’t exist to the feds. It won’t diminish your CPP or OAS or be added atop pension income and shove you into a higher tax bracket. This is the sole reason every smart person needs to max their TFSA. And 93% of Canadians are not smart.

Second, the RRSP. No, it is not for retirement. Forget that. This is a device for tax-shifting.

The more money you make, the more massive the advantage of making an RRSP contribution, since this is a tax shelter 100% geared to the wealthy. (And T2 attacked the TFSA, which is completely egalitarian. Weird.) So you can deposit up to $25,370 in a plan, get $12,700 back as a tax refund (in the top bracket), then take the money out later when your income falls. No, that doesn’t have to be in retirement. It can be a sabbatical, a lay-off or a year when you are preparing to launch a billion-dollar business writing a daily pathetic blog.

This is shifting tax from a high-income year to a low-income one. And in an uncertain economy it’s why everyone should have a fat RRSP.

Third, marriage. Conjugal financing alone make it worth the effort. The feds have a slew of ways allowing this to happen – like joint investment accounts. With one in place all the gains accruing from a non-registered portfolio can be divided between spouses, instead of being attributed to the person in the higher tax bracket. Or a spousal RRSP, which lets the higher-taxed spouse reap the tax benefit while the less-taxed one gets the money. Or, as above, you can fund your spouse’s TFSA. Or pension split when you start to dry up. And all the while, you get your socks washed.

Fourth, free cash for kids. It always stuns me how many parents don’t open an RESP for their kids, since it’s possible to get a 20% return on the investment before you actually invest anything. If you pony up $2,500 a year, the feds will throw in $500 – no questions asked. Year after year after year.

Just remember to open a family plan for multiple tots and avoid the Baby Vultures who hang around hospitals with their sleazy, high-fee RESPs. Do a self-directed instead. And remember, if your kid turns into Justin Bieber most of the RESP can be rolled into your own RRSP. Or, you can use it for his bail money.

Finally, earn the right way. When you take income working, collect interest from a dead-end GIC or scoop rent from a tenant, that cash is taxed at the highest level. For example, if you have a job paying $90,000 your average tax rate is 24%, but your marginal tax rate will be 43%. That means if you then clear $12,000 renting out a condo, every dollar will be subject to that higher tax – and you lose more than five grand.

But if you earned that extra $12,000 in the form of capital gains on investments (like a portfolio of ETFs, for example) the total tax payable would be just $2,600 – because half a cap gain is tax-free and the other half is subject to your marginal rate. It’s a massive difference. All for making the same money in a different way. And no toilet to fix.

See? This proves you can elect people with a tax fetish and still have fun. I should lighten up.



On Monday, while Canadians inexplicably had a holiday, the world churned. Oil lost 3% of its value (at $36) and our dollar slide back to 71 cents US. Crude has shed 40% since May and the loonie has dropped 16% this year. Bay Street is off 9%, reflecting depressed profits and an energy sector disaster. Meanwhile household debt’s at a record level and since last December the average Toronto house has gained 11.8%, or six times the inflation rate.

Despite what most young homebuyers believed would happen, US interest rates have started to swell. Meanwhile Canada is shedding jobs and our economy is barely growing – at one third of the global pace.

It’s worth recalling all of this as 2015 grinds to a fetid conclusion. It was a tough year – a recession here for half of it, revolting Greeks, collapsing oil, China devaluing its currency amid a market crash, ISIS and the on-again, off-again Fed rate hike. In all of it, Canada sucked. Our currency was among the most battered on the planet and our markets gave one of the worst performances. While America churned out an average of more than 210,000 new jobs a month, we’re ending the year with a loss of 36,000 in November.

So what now?

Not over yet. Expect more. The Bank of Canada does. Economists, too. Weak oil, weak dollar, weak economy, swampy markets and rising mortgages – thanks to the bond market – even if our central bank nips rates a little before retreating. The really interesting thing is that so few people outside of Alberta and a few other oily places have absorbed this message. For them, 2016 might be one never-ending surprise.

You might have noticed a big divide cleaving this pathetic blog recently.

On one side are the oxygen-sucking geezers and wrinklies, those Boomers aging by the minute who have lived through boom, bust, 20% interest rates, inflation and 2008. On the other are the hordes of moist Millennials, now outnumbering the fossils, who think rates cannot rise, houses always will, their parents blow and Justin will fix the rest. The conflict’s inevitable, but reminiscent of when 1960s-era hippies thought they heralded a new age of politics, tolerance and permissiveness. Then they grew up.

People my age (I barely have a pulse, but an astonishing tush) don’t understand a lot of the moaning heard from the kids who, after all, have youth. What greater asset is there? The moist ones, for their part, want what their elders possess – houses, jobs and boring, predictable lives replete with children and mortgages. Plus weed. (Not going there.)

Meanwhile society is growing a heightened level of risk that the dinosaurs sniff but their children do not. This blog spends a lot of time on real estate, because that’s where the chasm is most evident, with danger building the fastest. When wages and employment are falling, and debt rising, where’s the justification for double-digit gains in house values? Weekly this site trots out the latest stats about over-extended Millennials (with 500% debt-to-income ratios), large swaths of families living paycheque-to-paycheque and the piteous state of investing for most families.

JT modified The whole T2 phenom, for the Boomers, embodies the unreality of our times. ‘Taxing the rich’ to give a tax break to the many turned out to be as idiotic an idea as it sounded. Now that $8-per-week break will come via more than a billion in new debt, and do nothing to improve anyone’s life while whipping higher-income earners into a new fit of tax avoidance.

It’s hard to imagine that with a boatload of spending promises and deficits over the next four years we won’t get a higher HST, a war on incorporations, more ruthless revenue cops, enhanced CPP premiums and elevated payroll taxes. I hear there’s even talk at the Department of Finance of a wealth levy, plus a project being done on the merits of an inheritance tax. (Surprise, kids!)

The last Con government of tax-cutting grinches and bullies added $170 billion in debt over eight years. Now we have a new tax-and-spend crew who openly embrace deficits, plus voters who believe their lives will get better because someone else’s ox will be gored. It’s a recipe for more conflict and, probably, failure.

Against that backdrop, this pathetic blog makes a promise.

Every day but Sunday (which is for riding) you can come here for free opinion and guidance on investing, real estate, macroeconomics, tax avoidance and hot marital advice. Money’s agnostic. It doesn’t care if you’re old and decaying or young and fecund. Almost everybody needs help at a time when so many have swallowed a risky one-asset strategy, debt has become mainstream and financial illiteracy binds the nation. We’re not on a sustainable path. No change in government will change the laws of economics. No leader, however charismatic, will revive oil, plump the dollar, give you money or a house.

You’re on your own. Wrinklie or moister. The only salvation is this blog. Resistance is futile.