All in?

 

DOUG By Guest Blogger Doug Rowat

Try this old bar bet. Write the numbers 1 through 4 in a column on a piece of paper thusly:

1
2
3
4

On a separate piece of paper write the number 3 then, keeping the number hidden, fold the paper over several times and keep the folded paper visible to whomever you’re with. Then ask that person to circle one of the four numbers. There’s about an 80% chance that they’ll circle the number 3. Then amaze them by slowly unfolding the other paper to reveal the correct number that they’ve chosen.

Now, it’s not a sure thing and definitely not a trick repeatable with the same person, but it works often enough that it’s worth trying. Why it works so well is unclear, but there are a number of theories online suggesting that we tend to discount information in the periphery and focus more on the central detail, similar to how we view a photograph. Therefore numbers 1 and 4 usually get ignored. Other theories suggest that odd numbers, such as 3, ‘feel’ more random than even numbers. Perhaps it’s a combination of the two explanations, but regardless, for this bar bet, the odds are in your favour.

And, in some ways, the bet isn’t that dissimilar to portfolio management: results are always uncertain, but you can still pivot the odds in your favour.

During a misspent youth, I played a lot of poker and became a decent player (at least amongst my circle of friends and the odd tournament at Casino Rama—the mecca of Orillia, ON). However, little did I know that I was actually laying the foundation for my later career as a portfolio manager. There are many parallels between poker and portfolio management.

First, you learn to become comfortable with risk and to manage it appropriately. Playing poker equates to uncertain outcomes and chip stack volatility. Managing money, like poker, means understanding that the path forward is rarely directly straight up. Your chip count, as with your portfolio market value, will vary. But a loss shouldn’t immediately translate into taking unnecessary risks to break even. Poker teaches patience—making risky bets to quickly make up lost ground is usually a losing play in both poker and investing.

Secondly, you learn to be unemotional. Living through a bear market or even a nasty correction is no different than suffering a bad beat in poker. You initially feel like the forces of the universe are conspiring against you, but you soon recognize that you can’t control every outcome in a poker game just as you can’t build a portfolio that anticipates every market eventuality. You learn to accept unfavourable poker results just as you learn to accept bad markets. If you’ve played your poker hand well hopefully you’ve limited your losses—not dissimilar to portfolio risk management. You also learn not to get anchored by or overly focused on past losses. Poker teaches you to look ahead to the future. A bad beat stinks, but a new hand will be dealt, which presents a new opportunity. Similarly, there’s a new opening bell for the market every day and a new opportunity for your investments.

Third, you learn to play the percentages. I mentioned in my last post that if you simply look at calendar year returns, the Dow Jones Industrial Average, dating all the way back to 1925, trades higher 77% of the time. Knowing this basic stat is helpful.

As a simple example, if I’m investing a client for the long term, controlling risk is less important, but if I’m investing a client who has a certain and significant short-term expense then there’s not much point in exposing their assets to equity markets if there’s still a hypothetical 23% chance that they won’t meet this important financial obligation. Tactics in poker are similarly dominated by the odds. If I have eight outs after the flop (an open-ended straight draw, for example), knowing that my odds of winning the hand are about 32% is incredibly helpful. Knowing the odds determines how committed I’ll be to continuing with a hand or how I may need to bet to improve my chances of winning. Knowing the numbers tells you much more clearly what’s worthwhile and what’s not.

As a further example, knowing that the long-term correlation between US corporate earnings and market direction is about 90% is similarly helpful for investing. If I’m comfortable with my forecast for strong earnings growth, I should maintain at least a 60% weighting to equities. Hiding in cash would be a poor bet. In fact, hiding in cash is almost always a poor bet: a GIC pays maybe 1.5% and inflation runs at about 2.0%—the house always wins.

Where earnings go, so goes the market….

Source: Bloomberg

Finally, poker teaches you to gather information. This can occur with online poker based on patterns of play, but information gathering is particularly useful in a face-to-face tournament where physical tells and table talk can work to your advantage. Gathering information is similarly essential for establishing a market outlook. To give a straightforward example, I know that the Republican tax reform at year-end 2017 created clearer visibility for earnings growth this year. And positive information continues to accumulate as company after company announces spending increases and expansion plans (JP Morgan, Apple, Starbucks, etc.). Information is valuable. I’d be less of a portfolio manager if I stopped reading strategy reports, turned off the financial news, neglected to talk to other portfolio managers or failed to regularly watch the markets.

And proof that information works? You’ve just finished reading my blog post. Now, if someone tries that bar bet on you, pick number 2.

Doug Rowat, FCSI® is Portfolio Manager with Turner Investments and Senior Vice President, Private Client Group, Raymond James Ltd.

 

123 comments ↓

#1 TurnerNation on 01.27.18 at 12:27 pm

Toronto is a tear-down city:

“41 Beresford sold for $1,012,000 and currently rents for $2975 a month. That is a price to rent ratio of 28.3 (above approximately 16 is favouring renting) – the owner is basically offering subsided housing!”

https://www.reddit.com/r/toronto/comments/7t9vsm/what_you_get_for_1_million_in_five_different/

Of interest the first thing done by an invading army/force, after toppling the opposition in Parlament, is, take over the broadcasting media.
A masterful campaign of Problem, Reaction, Solution with Me, Also.

Here in Kanada we see several political leaders and many media figureheads suddenly deposed. I submit that these are the purges meant to rid those not on board with the “New World Order” from power.
T2 selling it hard overseas, chickens will come home to roost.

#2 For those about to flop... on 01.27.18 at 12:39 pm

Saturday Rewind.

For the weekend crew ,a re-run of howmuch articles from this week.

Enjoy…

M43BC

The Highest Paying Jobs with the Most Growth Potential in 2018.

https://howmuch.net/articles/highest-paying-jobs-america-2018

Mapping Out The World’s Bitcoin ATMs.

https://howmuch.net/articles/bitcoin-atm-around-the-world

ICO Frenzy: Top 10 Offerings Raised $1.74 Billion In 2017.

https://howmuch.net/articles/top-10-icos-2017

#3 Leo Trollstoy on 01.27.18 at 12:44 pm

So much evidence showing that the tech boom will continue with no end in sight!

https://www.entrepreneur.com/article/306930

More stable income than playing poker anyway

#4 crowdedelevatorfartz on 01.27.18 at 1:03 pm

interesting poker/market comparisons Doug….
Now to the real question.

Did poker help pay your way through university?

#5 Andrew Woburn on 01.27.18 at 1:03 pm

Another way to cash in on Bitcoin

– Yikes! Three armed men tried to rob a Bitcoin Exchange in Canada

https://thehackernews.com/2018/01/cryptocurrency-exchange-robbery.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+TheHackersNews+%28The+Hackers+News+-+Security+Blog%29&_m=3n.009a.1670.ub0ao09enu.10fh

#6 Andrew Woburn on 01.27.18 at 1:08 pm

“An investigation into then extent of money laundering in B.C. casinos will also pull back the curtain on whether dirty cash is linked to the province’s booming real estate market.

The report, expected early March 2018, was commissioned by Attorney General David Eby following revelations of widespread money laundering in B.C. casinos.”

http://www.cbc.ca/news/canada/british-columbia/how-does-laundered-cash-shape-b-c-s-economy-report-due-in-march-1.4506523

#7 Andrew Woburn on 01.27.18 at 1:10 pm

“Mr. Blanch believes that OPEC’s production cuts are designed to invert the futures curve from its current upward sloping contango (lower chart) into what’s called backwardation – a downward sloping curve where futures prices are lower than the spot price. This would remove the profit boost from forward selling and increase OPEC countries’ competitiveness and share of total oil earnings relative to shale producers.”

https://www.theglobeandmail.com/globe-investor/inside-the-market/opecs-strategy-behind-production-cuts-is-not-what-you-think/article35180880/

#8 InvestorsFriend on 01.27.18 at 1:22 pm

So go earnings, so goes the market

Agreed. I would quibble just slightly with the graph. The right hand and left hand scales here HAVE to be different. But they should be consistent. Since the left scale rises 7.25 times from bottom to top, so too should the right. But here the right rises about 8.0 times (the top looks to be $120). So, in this case it is almost consistent but not quite.

Not a fatal thing here. But consider that by manipulating those scales you can ALWAYS insure that the two lines precisely intersect at both the top and bottom. Now that would still leave the correlation visible but still forcing equality at top and bottom would be misleading I think. Consistent scales prevent such forcing.

BUT the main message here is clear. The correlation of stock index to earnings is incredibly strong. That implies the P/E ratio stayed fairly constant. Which it did in that period of time.

Again, just a minor quibble because the scales here are almost consistent. But always watch out for inconsistent scales.

By the way, those are good old GAAP earnings here I believe.

#9 Smoking Man on 01.27.18 at 1:23 pm

Good post Doug.

The bull market on fire. One day befor the Trump win I told everyone that would listen. Short Bonds long equities.

#FormSubmission1649

#10 conan on 01.27.18 at 1:29 pm

Casino Rama, that’s the big time buddy.
The money management required on a stack of poker chips is off the charts. Learn that ,and one is half way there, to being a decent poker player. Decent meaning, profitable.

Poker used to be really, really, popular. There were so many people playing, without any knowledge, on what to do.

Very much like the current housing situation in T.O.

#11 SoggyShorts on 01.27.18 at 1:34 pm

Quick question: How do you use bold and italics on this forum?
It’d be easier to reply/quote others if you could italicize their post (as some blog dogs do)

#12 AGuyInVancouver on 01.27.18 at 1:37 pm

Interesting. Is this written in response to the Globe & Mail piece sounding a cautionary note on ETFs? They essentially suggest ETF buyers could trigger a massive sell-off if they all panic sell in a downturn:
https://www.theglobeandmail.com/globe-investor/funds-and-etfs/etfs/etf-threat-problem-markets/article37754413/

#13 Mark on 01.27.18 at 2:09 pm

So we know that the Trump “tax cuts” are going to sunset in a few years. The market appears to be pricing in lower tax rates in the short term, but won’t the market have to price in higher tax rates in the long term?

When that happens, then what? What about higher interest rates — as I predicted, US inflation would end up running very hot, and that would require higher interest rates, which in turn, reduce consumer demand. The US economy is overwhelmingly tilted towards consumer consumption rather than the creation of long-term capital goods, so that will be an enormous hit. The entire FIRE sector will be hit very hard by rising long-term interest rates.

Interestingly, with the USD$ now falling significantly, the US is in a position where they have to refinance many trillions in USD$ government debt over he the next year against such a backdrop. With China and other countries not buying many US Treasuries, just who is going to buy? Might the stock market have to crash in the US simply to free up enough funds to finance the US Treasury’s bond issuance?

From my vantage point, due to the rising rates, the US stock market deserves a very low P/E, in the range of 8-10%, given that growth will be quite elusive for decades to come. If you do the math, to get to a P/E of even 10, you need a 50% correction or more. Very scary times ahead for US stock market investors that’s for sure.

#14 Food Trucks on 01.27.18 at 2:11 pm

#3 Leo Trollstoy

Not a big believer in food trucks. I work downtown Vancouver. The novelty seems to have dwindled.

Winter is definitely the shits for them. I suspect in summer much of their biz is tourists. The idea of paying $12 for something out of a grotty truck isn’t that exciting; and eating it on the street while cars and buses bolt up and down Burrard doesn’t seem to crank for most.

On the other hand, Cactus, Joey’s and many others are just coining it. I think most would rather pay a few extra dollars and be served in a nice environment with a beer. Millennials seem to prefer to stand in a line at Shitpotle for an hour for their food.

Similarly, visiting Tofino last summer showed – as suspected – a line full of non locals standing for an hour outside Tacofino in some shitty parking gravel parking lot with cars going around in circles kicking up dust. We took one look and bolted. I don’t think we were alone.

Stick with samp and beans and invest instead. Lol.

#15 Property Accountant on 01.27.18 at 2:14 pm

Excellent post Doug.

We all should learn that market play is nothing else than placing bets, sometimes against others. Harvesting profits, accepting losses.

Winner winner chicken dinner!

#16 jess on 01.27.18 at 2:25 pm

#10
$500mn crypto heist: Japanese exchange Coincheck halts trade, ‘deeply sorry’ for users’ loss
Published time: 27 Jan, 2018 04:36

#17 jess on 01.27.18 at 2:28 pm

new HQ hire thousands etc

What Is CamperForce? Amazon’s Nomadic Retiree Army | WIRED
https://www.wired.com/story/meet-camperforce-amazons-nomadic-retiree-army/

Sep 14, 2017 – It was the most popular of the half-dozen or so trailer courts that worked with Amazon to provide space for workers. All were filled up with CamperForce workers and their rigs, which ranged from colossal RVs to tiny travel trailers and camper vans. One worker had only a tent to live in. The Stouts reported to .

https://www.wired.com/story/meet-camperforce-amazons-nomadic-retiree-army/

#18 Mark on 01.27.18 at 2:39 pm

Quick question: How do you use bold and italics on this forum?
It’d be easier to reply/quote others if you could italicize their post (as some blog dogs do)

Bold and italics is in the form of HTML tags, (remove spaces) to open a bolded section, to close a bolded section, to italicize, to close an italicized section.

Millennials seem to prefer to stand in a line at Shitpotle for an hour for their food.

Sure, $10 versus $50 for a meal. And Millennials don’t generally behave even a fraction as badly as the old guys who go to those restaurants to fantasize about the cocktail waitresses that are young enough to be their daughters.

#19 Mark on 01.27.18 at 2:42 pm

Oh darn… guess my previous post didn’t work, I was trying to show the tags (with extra spaces embedded), but I guess they were interpreted without the spaces.

Maybe someone else can show him the HTML tagging. If not a brief search for HTML coding ought to do the trick.

#20 For those about to flop... on 01.27.18 at 3:10 pm

Pink Snow falling in Richmond.

These guys paid 1,62 for this place in April 2017.

Most recent assessment went backwards by over 100k.

Didn’t wait long before putting it back on and now that are stuck with it.

Had it down to 1.49 at one stage with no luck.

Still looking for someone to Pintail on the donkey…

M43BC

11580 Pintail Drive, Richmond

Jul 25:$1,728,000
Jan 26: $1,686,000
Change: – 42000.00 -2%

https://www.zolo.ca/richmond-real-estate/11580-pintail-drive

https://www.bcassessment.ca/Property/Info/QTAwMDA1WENSUw==

Feel free to make a donation.

Flop For Fox Fund…

http://www.terryfox.org/get-involved/ways-to-give/

#21 Doug Rowat on 01.27.18 at 3:13 pm

#4 crowdedelevatorfartz on 01.27.18 at 1:03 pm
interesting poker/market comparisons Doug….
Now to the real question.

Did poker help pay your way through university?

—-

Yes. But it did not help my GPA.

—Doug

#22 Ottawan on 01.27.18 at 3:13 pm

Couldn’t impress our kid; he picked 2

#23 tccontrarian on 01.27.18 at 3:15 pm

Good post, Doug –

Furthermore, I would add that just as in poker, over several rounds the $$’s gravitate towards the better player(s) – which means that the majority MUST lose money.
So, if the majority must lose money in the financial markets (a mathematical certainty), how does one ‘play’ the game to win?

Answer: by being ‘contrarian’! And that simply means to actually have a system/methodology which involves buying ‘low’ and selling ‘high’.
Anyone buying the general markets now (or any time during the past couple years), is/was certainly NOT buying ‘low’.

TCC

#24 InvestorsFriend on 01.27.18 at 3:19 pm

Surprising RRSP Math

It has been mentioned that putting money into an RRSP turns after tax dollars into before tax dollars.

It’s an interesting point. But you do get the tax dollars back as you do so.

People here have posted from time to time that in order to spend say $100 you have to earn say $ 150 pre-tax or whatever.

Here’s some math that may surprise:

Say you want to put $5000 into an RRSP or a TFSA.

If your marginal income tax rate is 40%, how much do you have to earn pre-tax to put $5000 in an RRSP and how much to put $5000 onto a TSFA?

The answer is you need to earn $5000 pre-tax to put $5000 into an RRSP since you get back the income tax on the money earned. The downside of course is “your” $5000 in that RRSP is only really worth $3000 after tax assuming the same 40% marginal tax rate upon withdrawal.

To put $5000 into a TFSA you need to earn $8333.33 since after paying 40% income tax on that amount, you have just $5000 left. But that $5000 is all yours and you will never pay tax again on it or the growth thereof. Very nice.

To put the two accounts on a more even footing, invest $8333.33 in the RRSP and $5000 in the TFSA, both of which cost you $8333.33 pre-tax and $5000 in after-tax spendable dollars.

To me the

#25 jess on 01.27.18 at 3:25 pm

misapplied rent fees

http://www.baltimoresun.com/business/real-estate/bs-md-kushner-lawsuit-20170927-story.html

The class-action suit, filed in in Baltimore, argues that Jared Kushner-related firms charged excessive or improper late fees. Some apartment tenants were illegally threatened with eviction, the suit alleges.”

“The decision recognized the important principle that the courts are open to the public, especially in cases involving major public figures,” Siegel said in a statement.

The news organizations who protested the firms’ attempt to file a secret pleading in the case were The Baltimore Sun, ProPublica, The Washington Post, WMAR-TV (Baltimore’s ABC affiliate), and The Associated Press.

#26 TurnerNation on 01.27.18 at 3:30 pm

Oh yeah speaking of potty-mouth Millennials whatever happened to the millionaire pair that graced this pathetic weblog; was it Firecraker and SparkPlug or was it ShortFuse and IED? Either way I bet they housed up with a sht bung in the ‘6 or a townhouse on the GO Line.

#27 For those about to flop... on 01.27.18 at 3:34 pm

Pink Snow falling in West Vancouver.

At first glance these guys appear to be borderline Pink Snow ,but as I wrote in a post last week anyone who has this type of coin can afford to be fussier than usual at the moment.

Multitude of cases in that price bracket in that part of the city all competing for a small pool of buyers.

Same price point and area as my biggest loss last year of over 1million bucks.

These guys are on the hook for 4.94 form April 2016 but their assessment just got rolled back 400k and by now it is well and truly a stale listing at close to 300 days.

Originally chasing 5.98 then 5.78and now 5.49 most likely another couple of reductions to tempt someone into putting in an offer.

I must have had a premonition about what Robax was going to write about as I did a poker joke last night.

Too bad for these guys as they decided to roll the dice instead…

M43BC

2373 Westhill Drive, West Vancouver

Jul 5:$5,788,000
Jan 26: $5,498,000
Change: – 290000.00 -5%

https://www.zolo.ca/west-vancouver-real-estate/2373-westhill-drive

https://www.bcassessment.ca/Property/Info/QTAwMDAyOUNWRw==

Feel free to make a donation.

Flop For Fox Fund…

http://www.terryfox.org/get-involved/ways-to-give/

#28 InvestorsFriend on 01.27.18 at 3:36 pm

Poker…

I believe Buffett has said that playing poker and understanding the probabilities is a good way to train the mind to think about probabilities and will be very useful for investors.

Buffett chooses Bridge but it’s all about the probabilities. Buffett is close to a world class Bridge player.

#29 Craig on 01.27.18 at 4:04 pm

Re: Doug
” a GIC pays maybe 1.5% ” ???

http://www.globeinvestor.com/servlet/Page/document/v5/data/rates?order=d&pageType=gic_long&sort=IR2&page=0&tax_indicator=R

#30 ANON on 01.27.18 at 4:17 pm

A dude called Bob makes an impersonation of an impossible character -an economic Nobel laureate who actually figured out how the economy works- which tries to deliver the “get out now” message without creating a panic on tevee. Mesmerizing acting, body language, the works. Amazing, Oscar-worthy performance:
https://ca.finance.yahoo.com/news/robert-shiller-stock-market-today-similar-stock-market-1928-204253341.html

#31 technical analysis? on 01.27.18 at 4:22 pm

fact: REAL interest rates are NEGATIVE.
fact: there’s no chance in the near future that changes.

you don’t need to be a rocket scientist or poker player to figure out what’s going to happen to stocks and commodities or bonds, or inflation…

#32 Unscrewed Canadian Millenial on 01.27.18 at 4:31 pm

write these on a piece of paper:

90 cent Loonie
80 cent loonie
50 cent Loonie
5 cent loonie

and ask Poloz what he prefers as a stable value of Canadian currency when Oil is at US$1,000 a barrel, and Inflation is at 500%. Poloz will write on the paper :We need a lower loonie than 5 cents to boost exports.

#33 SoggyShorts on 01.27.18 at 4:43 pm

bold?
italicized?

Thanks Mark!

#34 No Funds City on 01.27.18 at 4:51 pm

Why Vancouver millennials have the lowest discretionary income in Canada

https://www.vancity.com/SharedContent/documents/reports/2016-May11-NoFundsCity_Millennials-DI-Report.pdf

#35 Robert B on 01.27.18 at 5:08 pm

Doug, I love poker…having a pathetic hand but winning the pot is “Priceless”….Unfortunately can’t bluff your way out of stocks..That’s why we need a balanced portfolio..

If the market goes up 77% of the time, then using call options on equities in a bull market even at 1-2 % of the portfolio would increase returns. Sad that not too many investors do it.

#36 Doug Rowat on 01.27.18 at 5:14 pm

#28 InvestorsFriend on 01.27.18 at 3:36 pm
Poker…

I believe Buffett has said that playing poker and understanding the probabilities is a good way to train the mind to think about probabilities and will be very useful for investors.

Buffett chooses Bridge but it’s all about the probabilities. Buffett is close to a world class Bridge player.

And no doubt Buffett understands moderation as well. Rumour has it that Jimmy Cayne was more interested in playing bridge than running Bear Stearns as it collapsed during the credit crisis. Being good at a game can only take you so far.

–Doug

#37 Doug Rowat on 01.27.18 at 5:21 pm

#29 Craig on 01.27.18 at 4:04 pm
Re: Doug
” a GIC pays maybe 1.5% ” ???

At a major Canadian bank. Oakmont Financial? Is that like Stratton Oakmont?

–Doug

#38 dakkie on 01.27.18 at 5:26 pm

End of the 9-Year Rental Housing Boom?

http://investmentwatchblog.com/end-of-the-9-year-rental-housing-boom/

#39 n1tro on 01.27.18 at 5:29 pm

#293 Trumpocalypse2018 on 01.27.18 at 9:19 am

As my brother n1tro pointed out here two days ago, the Doomsday Clock is now 2 minutes to midnight.
————–+—————-
I’m next to you in spirit in your bunker. One hand clutching my bars or gold and the other holding my paper crypto wallets!

#40 For those about to flop... on 01.27.18 at 5:56 pm

To all the people that said Bitcoin is going to zero,it is getting closer as I just saw it for $6.99

Correction….Biotin is on special at Shoppers Drug Mart for $6.99…

M43BC

#41 millmech on 01.27.18 at 6:13 pm

#34 No Funds City
I do not understand why the millennials stay in high expense areas.
Oldest son has accepted a job offer in the interior of BC, job has great pay and benefits and gives him the opportunity to have a house paid for in five years. They flew him up for the tour of facility, paid all accommodation expenses, will cover moving expenses, and will give him up to three months housing allowance

He could stay and rent and never get ahead or move to a low cost of living area and have money in the bank, short commute to work, no financial stress, so many pluses and so few drawbacks.

He can not for the life of him figure out how a house in Vancouver is “worth” ten times what he can buy a house for and his will come with acreage.

I never had a company do this for me when I was his age, according to his friends his age this is becoming more common as the boomers are starting to retire. There are few younger people willing to start in these careers and the schools are not doing a good job on selling the kids on trades. The young tradespeople are starting to command a premium wage($50.00/hr and $100 for every year of service in pension plan). I see they are putting lots of money into coding but little into shop classes.

#42 with ya on 01.27.18 at 6:14 pm

If the market goes up 77% of the time, then using call options on equities in a bull market even at 1-2 % of the portfolio would increase returns. Sad that not too many investors do it.

………….

sell them regularly. They got ETF’s for em nowadays, haha.

one of the best ‘secrets’ to increasing yield for a portfolio.

#43 Newcomer on 01.27.18 at 6:21 pm

My guess is that it’s
something
[b.]something[/b]
something
[i.]something[/i]
Let’s try it without the periods:
something
[b]something[/b]
something
[i]something[/i]

#44 Newcomer on 01.27.18 at 6:23 pm

OK, so it’s for the brackets, and it doesn’t care if you add periods.

#45 Newcomer on 01.27.18 at 6:23 pm

sorry

#46 Newcomer on 01.27.18 at 6:24 pm

use less than and greater than signs for the brackets

#47 I’m stupid on 01.27.18 at 6:27 pm

I gave up poker after playing the series. I remember looking around and feeling like a loser. You need to be a special human to sit and play poker day in and day out. I was so traumatized by the series I haven’t been able to play since.

If you still play Doug don’t ever go play the WSOP. Its disappointing to say the least.

#48 LivinLarge on 01.27.18 at 6:29 pm

“The answer is you need to earn $5000 pre-tax to put $5000 into an RRSP since you get back the income tax on the money earned.” oy, still you go back this “spooky-math” (an allusion to Einstein’s opinion of quantum entanglement). All of these “explanations” you proffer fail to relate to the vast majority of Canadians’ real lives.

First, a small percentage of Canadians in there accumulation years are at the 40% marginal rate and while you’re going to call it semantics but because a tax payer gets their enhance refund AFTER making the $5000 RRSP contribution, they still had to earn the $5000 innthe form of taxable earnings just to get the enhanced refund. Then, a very large percentage of folks with enhanced refunds DO NOT immediately drop that “tax portion” back into the RRSP. They should but they don’t. Just a fact of human nature. “Big cheque goes somewhere but usually squandered”

So maybe the numbers ballance but the situation you presume isn’t reality for most Canadians.

#49 Mark on 01.27.18 at 6:29 pm

“and ask Poloz what he prefers as a stable value of Canadian currency when Oil is at US$1,000 a barrel, and Inflation is at 500%. Poloz will write on the paper :We need a lower loonie than 5 cents to boost exports.”

Why would Canada need to boost exports when presumably, in such a circumstance, the capital markets would place an extreme value on Canada’s “in-ground” resources?

At those oil prices, Canada could easily pull the same stunt that the US has been doing since the 1970s with respect to trade — merely export paper promises in lieu of exporting real goods.

At such a point, the only role of the BoC would be to make enough dollars available so that Canadians could sell them overseas to buy the stuff that we want. Much like the Fed has done for the past 20-30 years.

I actually believe this is going to happen at some point in the cycle in the future. Hopefully Canada will use such to evolve Canada’s economy into highly technical and highly cultural facets of economic activity, rather than wasting much of the advantage away on consumer consumption as our neighbors to the south have done in an almost uncontrollable fashion.

#50 PSA on 01.27.18 at 6:33 pm

Public Service Announcement:

If bitcoin bummed you out, there is a new kid on the block.

I bought NEO on dec 15th, when it was $46 or so.
Today, NEO trades at $141 or so.

Not bad, tripling in a month and a half.

It also generates gas (like a dividend.)

#51 Caninaus on 01.27.18 at 6:35 pm

Anyone notice that Doug said write the numbers in columns, but there written rows?

No to SCM

#52 LivinLarge on 01.27.18 at 6:39 pm

Just because I like being somewhat accurate, I just checked my handy dandy combined Federal/Ontaria tax chart for 2017 from Taxtips.ca and (drum roll Johnny)…to be in the 29.6% combined bracket you need a taxable income of $46,000 which means….yes you guessed it, well into the mid to high $50K gross income and that’s for a single, no dependents wage earner.

Judging by the oft quoted here report that a high percentage of Canadians can’t come up with a couple of hundred beaver bucks per month unless their lives depended on it, your math example is again, not in the realm of realistic for most Canadians.

#53 Yanniel on 01.27.18 at 6:39 pm

Hi Doug,

I gather you are bullish on American equities now, nontheless last year you sold some US assets to reallocate to less expensive stocks like Canadian or International. That made sense to me back then; but does it make sense now?

I am just a rookie investor but something tells me the violent increase seen this month in the S&P500 is not sustainable and that a correction (not a crash) is just around the corner. This makes me think US stocks are very expensive and that maybe I should sell some now to buy less expensive assets. But I may be missing on yet more upside, as you guys did last year when selling part of the small caps.

On the other side, I see the tax cut in the US and the favorable earning reports. Can we say US equity is no longer as expensive given those?

I appreciate any comment you can provide.

Cheers,

Yanniel

#54 Nonplused on 01.27.18 at 6:51 pm

Here is a timely article from John Mauldin that goes into some of the problems with GDP I was alluding to yesterday:

http://www.mauldineconomics.com/frontlinethoughts/gross-domestic-problems#fb-root

He even used my “housekeeper” analogy from yesterday! Perhaps he reads the greaterfool comments section? I doubt it but you never know.

Anyway, if you aren’t on John’s distribution list, you should be. It’s free.

For those who don’t wish to bother with clicking the link, I especially liked his comparison of cell phone map apps to the old map books we all used to carry in our glove boxes. Buying new map books every 4 or 5 years was positive for GDP in ways that the map apps cannot be, yet the map apps are hugely more efficient. How do you measure this in GDP? Well, currently you don’t. He also uses an example of how time consuming it would be to look up the GDP in 1972 just not that long ago, as compared to now when you can google it in 5 seconds.

The times have changed and GDP as a measure I believe is still indicative but it doesn’t tell anything resembling an “absolute” story. It was designed for a manufacturing economy and includes government spending, which I believe is a double count. Sure, governments do the odd useful thing like build a road, but they get the money to do that but taxing me and I am already in the number. But most of the money they spend is a complete redistribution or waste. John explains why government spending is in GDP and as you would expect, the reasons are entirely political and it was contentious and the time and remains so.

Also, John discusses the fact that GDP growth is skewed towards the top 1% as a result of the famously rising “wealth gap”, so for that reason also it doesn’t necessarily reflect real world conditions for most people. Real wages have been stagnant for 30 years for 90% of the people. So how does GDP measure this? It doesn’t.

Anyway, at least one poster yesterday said I was out to lunch for questioning the validity of GDP as an absolute measure. I invite you to read John’s article and then argue with him.

#55 Yanniel on 01.27.18 at 6:53 pm

Tried the numbers trick with my wife at home just now. She picked 2. Maybe this is a boys only trick :-)

Or requieres booze in order to work.

#56 Balmuto on 01.27.18 at 6:55 pm

“#46 Newcomer on 01.27.18 at 6:24 pm
use less than and greater than signs for the brackets”

thanks

#57 Lost...but not leased on 01.27.18 at 7:03 pm

Re FOOD TRUCKS..

I agree with earlier comments…..WTF ?

Whats next…mobile funeral homes?

The brick and mortar restaurants have enough competition amongst themselves. They will provide a lot more jobs..whereas food trucks are often be run and operated by families.

The food is often overpriced..I have attended events with say 50+ food trucks and their price points ie $10..seem to be the same regardless of the food. Seems to be an excuse to gouge much like fairs and exhibitions.

The more people that get into this the more risk of a major collapse in all restaurant types.aka discretionary income limits. I really don’t see their rationale except another revenue source for gov’ts and perhaps buff up some self- serving statistics.

#58 Nonplused on 01.27.18 at 7:09 pm

Here is another timely article that just arrived discussing how the “wealth gap” is affecting GDP distribution:

https://www.peakprosperity.com/blog/113693/pie-shrinking-so-much-99-beginning-starve?utm_campaign=weekly_newsletter_321&utm_source=newsletter_2018-01-27&utm_medium=email_newsletter&utm_content=node_link_113693

#59 Last of the Boomers on 01.27.18 at 7:13 pm

[b] Interesting reading for those of us on the housing sidelines in B.C. [/b]

http://www.macleans.ca/opinion/how-to-fix-canadas-ghost-immigrant-fraud-problem/amp/?__twitter_impression=true

And interesting viewing:

https://omny.fm/shows/the-jon-mccomb-show/immigration-fraud-tax-avoidance-real-estate-scheme

Cheers.

#60 Nonplused on 01.27.18 at 7:20 pm

#41 millmech

Are you Mike Rowe?

Anyway a big problem with a lot of these remote jobs, while although they do offer great cost of living arrangements and a great lifestyle, it all goes away once the sawmill/refinery closes down. And they all do, there is only so many trees or oil/gas in the area.

#61 Shawn on 01.27.18 at 7:20 pm

Hey Doug,

Thanks for the great post. Sharing a little bit of your past is great insight into how you came to be a successful business man.

Quick question about portfolio balance:

I’m in my early thirties and have been struggling with how to roll with bonds. Ever hear of a glide path to retirement?

I know your firm uses preferred shares but I can’t see myself ever accumulating enough to hold in a non-registered account.

Is the old advice of bonds = your age still make sense these days?

Also any chance of a future post on bond tents and when they are useful?

Have a great weekend.

#62 Lost...but not leased on 01.27.18 at 7:22 pm

To Flop(and others)

You mentioned Richmond B.C…

Talked today to a well- informed citizen(part of an activist group).
OMG…quite the cautionary tale.

Where does one start?

How about the Richmond Olympic Oval…?
It is set up as a private corporation.The City’s top bureaucrat is a board member..as is…drumm roll, a retired RCMP officer now tasked by Attorney General David Eby to investigate money laundering as casinos..

The Richmond Oval is being marketed as ROX..ie Richmond Olympic Experience…which is a white elephant requiring multi-million dollar subsidies each year. Every year they seem to add new infrastructure(ie a climbing wall over $1 Million.)

The $100 million Oval is NOT open to the public..one has to have a membership…ie a total of 4500 in a City of approx 220,000

WHO is the supplier?…the paper trail leads to the TOP CITY BUREAUCRAT with a company based in Sidney BC.

This same bureaucrat is apparently the City new FOI officer..

In addition, the City of Richmond has approx. $1 BILLION dollars in its cash reserves…yet every year they claim they need approx. 3 % tax increases….which anyone with grade school math realizes the compound interest effect.

More Later…

#63 InvestorsFriend on 01.27.18 at 7:32 pm

The Math RRSP vs TFSA vs Taxable Account

All three can be used but, take a look at the math below, if you can only choose one, it is often best to go TFSA but not always. Sorry, this post got a bit longer than I intended. I am not giving advice just going through the math.

LivinLarge at 48, thank you for the response. You are right, my marginal tax rate is too high for most people at 40% so I am dropping it down here.

Further to my post 24:

Assume a 29.65% marginal tax rate which is Ontario from $46,605 to $75,657 taxable income.

To put $5000 into a TFSA or a Taxable account you need to earn $7,107.32 pre-tax since after paying 29.65% marginal income tax on that amount, you have just $5000 left.

To put the three accounts on an even footing for a fair comparison, invest $7107.32 in the RRSP and $5000 in the TFSA and $5000 in the Taxable account all three of which cost you $7107.32 pre-tax and $5000 foregone in after-tax spendable dollars. (The RRSP gives you a $2107.32 refund, so the $7107.32 into the RRSP cost you $5000 net the same as the other two).

Now, the TFSA will ALWAYS beat the taxable account on any type of investment that makes you money. (The taxable is actually better if you plan to lose money on your investments!). All hail the TFSA!

The RRSP will precisely tie the TFSA if your total effective marginal tax rate upon withdrawal stays precisely at 29.65%. The reason for this is the RRSP has 42% more money in it due to being pre-tax money and that amount precisely covers the tax at 29.65%.

RRSP will under-perform the TFSA if your effective marginal tax rate (including impacts on clawback or GST or GIS or anything else increases past 29.65% in this example). The extra 42% in the RRSP will not cover the tax in that case.

Since the RRSP will beat TFSA if your effective marginal tax rate is lower than 29.65%, this means you paid less than zero income tax on your gains on your net $5000 investment! The extra 42% covered the tax with money left over!

RRSP will certainly beat the taxable account unless your marginal tax rate at withdrawal is quite a bit higher than the 29.65% at contribution time. Remember, the tax on the gains in your net $5000 must be negative below 29.65% since you beat the TFSA and only starts to get positive past 29.65% and no matter what is in the taxable account it is going to be hard to get the eventual tax rate there down as low the net in the RRSP. But at some point, yes, with a high marginal tax rate on withdrawal including clawback the taxable account would beat the RRSP especially where the taxable has lower taxed investments.

#64 LivinLarge on 01.27.18 at 7:36 pm

TV is boring so lets use your own numbers but inject a little reality into the process.

Joe#1 wants to put $5000 into his RRSP. He’s worked all year and has been taxed at his 40% so he has $3000 saved. He takes a small RRSP loan out for the remaining $2000 so his RRSP gets $5000.

Joe#2 has saved the same $3000 and put it into his TFSA.

In a few years, both Joes are lucky and the TFSA and RRSP have each double to $6000 and $10,000 respectively. But, Joe#1 paid back the $2,000 to the bank (ignoring a tiny bit of interest) so in reality, unless he’s very diligent and throws the enhanced refund into the RRSP, he’s really sitting with his original $3,000 of real money. Even so, the RRSP has a notional balance of $5,000 and doubles to $10,000. If he takes it out of the RRSP @ 40% then he’s got $6,000 in his jeans.

Joe#2’s $3000 has doubled to $6000.

So? At the very best it’s a wash except for the hopefully neglible loan interest that Joe#1 paid.

The moral of this story is that ignoring a number of very real variables to make a mathematical point makes the point moot in the end. Like what, you ask???

Like Joe#1 earning more per year by the time the RRSP has doubled and therefor bumping his marginal rate, or getting divorced or widowed and again bumping his marginal rate, or even “god forbid” his little darlings growing up and leaving home or becoming non dependents. In those very real scenarios experienced by a very large proportion of Canadians, Joe#1 pay a bunch more tax than the original 40% he saved but Joe#2 still gets his $6,000 tax free regardless of what happens in his life.

#65 crowdedelevatorfartz on 01.27.18 at 7:46 pm

@#338 KLNR
“there’d only be a handful of commenters if you got rid of the bigots, xenophobes, racists and woman haters.”
++++++

And you keep coming here?
Pray tell.
Which group do you fall under?
Masochist?

#66 LivinLarge on 01.27.18 at 7:47 pm

“RRSP will certainly beat the taxable account unless your marginal tax rate at withdrawal is quite a bit higher than the 29.65% at contribution time.”…again you apparently deliberately ignore the reality of life with inflation. For at the very least half of all RRSP contributors starting early, their marginal rate is higher in 10-15-20 years in the future. That’s just the reality of life even if you’re unfortunate and destined to a life at minimum wage (at least in Ontario now). If you aren’t stuck at minimum wage all your life then everyone strives to earn much more in 20 years than they do today. And then there’s the reality of more than 50% of first marriages failing within 5 years.

You’re just pushing RRSP math the way I was taught to when I was a commissioned mutual fund pusher. Ignoring the very real parts of life in favor of hypothetical best case scenarios.

#67 InvestorsFriend on 01.27.18 at 8:05 pm

LivinLarge at 64 shows RRSP can tie TFSA!

“So? At the very best it’s a wash except for the hopefully neglible loan interest that Joe#1 paid.”

*****************************
So, in your example both Joes doubled their $3000 to $6000.

The $3000 growth in the TFSA was clearly tax free.

Your math shows the RRSP tied the TFSA in the base case!

I think that is a bit of a revelation, the growth in the net $3000 RRSP cost came in tax free!

People often claim the RRSP loses out on the dividend tax credit or capital gains lower rate. But here you showed the tax on the $3000 RRSP gain was same as TFSA or zero.

Now I agree the marginal tax rate might rise and bump to higher brackets. But that often means the RRSP has just some small tax, higher than the zero on the TFSA but probably far lower than in taxable account.

And there would be some cases where the marginal tax rate in retirement is far higher (nice problem to have) and the RRSP might just under perform a taxable account.

People who complain about RRSP tax mostly like to forget that they effectively invested with pre-tax dollars

Thank you for doing the math.

#68 Slim on 01.27.18 at 8:06 pm

https://www.kelownacapnews.com/news/kelowna-resident-retaliates-after-neighbourhood-harassment/

Warning: This Story has Mature Language

#69 dr. talc on 01.27.18 at 8:14 pm

Here’s one for the conspiracy and the coincidence theorists.

Benito Mussolini was a British agent
100 years ago!

https://www.theguardian.com/world/2009/oct/13/benito-mussolini-recruited-mi5-italy

#70 Flatlander on 01.27.18 at 8:17 pm

Scott Moe just elected as the new leader of the Saskatchewan Party

Mr. Wall will be greatly missed in this province. I know Scott will keep up the fight against poor liberal economic policy and their attack on western resource development.

https://regina.ctvnews.ca/scott-moe-elected-as-leader-of-saskatchewan-party-1.3778692

#71 InvestorsFriend on 01.27.18 at 8:20 pm

Marginal Tax Rates

It would be nice if someone had a graph of marginal tax rates going back decades by Province.

In Alberta, the top marginal rates declined when Klein brought in the 10% flat tax.

It seems to me that I was well above 30% marginal tax rate in the early 90’s when I was grossing under $50k but that was a long time ago so I am not sure.

Back then there was no TFSA (Garth had not yet got it done) and no RESP either.

RRSP was about the only game in town and people used it even at probably 25% tax rate. If not for that they would have spent the money in most cases.

I am not pushing RRSP, I am doing math. People can suit themselves. I dabble in stock analysis but I don’t invest money for anyone but my own household.

The math is what it is.

I was rather surprised when it turned out an RRSP can tie a TFSA like that. maybe it was obvious to others. I doubt it.

#72 Gravy Train on 01.27.18 at 8:23 pm

#11 SoggyShorts on 01.27.18 at 1:34 pm
#18 Mark on 01.27.18 at 2:39 pm
#33 SoggyShorts on 01.27.18 at 4:43 pm

Monkey see, monkey do.
boldface italic underlinedhighlight subscript superscript

#73 For those about to flop... on 01.27.18 at 8:29 pm

Lost ….but not leased 7:22 pm
To Flop(and others)

You mentioned Richmond B.C…

Talked today to a well- informed citizen(part of an activist group).
OMG…quite the cautionary tale.

Where does one start?

/////////////////

Hey Lost,

Thanks for the insightful post.

You’ve been asking me about losses on condos and so I got one out of the vault for you.

Some of the condos that took losses were purchased in 2014 and so now bc assessment has erased the original sale because 3 years has expired.

The address below is valid as it was a later purchase.

From memory I think these guys lost close to 20% after expenses…

M43BC

6019-5511 HOLLYBRIDGE WAY RICHMOND

#74 Lost...but not leased on 01.27.18 at 8:42 pm

BTW:

Pick NUMBER “5” …………..THEY’LL NEVER EXPECT IT !!!

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

Also has anyone heard of the “Lets Make A Deal “paradigm re odds and which door to pick????….quite intriguing.

#75 NoName on 01.27.18 at 8:43 pm

interesting read.

chance, risk and probability.
http://www.cryptomuseum.com/covert/bugs/selectric/index.htm

#76 Loonie Doctor on 01.27.18 at 8:48 pm

I think RRSPs, TFSAs, and taxable accounts all have their place. Yes, it is harder for some people to save enough to need/use all three. Sometimes that is due to not enough income and sometimes it is due to spending more than they should to live beyond their means. I have seen people making hundreds of thousands a year blow it all and on the other end I have seen people who make 60-80K in their household max out their sheltered accounts for years, be happy with what they have, and retire early. There is a luck component, but much of income and spending is about the choices people make. Human nature and the risks of life are always present, but they aren’t insurmountable. To focus on that prevents people from making better choices/plans, is nihilistic, and that kind of thinking leads to self-fulfilling prophecy.

If I were to choose only one account type, then the TFSA works for the most people most of the time and is not dependent on getting tax bracket arbitrage to be at its best. The money is also accessible more readily without losing the room and doesn’t result in benefit clawbacks. Too bad it got labelled as for rich people and cut. RRSPs are easier for high earners to benefit from, but even then there is still the risk of taking money out at a higher tax rate than you got your refund at. Many people do make more over time as they get promoted, build their business etc. Even if you make the same over time there is risk of tax increases. For example, I am in the highest marginal rate and looking back it was not too many years ago that I was contributing to RRSPs and getting a refund in the 47-48% range and now my marginal rate is 54%. A 6% tax loss, all things being equal. There is a real risk that could rise further given the course we seem to be on. I don’t let that stop me from trying to plan and make the best choices that I can with what I have with best currently available info.
-LD

#77 Sir Hani on 01.27.18 at 8:48 pm

SCM-YES

I miss the boomer bashing… and people say the mills are the sensitive ones.. pfft

#78 aa3 on 01.27.18 at 8:56 pm

I imagine in 1790, several decades into the industrial revolution in Britain.. some economics watchers were calling the top in manufacturing output and profits.

I know in the late 1700’s people began thinking that the wealth being created in manufacturing, was ‘unsustainable’, as it was so far beyond the level of wealth that came before.

I see that in the US today with some people worrying about QE and the national debt, thinking that it is unsustainable. The reality is it would only be unsustainable if the expansion of the money supply was leading to inflation. Yet that is not the case.

Ergo the production of value in the economy is rising right alongside the expansion of the money supply.

#79 ImGonnaBeSick on 01.27.18 at 9:09 pm

A most bizarre comments section today, teaching rsp math and html syntax.

There are other benefits of rsp in that you are not charged foreign withholding tax on dividends from US holdings.

There are other benefits of tfsa, in that any withdrawals do not trigger clawbacks.

If you are able, invest in both. If I could only choose one, it would be TFSA.

#80 Terry on 01.27.18 at 9:22 pm

This was one of the best financial Blog posts I’ve read in a very long time. Take a bow Mr. Rowat! Very well done …… and thank-you!

#81 ANON on 01.27.18 at 9:27 pm

#72 Gravy Train on 01.27.18 at 8:23 pm
Monkey see, monkey do.
boldface italic underlined highlight subscript superscript

Ain’t all of’em working, just them bold and italics.
Strikeout ain’t working either. Let them newbies do their thang, if Top Boss allows. :)

#82 LivinLarge on 01.27.18 at 9:30 pm

“I am not pushing RRSP, I am doing math. People can suit themselves.”…that’s just disingenuous. You are using arithmetic to make a point that you believe to be true so you are promoting your perception and trying to have the arithmentic support your point of view.

Unfortunately, valid and effective financial math is far more complex than arithmetic allows. Solving an equation with more than two variables with arithmetic requires a huge number of calculations using each potential integer variation for that variable.

Your examples always rely on “all things being equal” assumptions when in real life all thing never remain equal for long. So, you inferences or implied conclusions are by their very nature always going to contain that bias.

For example, to simplify in your original example you presume that both RRSP and TFSA are invested in precisely the same instruments. I understand the necessity of that approach but being necessary for ease of calculation destroys the conclusion’s validity.

Some will argue that my next example is unfair because it’s an apple/orange example it is actually more real life than ignoring all but two variables to make a point.

It has been reported here by none other than Fearless Leader that the $s in mutual funds is about 10x that in ETFs. So, The 2-3% MERs charged by mutuals are huge compared to what’s charged in ETFs. Thus, just changing the nature of the asset mix with the mutuals getting the RRSP contribution and the TFSA getting the ETFs makes an enormous difference in the final “real life” end calculations.

Again, I know that to make your point you have to use static state, all things are equal, presumptions but unless you’re talking a time frame of a couple of years to withdrawl then nothing stays the same. However, time is functionally immaterial in a TFSA. Tax free money is tax free money forever or until the Feds change the rules in TFSAs.

So, over the month or two that I have bothered to recall, you keep making these “see RRSPs really are better than TFSAs or non registered portfolios” arguments so you are trying to promote that agenda.

One last, oh please let it be the last, example is the ine I gave you a month and a half or so ago regarding “little Johnny” and his portfolio of non registered investments doubling in value (100% capital gains) vs him putting his investments into an RRSP. As I know you recall, little Johnny had an effective capgain tax rate of about 15% as I recall due to the capgains being taxed at only half of Johnny’s “other income” marginal rate. If memory serves me, capgains are always taxed less than “other income” until your taxable income reaches something like $220,000 and then every next dollar regardless of source, is taxed at 53%.

RRSPs have, at least in my experience, one special advantage in a specific and un quantifiable point in time for many people. That is when the RRSP contribution is made with already tax free dollars later in a person’s life and when they are already at their maximum marginal rate. Something like a lottery windfall or even an inheritance can be dumped into an RRSP late in life if you still some large lifetime contribution limit available and the enhanced refund in that year is truly a “money for nothing” situation.

#83 Doug Rowat on 01.27.18 at 9:36 pm

#53 Yanniel on 01.27.18 at 6:39 pm

…last year you sold some US assets to reallocate to less expensive stocks like Canadian or International. That made sense to me back then; but does it make sense now?

The results have been mixed. Obviously, Canada has underperformed, but other moves, such as adding to emerging markets, have been very successful. In any case, it is rarely a good idea to bet against the US market entirely and we still maintain a substantial weighting to US equities.

But yes, again this year we have a heavier weighting to Canada than the US. More attractive valuations, impressive Canadian bank profitability and an improving energy sector are some of the reasons. Plus I kiss my Team Canada hockey jersey every night just in case.

–Doug

#84 TheDood on 01.27.18 at 9:45 pm

#34 No Funds City

Oldest son has accepted a job offer in the interior of BC, job has great pay and benefits and gives him the opportunity to have a house paid for in five years.
________________________________

Why are you planting the RE bug in your son’s head before he’s even out the door? If he’s making that kind of coin, tell him to invest it all and he’ll have options a few years down the road, RE being one of them. I’ll bet you if you if you asked him to choose between a house paid for, or a 6 figure growing financial portfolio, he’d take the money and run!

#85 Jeff on 01.27.18 at 9:51 pm

Garth, do you or anyone have any numbers on Jan 2018 sales in Vancouver? Seems like homes are more sticky with longer time to sell, but, appreciate any insight. So much talk about Toronto, but really who wants to live there?

#86 Smoking Man on 01.27.18 at 9:59 pm

Listen to DM at Davos.
Rbc investing heavily in USA 3 rate hikes in Canada . Huge real estate bubble.

No chirping Trump like he did two years ago. Finaly sees the value of the Donald. And Mr Soros slowly getting voted off the island.

I like this DM much more than the old one.

https://www.rbccm.com/en/insights/story.page?dcr=templatedata/article/insights/data/2018/01/dave_mckay_shares_his_views_on_tax_reform_nafta_and_varying_interest_rates

#87 Mark on 01.27.18 at 10:26 pm

“It would be nice if someone had a graph of marginal tax rates going back decades by Province.”

That would be nice, but another variable that people face is that incremental tax rates are often a function of age, and even of a person’s specific need to use certain government benefits such as pharmaceutical benefits.

I was talking to a senior in Saskatchewan the other day concerning the topic, and they have a hard limit of $60,000 for drug benefits. So if he earns $59,999.99/year, he gets his drugs for $20/prescription, including a rather expensive medication that is $300+/month.

If he earns $60,000.00/year, he pays the full $300/month. His incremental effective tax rate spikes literally extremely if he earns even so much as an extra penny at the $59,999.99/year level.

So how do you plan for such sort of silliness, which was actually recently changed by the politicians (the previous cut-off for the full drug coverage was $75,000/year)? With a lot of difficulty, that’s for sure. The TFSA avoids that problem to some extent, but when I read the fine print about Saskatchewan’s income-linked drug benefits, I was shocked at the sort of extreme discontinuity it introduced to incremental effective tax rates.

Similar extreme situations occur at various other income levels. GIS+OAS recipients basically have their RRSPs confiscated, meaning that good intentioned saving in a RRSP was basically worthless earlier in life.

#88 rockpile on 01.27.18 at 10:44 pm

Chess enthusiast and poker player? My kind of guy.

#89 Mark on 01.27.18 at 11:17 pm

“I see that in the US today with some people worrying about QE and the national debt, thinking that it is unsustainable. The reality is it would only be unsustainable if the expansion of the money supply was leading to inflation. Yet that is not the case.”

The money supply has expanded, yes, but velocity collapsed, ostensibly due to low interest rates and the rise in the US dollar that low interest rates induced (no interest paid on borrowed money means that there is less growth in the money supply available to be spent as intuitively most investors will just spend earnings, not principal!).

Rates go up, the dollar falls (as it has been), and velocity increases. Causing inflation. Inflation thus feeds on itself, and policy makers have been conditioned to actually feed inflation further by raising interest rates which suppresses capital investment.

See the problem? By keeping rates low, inflation was suppressed, even in light of extreme growth in the money supply. But now that the central bankers have been raising rates, inflation is set to explode as monetary velocity accelerates.

#90 ANON on 01.27.18 at 11:23 pm

Dudes are finally noticing something is wrong.

#91 LivinLarge on 01.27.18 at 11:35 pm

Great examples there Mark.

#92 Smoking Man on 01.28.18 at 12:02 am

My kid wrote this tonight. Posted it on face book.
I’m still trying to figure out what he’s trying to say. Probably a bit looped. Like father like son.
Empty bottle truth.

……
The Wage Gap ,
Upon many nights of research and study I have determined an opinion on this controversial issue.
Woman and Men have equal opportunity to hold the same positions for the same amount of money.

However the gap that woman see isn’t cause by being a woman it exists solely through there lack of training.

I am an ardent Libertarian, I believe in capitalism and the free market. I believe success is what you make it. However the level of training I have to face the world is vastly different from the life of the woman who are now expected to provide a supplementary or all income and still expected to be the nurturing partners within our society.

Let me explain
I was taught to be aggressive and stand for the things I believe in, I was taught at a young age not to cry when something hurt, I was taught when I lost a hockey game that I need to work harder and grow stronger, so we win the next game. Since I was 4 I was introduced to competition and taught I had an enemy and was taught I need to be stronger and better to overcome this enemy to get the love and praise of the people in my life I had always trusted and felt loved and supported by.

I was taught to be apart of a team before I could even read, I was taught a Hierarchy system before grade school. I understood I wanted to be a captain or an assistant captain as it is like receiving a medal for being the person who puts in the most effort. It was only gained through sacrifice, hard work and determination.

At the same time from 0 to 6 little girls were complimented on a fancy dress or helping mom in the kitchen, they were praised on reading a hard book but never receive the same proud indignations of what it means to lead.

Little boys were challenged to be better
Little girls were challenged to fit in.

Anorexia, make up , the best clothes are things that do not apply to men, imagine guys you were told or seen your worth is based on how you look? Imagine someone telling you to hold your tounge?

Imagine if you don’t smile you wont be listened too, you will be told you were having a bad time of the month.

We used to respect woman we used to take them out and buy flowers and enjoyed being the sole income of our family, realize that doesn’t exsist because the government took that away, imagine your wife has to work but decide if she is willing to take a promotion or raise kids at the same time?

The loves of our life didn’t make this hard the lack of understanding our electoral system destroyed the same things out parents and grandparents had that we don’t get.

Men Im not asking you to be strong(we already are), but I am asking you to be understanding, because the things we are asking from our woman today, are a lot harder to go through without the training we all got.

(also are we doing the same things are father and grandfathers did, really ask yourself that)

THe wage gap deosnt exist but our resumes look alot different and it is unfair because what we expect and what we support is alot different.Lets win the game together! Even though our wolrd is changing men I ask you to lead in the matters of love and respect, afterall we were all trained to do so…

#93 Lost...but not leased on 01.28.18 at 12:22 am

#73 Flop

Those Hollybridge condos sound like they are built near the Oval…..ie buying condos near a part of a 3 week international party called the Olympics should make people open their wallets?!?

A lot of those were hyped …the City was desperate to fund and validate the Oval…problem is very close to the airport and subsequent noise.

As Owen Bigland videos state..buy into Class A sites….not projects shoehorned into bad locales.ie like North side of False Creek near all the roads and interchanges..dog sites will take the biggest hits when RE SHTF.

#94 FahtCoot on 01.28.18 at 12:34 am

I played poker professionally for over 10 years and now trade. It was a pretty natural and painless transition.

Nonplused: PeakProsperity is a staple for me, been a member there for awhile. EROI, the elephant in the room…

#95 NoName on 01.28.18 at 1:20 am

he talked about was something, than electric truck, than mission to mars and now 600usd flame trowers… I hope not same engeeners that worked on model3 and batteries have to do anything with flame trowers.

https://techcrunch.com/2018/01/27/elon-musks-boring-co-flamethrower-is-real-500-and-up-for-pre-order/

https://www.cnbc.com/2018/01/25/tesla-employees-say-gigafactory-problems-worse-than-known.html

#96 dr. talc on 01.28.18 at 2:33 am

“120 Million MasterCard Branded National Identity Smart Cards to Roll Out in Nigeria”

https://www.gemalto.com/govt/customer-cases/nigeria-eid

#97 Nonplused on 01.28.18 at 2:36 am

#284 Gravy Train (Yesterday)

I love statistics, including the GDP. However I also like to like to recognize they have limits and GDP as it is measured today is only 50% accurate at best because government spending, which is the respending of earned income, is such a large portion of the mix. As well go back to the links I posted today. Pretty much everyone knows that GDP is at best an approximate measure.

And don’t be so condescending.

My main point is that statistics are funny things. Knowing that a coin has a 50% chance of landing heads or tails doesn’t tell you anything about what one flip or 5 flips or 10 flips will result in. 1000 flips and maybe it trends back to 50%.

The lottery is another good example. Yes, somebody wins an unimaginable sum of money, more that Garth has. but 70% of the money spent on lottery tickets gets collected by the government. They never lose. Yet people still buy them. They’d be far better off buying a pack of smokes. Less addictive and cheaper, plus you get something.

#98 Gravy Train on 01.28.18 at 7:38 am

#64 LivinLarge on 01.27.18 at 7:36 pm
“… Joe#1 pay[s] a bunch more tax than the original 40% he saved….”

Aren’t you ignoring the discount rate, the time value of money, and the power of tax-deferred compounding over many decades? :)

#99 james on 01.28.18 at 8:10 am

#92 Emasculated Smoking Turd

What a pathetically obvious, self-serving and intellectually incompetent attempt to justify and rationalize male privilege and misogyny.

Go away idiot, and take your mentally defective progeny with you.

You have become a form of self-satire, and lack the intelligence to even grasp that fact.

#100 Gravy Train on 01.28.18 at 8:48 am

#54 Nonplused on 01.27.18 at 6:51 pm
“… [A]t least one poster yesterday said I was out to lunch for questioning the validity of GDP….”

I never said that there weren’t problems with the measurement of economic activity, but merely that this statistic (GDP) shouldn’t be rejected out of hand.

After all, with what will you replace it? You can certainly supplement it with other measures, such as the Social Progress Index and the Inclusive Development Index, both of which were suggested by your icon John Mauldin. But even he said some of those indices “could be hard to pin down.”

#101 Doug Rowat on 01.28.18 at 9:49 am

#74 Lost…but not leased on 01.27.18 at 8:42 pm

BTW:

Pick NUMBER “5” …………..THEY’LL NEVER EXPECT IT !!!

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

Also has anyone heard of the “Lets Make A Deal “paradigm re odds and which door to pick????….quite intriguing.

Yes, the Monty Hall problem. You see similar incorrect decisions with wagering during final Jeopardy. These are contestants with incredible general knowledge but who could have used a few lessons in correct poker betting.

For those interested, the documentary Perfect Bid: The Contestant Who Knew Too Much, about a super fan who gamed the Price is Right, is also worth watching.

–Doug

#102 unbalanced on 01.28.18 at 10:09 am

James at # 99. I just see the name and scroll by!

#103 DLee on 01.28.18 at 10:39 am

I was rather surprised when it turned out an RRSP can tie a TFSA like that. maybe it was obvious to others. I doubt it. </b?

Not sure it is really a tie? If you added nothing else to that example TFSA and RRSP, invested in the same thing and left them alone for 25 years your $6000 would have grow to around $32,000 (at 7%). TFSA that is all yours. RRSP you pay income tax on the original $3000 investment when you withdraw it AND on that $29,000 gain too. TFSA wins hands down as you only paid the income tax on the initial investment and the rest is gravy.

#104 Smoking Man on 01.28.18 at 10:43 am

#99 james on 01.28.18 at 8:10 am
#92 Emasculated Smoking Turd

What a pathetically obvious, self-serving and intellectually incompetent attempt to justify and rationalize male privilege and misogyny.

Go away idiot, and take your mentally defective progeny with you.

You have become a form of self-satire, and lack the intelligence to even grasp that fact.
……

On q yet again. Go walk your cats.

#105 LivinLarge on 01.28.18 at 10:46 am

Gravy:”Aren’t you ignoring the discount rate, the time value of money, and the power of tax-deferred compounding over many decades? :)”…yes, in a sense I am…good of you to bring it up. Because I was trying to point out a somewhat real life scenario for comparing the relative strength of an RRSP/TFSA/non reg portfolio I would have had to show 5 pages of manual calculations using at least 5 variables so instead I had to work from the premise that each instrument choice had relatively the same variable worth and that in a general sense cancels out the impact of the variables on each calculation. Still, important but a minor issue.

Also, I wasn’t using a multi decade time frame for the same reason, just time to doubling.

One huge error I did make though was when I claimed that capgains tax rate reaches parity with “other income” around $220,000/year. Capgains taxes (under current rules) never reaches parity with “other income”…it never goes above 1/2 of the “other income” rate.

So, since capgains tax rate never exceeds 1/2 a person’s prevailing “other income” marginal rate, capgains are ALWAYS the best form of income to earn after you have reached the point where your divs begin to be taxed at more than capgains.

The ideal strategy to maximize anyone’s net net net spendable income is always to maximize the gross into income that receives the most advantageous tax treatment. Since under current rules we know that certain income sources are always taxed as “other income” at the highest rate, it will be much more beneficial to keep the capgains and dividend income maximized.

If the feds at some point decide to impliment an abitrary deemed distribution rule on property before it’s actually sold then we are well and truly screwed. They have done it forever on trusts with the ’21 year rule” of deemed distribution so I figure at some point they will at least consider it. The Harper Cons’ changed the tax rate on trust income retained in a trust with their 2014 budget that came into effect in Jan 2016 so that it no longer considered the source form of the income but just taxed it at the top possible marginal rate of 53.5% regardless of the quantum of the income so any weird shit is possible from any flavor of regime.

#106 Re.,103 on 01.28.18 at 11:07 am

Yup . It’s not even close . TFSA wins all day

Basic math . Good grief

#107 Smoking Man on 01.28.18 at 11:15 am

#102 unbalanced on 01.28.18 at 10:09 am
James at # 99. I just see the name and scroll by!

…..

With millions of words available to create a brand you chose.

Unbalanced.. forgive me for lmao

#108 crowdedelevatorfartz on 01.28.18 at 11:22 am

@#99 james
“Go away idiot, and take your mentally defective progeny with you.”
+++++

My goodness, such eloquent name calling wrapped up in the guise of “debate”.
Whats next?
Sticking out your tongue or spitting?

#109 dumpster fire on 01.28.18 at 11:30 am

#103 DLee on 01.28.18 at 10:39 am
Not sure it is really a tie?
* * *

Back of the envelope calculation:
TFSA: post-tax $3000 compounded at 7% for 25 years = $16282
RRSP: pre-tax $5000 compounded at 7% for 25 years = $27137, withdraw RRSP all at once @ 40% tax = $16282
Exactly the same if the tax bracket does not change.

LivinLarge raises a good point about RRSPs being less useful for low earners, but, as Gravy Train noted, misses the value of compounding over time. This effect is even more exaggerated if capital gain inclusion were to go up in the future.

At 50% inclusion, money removed from an RRSP that has compounded over a long time would be 5% to 12% more than an equivalent taxed account over the same period. At 75% inclusion, this difference can range from 10% to 22%!!

This assumes you are in the same bracket, so a higher bracket or clawback will eat into that buffer.

~ breathe deep

#110 westcdn on 01.28.18 at 11:31 am

My 2 cents worth… increase liquidity and decrease debt.

The US$ continues to fade. The Trump administration wants people to believe this result is planned as to making America great again. I have my doubts that the fade is being managed by Trump policy. My understanding is that capital (money) flows in and out of a currency decides the value of a currency over the longer term. The US$ is a special case as it also serves as the world reserve currency so there are more tools of manipulation than with other currencies.

I expect with rising interest rates, a shrinking Central Bank balance sheet and lower corporate taxes relative to the rest of the world that capital would be flowing into the US$ and raising its value. The tail that wags the dog is a country’s trade deficit/surplus and the USA has a really big deficit. It is normal for a country with a trade surplus to hold excess funds in US treasuries and bonds and bring about currency stability.

I suspect the world has enough US$ and wants alternative places to park capital hence a net capital outflow from the US$ as determined by value. My intuition says the world is afraid of a sudden USA treasury and bond decline – so am I. For anyone who is not a 1%, I associate a lower domestic currency valuation with lower standards of living.

My favourite explanations (or combination) for the US$ fade are trade war fear and financial market decline fear.
https://blackswanalert.com/2018/01/26/if-currency-wars-have-indeed-started-this-is-what-comes-next/
“currency wars will end with winners and losers, but generally speaking, a weak US dollar with low US interest rates tend to enhance excessive liquidity, exerting a positive effect on risk asset prices.”

https://blackswanalert.com/2018/01/26/this-is-1987-some-haunting-math-on-todays-gdp-number-from-david-rosenberg/
“Rising bond yields. Full employment. Fed tightening. Trade frictions. Weak dollar. Rising twin deficits, spurred by tax reform. Sound familiar? It should. This was 1987. Start rebalancing.”

#111 Gravy Train on 01.28.18 at 11:31 am

“The lottery is another good example…. 70% of the money spent on lottery tickets gets collected by the government.”

Uh, no. The government collects far more than 70% of the money spent on lottery tickets. The chances are about 85% of getting fewer than two numbers right in the Lotto 6/49 draw.

The hypergeometric distribution describes the winning chances.
https://en.m.wikipedia.org/wiki/Hypergeometric_distribution

“Yet people still buy them. They’d be far better off buying a pack of smokes. Less addictive and cheaper, plus you get something.”

Disagree. You get something all right: lung cancer. Players may try to rationalize their purchase of lottery tickets as a voluntary tax.

#112 LivinLarge on 01.28.18 at 11:33 am

DLee: “TFSA that is all yours. RRSP you pay income tax on the original $3000 investment when you withdraw it AND on that $29,000 gain too. TFSA wins hands down as you only paid the income tax on the initial investment and the rest is gravy.” …and it gets even better or worse how you look at the reality factor over time.

Since it is highly likely that a real person is going to increase their “other income” over a long time frame, they’re also going to be creeping up the marginal rate ladder as well so when the money is finally taken out and then taxed at their then prevailing marginal rate it will be taxed higher than when it went in to an RRSP. The TFSA (unless rules change) won’t be taxed at all so the only tax on the funds in a TFSA was the earlier tax before invested in the TFSA. Almost everyone at least strives to and expects to earn more in the future than they do now so that very real scenario must be kept in mind when doing hypothetical future values estimations.

My life long mantra has always been “ignore what you expect to make and focus only on what you can expect to keep”.

#113 dumpster fire on 01.28.18 at 11:37 am

Since this post was about gambling, here is a fantastic podcast with Ed Thorpe about blackjack and the lessons that can be applied to portfolio management: http://mebfaber.com/2017/02/08/10017/

He talks about the Kelly capital growth investment criterion, which determines how to size your bets if you have an edge in a game/market. If you don’t have an edge, then the optimal bet size is 0.

~ breathe deep

#114 TurnerNation on 01.28.18 at 12:01 pm

Keeping an eye on Canada – Dollarama broke out, and Loblaws might do the same above 70; also can Air Canada hold this level. (It’s not an airline rather a financial company with a banker for CEO. A complete web of revenue, financing models and financial engineering. That they carry “Self-loading Cattle” is a side event).

Re. #99 james .
I’ve learned that Social Injustice Worriers only use ridicule – body and gender shaming – and personal attack (family etc). Why? They are lazy and entitled and want handouts.

Do you know what Privilege is? It’s something earned by child for their good behaviour.

So yep I’m privileged. Enjoying it and its benefits.

#115 LivinLarge on 01.28.18 at 12:22 pm

“Disagree. You get something all right: lung cancer. Players may try to rationalize their purchase of lottery tickets as a voluntary tax.”…it’s more than rationalization, it’s a real differential tax on the poor who overwhelmingly are the predominant purchasers of lottery tickets.

And since a large proportion of the net proceeds of many lotteries are destined for one form or another of charitable purpose, the ticket purchaser is really donating 1/2 their purchase to charity without receiving a tax credit for it.

#116 Tony on 01.28.18 at 12:54 pm

Re: #110 westcdn on 01.28.18 at 11:31 am

A falling dollar is the only way the bankers can rig the stock market higher. I’d hate to see the true value of the DOW without the bankers help… long term trend line 4,500.

#117 InvestorsFriend on 01.28.18 at 1:01 pm

RRSP Math

#109 dumpster fire on 01.28.18 at 11:30 am responded:
#103 DLee on 01.28.18 at 10:39 am
Not sure it is really a tie?
* * *

Back of the envelope calculation:
TFSA: post-tax $3000 compounded at 7% for 25 years = $16282

RRSP: pre-tax $5000 compounded at 7% for 25 years = $27137, withdraw RRSP all at once @ 40% tax = $16282

Exactly the same if the tax bracket does not change.

****************************************
Thank you. That is the correct Math and LivinLarge also got the same math at post 64. RRSP got the same result as a TFSA and therefore it too must have been tax free growth on your net investment in the RRSP after deducting refund. That with marginal tax rate unchanged. If marginal tax rate declined you get negative tax on the growth of your net cost of the RRSP. But that it too mind-blowing for people to even contemplate.

The result is so counter to popular belief that people simply keep rejecting the math. Well, most just ignore the math as they think they already know the answer.

If the penny drops for even one or two more people it is worth it.

#118 Yanniel on 01.28.18 at 1:15 pm

Thanks for your comments Doug. Have a nice Sunday.

#119 DLee on 01.28.18 at 1:47 pm

#109 dumpster fire
Back of the envelope calculation:
TFSA: post-tax $3000 compounded at 7% for 25 years = $16282
RRSP: pre-tax $5000 compounded at 7% for 25 years = $27137, withdraw RRSP all at once @ 40% tax = $16282
Exactly the same if the tax bracket does not change.

Thank you dumpster fire, that was a good example and illustrates this perfectly. I guess the only variable is what the tax rate will be in 25 years, but very likely I would be taking my money out in the 20% bracket in retirement and not the 40% when I put it in so that is a great benefit too.

#120 LivinLarge on 01.28.18 at 2:44 pm

Because this is yesterday’s post and I again have some free time (all I have these days it seems) I’ll address some of the other poster’s calculations using “real life” perspective.

Much of the calculations rely on static marginal rate presumptions and/or decreased marginal rates in retirement presumptions. Both approaches make calculations easy arithmetic but unfortunately are simply erroneous in real life.

First, the static marginal rate presumption. A real life individual has never remained in the same marginal rate band their entire life. That might have been the case in the 1950s when RRSPs were introduced but life is almost unrecognizably different since at least the runaway inflation days if the 1970s. So put out of your minds that you are going to work in the same job your entire working life and then retire with a DB pension and a gold watch. You are going to go through your working life slowing or quickly rising up the income ladder as well as the marginal tax rate ladder…that is just the reality of mondern and therefore future life. So, making any calculation based upon facts that are not in evidence is just recreation.

Second, you’re going to need significantly lower income in retirement than you did the year before. This myth makes sense but is still, in the real world, a myth. In the 800-1,000 times I have worked with real individuals I don’t recall a single instance of an idividual actually requiring less than about 75% of the average of their last 5 years of employment income to maintain the lifestyle they intended in the year following retirement and that is without taking into account of unforseen expenses due to aging in the future. I know it seems absolutely logical that income requirements will drop but in reality it just isn’t so, life and lifestyle desires in retiremrnt have changed drastically since those ugly 1970s. Even in the 70s virtually no one seriously expected to retire and travel multiple times per year. Sadly or not, they “expected” to maybe take one big vacation right after retirement and then settle into a quiet life in the home they had already lived in for 20+ years and bounce their grand children on their knees until maybe if they’re lucky, die at home without going into a nursing home first.

Today, so so so many people want and expect to retire close to 60 so they are young enough to enjoy retirement and travel multiple times per year. This is the lot of the modern expanding middle classes and TV influenced dreaming.

Back to those 800-1,000 real people I have spoke with in 37 years. Not one of them had any real idea what they’d actually get from CPP when they retired at 65 until they received the quote from CRA and every one of them were dumb founded by how little they would receive. The vast majority of those folks figured that since they had worked with virtually no interuption since turning 16 that they would be at or close to the statutory maximum CPP. But since CPP is calculated on a sliding % scale to a maximum % your annual earnings, you won’t see a statutory maximum CPP earnings unless you were in the top earnings bracket every year since starting work and we know that not happening. Service Canada’s own figures show that for 2016, the average new CPP claimant at 65 received 57% of the statutory maximum and less if taken 60-65. This shows the real life evidence of what I at least call “marginal bracket creep”. The slow but steady increasing income creeping you into higher and higher marginal brackets. This creep is fatal to keeping static marginal rate calculations. You always need much more when you remove RRSP $ at retirement (the intended purpose of RRSPs after all) than when you put the money in. So, while the future value of tax defered compounding is a real number, the value of that number to the individual is inversely proportional in real life.

So, since we can’t know when or even if the dividend inclusion rate or capital gains inclusion rate will change even though it seems inevitable that it will, both are intangible variables when calculating future net net net income from any investment choice. The best we can do is make a guess that things don’t change durring our lifetime and make best case scenario calculation with that in mind. Not perfect by a long shot but the best we can ever do in real life.

Conclusion(s), you’re going to need more in retirement years than you likely estimate today, that’s never going to go down, your actual costs are going to continue to rise greater than CPI does, the money you remove from an RRSP has no contribution date tattooed on each dollar so you’re taxed at your personal highest marginal rate at the time you take it out regardless of what amount of tax you were refunded when deposited (so for god’s sake put that enhanced refund right back in and avoid the 60 inch TV or week in the Dominican) or you’re really gonna get a surprise in 20 years.

As I outlined earlier, there is a sweet spot when you are already at your maximum marginal rate, where making a large RRSP contribution using windfall momey is truly “money for nothing” but you need a large unused contribution limit to do it so, if you expect an inheritance etc at any point, keep your RRSP contribution limit banked for that sweet spot.

#121 LivinLarge on 01.28.18 at 2:54 pm

DLee: “I guess the only variable is what the tax rate will be in 25 years, but very likely I would be taking my money out in the 20% bracket in retirement and not the 40% when I put it in so that is a great benefit too.”…if you do anything like this in real life then you will be one of only a handfull of people who ever do. Keep in mind that unless you die befor age 71, there is a minimum withdrawal required in the RRSP rules, regardless of your other income so for the real reasons I just outlined, you are almost to a mathematical certainty going to pay more on it than you saved when putting it in and usually, a lot more.

#122 LivinLarge on 01.28.18 at 3:56 pm

A little further reality work on the “I’ll need less when I retire” concept. After working with people for a few years I developed what I think is a fairly foolproof and simple method to determine if someone is likely to drop at least one marginal rate band at retirement.

I ask them for real numbers for the % of their income that they saved each year in the previous 5 years. If they saved less than 25% of their gross income then there is virtually no chance that they can live a current lifestlye on less than 75% of their current income. It’s not a perfectly accurate tool but it is pretty close.

There is a group of people for whom it doesn’t work. These are the folks who have carefully planned their future living arrangements to significantly reduce their shelter needs. Some folks have a winterized cottage and plan to sell their principal residence and move there and some are planning to return to their home province which happens to be a significantly lower RE province like in the maritimes.

Generally though, the folks I have dealt with expected to keep their current homes and maybe move into a condo when the maintenance on the house became more than they wanted. With the appreciation in condos along with detatched homes these last years, these plans don’t in the end make much of a difference in needs for money.

People who have worked for 40 years and built a comfortable lifestyle like that lifestyle and almost universally have no intention of living like a refugee after all that work and sacrifice. I don’t blame them at all. I’m exactly the same.

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