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Be prepared

Big week. Trump and Xi meet at the G20 and talk trade. The tariff war between the US and China is the main thing on Mr. Market’s mind these days. It’s also weighing on everything else, from interest rates to corporate profits, jobs and the 2020 presidential slugfest.

Will the two heavies agree to back off? Start negotiations again? If so, investors might power equity markets to new highs by Friday. If not, stocks will sell off and we’ll get a rate cut next month. If your portfolio’s properly balanced, just ignore this stuff.

There’s more. Iran could get a lot uglier. New sanctions hit that country Monday. Boris Johnson’s sleazy girlfriend woes might keep him out of 10 Downing and mess up Brexit. Again. In the land of beavers & moose the Doug Ford government’s in crisis, the T2 Libs are 122 days from the fight of their lives and the Greens might actually outrun the Dippers. Amazing.

Of course, most people just care about themselves, which is what you’d expect. Trade wars, ideologies and monetary policy are less important to the biggest block of voters (Millennials) than the issues they’ll be voting on. Those would be housing, climate change and authenticity. Not sure how young Andrew Scheer is going to score there.

So, in conclusion, we have absolutely no idea what’s going to happen on any front. The best possible strategy, then, is to be aggressively conservative and stay out of trouble. No crypto. No gold. No weed stocks. No junior oils. Stick with diversified, low-cost, liquid ETFs, a 60/40 balanced portfolio and roughly equal dollops of maple, MAGA and offshore.

Despite the chatter, a recession is not a foregone conclusion. The two biggest forces in the world right now – the Fed and Trump – don’t want one. Those pantywaist advisors who have been sitting in cash for two years, muttering ‘things are too expensive’, have a lot to explain to their clients. There’s no way the US president – who takes the stock market as a proxy for his magnificence – is purposefully blowing this. This week may make that obvious.

Meanwhile, moisters, some good news. We’re just days away from the first drop in the stress test rate, as five-year mortgage rates come tumbling down below 3% almost everywhere. Given the above, this could be a rare window to load up on cheap money. Seriously consider a locked-in, half-decade long loan instead of rolling the dice and borrowing with a variable rate.

This week more banks are expected to follow the lead of the TD and CIBC and advertise five-year mortgages at under 3%. Last week those two lenders formally lopped off about a third of a point, although they’ve been quietly offering borrowers cheaper money for weeks. (Go ahead and ask the TD for a fiver at 2.8%, for example.)

Of course, there are better deals around. HSBC continues to offer its predatory 2.59% and online mortgage brokers representing outfits you never heard of are even cheaper. But the Big Banks at sub-3% move us closer to the stress test rate dropping from 5.34% to something closer to 5%. That will make it slightly easier for house-lusty kids to complete their descent into debt slavery and helpless middle age.

And on that note, here’s Dan. Yes, another 30something, but one who has learned valuable lessons about money, time, freedom – and what matters. World leaders, momentous events, tectonic political shifts and economic cycles all come and go. Meanwhile you have but one, brief life to live. Never surrender control of it, meander into debt nor be pushed into an action because ‘everybody else’ is doing it. Think Boy Scout. Be prepared.

“I’ve been reading your blog since 2010, and it’s been a guide through many of my life decisions since then.  I moved to Calgary in 2010, finished a masters in 2014, and generally saw increases in my income and net worth the entire time.  For one year, and one year only, I even joined the 1% in regards to income.  Then everything changed…

“Through that time I watched my friends buy first and even second houses, finance fancy cars and trucks with balls (it is Calgary), and spend every cent they made on niceties like vacations, clothes, and sometimes even dogs.

“In October of 2015 I lost my job, and my fiancé in the span of two weeks.  With layoffs everywhere I used the funds I had saved renting and my full TFSA to disappear to SE Asia for 6 months, I came back much healthier mentally.  You’re right when you say time, and how you spend it, is priceless!  Because I didn’t own and had saved/invested, I wasn’t yet worried about money after I returned to Canada.

“Then the unthinkable became reality, the months ticked by, hundreds of job applications went out, and a very few job interviews happened, yet nobody would hire me.  I wasn’t even being picky, from oil and gas, to municipalities in other provinces, to Superstore down the block.  In the meantime I met my wife who needed to be sponsored and couldn’t work until the immigration approved it.  Needless to say the RRSPs floated us until today.  30 months later, odd jobs where I could find them, and sponsoring a wife, I was just hired by Suncor with a solid 6 figure income.

“People may be slamming you on your blog, but I credit you for great and free advice that got me through this tough time.  I had choices others didn’t have because I read and followed.  I still don’t own and a bank wouldn’t touch me, but I take you at face value when you say ‘consider buying but be smart about it’.

“So Garth, thank you!  I don’t know what would have had happened if I didn’t find your blog on a snowy day 9 years ago…”

So, buy it

So many questions. So little time. Here we go again, despite the fact this blog threatens to turn into a cheap site full of tawdry advice for hormonal moisters or confused wrinklies. Yes, from ETF strategies to real estate predictions, relationship counselling, canine management and dating techniques, it’s all here.

“Love the blog,” says Quentin, in the mandatory suck-up.

“Question. I have a SFD in Kelowna I purchased in November 2017 and yes it was more of an emotional decision that has really got me doing a rethink. I paid $ 385k for it (nice old lady had owned) and I cleaned it up a bit, paint etc. Do I sit and wait or cash out and rent? The big seller right now is anything under $500k still has a chance to sell before the sky falls in. Make 60k clear and stick in a fund .Sounds like a plan BUT the issue is Kelowna rents are now min$1,200 to 1,500 /month + utilities for a one bed room condo or basement suite. My mortgage is $1,800 taxes included /month. Also the dog (10lbs of smarts) loves the yard space, why are rentals so anti-dog? The song “should I stay or should I go” comes to mind. Put me straight Garth, right hook to the chin.”

Yes, Q, K-town is pooched. It’s not coming back until the Dippers are tossed in the next election, along with their insane ‘speculation’ tax. Keeping Kelowna in that zone is capricious and vindictive and will have a tangible impact on the market. Expect to sell for less in a few months, and to have a longer wait for a buyer to show up.

Having said that, why do it? You bought cheap, built sweat equity, have stabilized your living costs and own a detached house for your dog to enjoy which still costs less than a Jiffy John in VYR. Kelowna rents will fall along with house prices, but you are building some equity and not gutting your income. Besides, it’s been proven girls dig guys with houses and dogs who hum The Clash.

“This may be a quick one for you and not as interesting as other stories you are getting from other readers,” says Thomas, corresponding from some soulless street in the burbs.

“I am 40 years working as a consultant with about 200k annual billing. My Inc. pays me and wife total 125k. I have two kids going to school next to my current house. This house was bought in 2013 and now worth 1M. Mortgage (400k) is up for renewal now. Bank is willing to give 500k at 3%. Wife and I have total RRSP + TFSA room of 100K. Since I am planning to keep this house for now (you may not like) until kids are done from this next door school, another 8 years.

“So here is my question, is it worth taking extra 100K mortgage and invest in diversified portfolio? If yes, should I get 100k extra mortgage or 100k as HELOC? Is interest tax deductible?

First, Tom, your income-sprinkling days are over, thanks to Mr. Dressup. The last budget put the kybosh on the ability to split your corporate income with your squeeze, unless she’s making a significant contribution and essentially acting as an employee.

Second, regarding the mortgage, remember that amortized debt is not cool. By agreeing to pay back a mortgage over 25 or 30 years you fork over a whack of interest which is font end-loaded so the lender gets its cut first. So if you borrow some extra for investment purposes it should be in the form of a HELOC. Yes, the rate will be higher (prime plus a half, probably), but you can make interest-only payments, then deduct 100% of that from your taxable income. In fact if you ask the bank can probably structure a mortgage/Heloc combo for you, perhaps at a lower rate.

The big question: should you borrow to invest? The answer: if you understand borrowing increases risk. If you intend on staying invested for a long period and can ignore volatility. If you put the money into the correct assets in the right weightings. If you have some professional advice in structuring the portfolio. And, especially, if she agrees.

“I don’t think I’ve missed a blog post in 6 years,” says Peter, genuflecting quietly.

“I may need talking off a ledge and figured who better to get mocked by than you?  I’m 35 years old and run a small e-commerce company.  I make ~$100K per year on paper with additional funds kept in the business.  I’ve got around $350K in savings spread across a maxed TFSA, some RRSPs, some non-registered and cash, mostly in ETFs; no debt, minimal monthly expenses.  The Fiancé makes around $60K/year with minimal savings.

“That’s the financial side. I’m currently renting with the Better-Half in downtown Toronto a medium-sized one bedroom with two dogs and a cat for a couple grand a month (I know it’s a steal).  That said, we’ve been itching to get out of downtown for quite some time and were considering some farm land north of Port Hope. We’ve got a solid business idea/plan for a sustainable and profitable agricultural operation that will take about 7-8 years to reach full production.

“The land we’re eyeing is 62 acres, 30 of which is cleared. Has a beautiful newer 2 bedroom home and we could probably get it for $850K on the high end. Anyway, my question to you is, do your recommendations regarding abstaining from real estate still ring true when the land is used as a business?  I’ve ran the numbers diligently and realize that it’s probably more beneficial for us to buy the land under a corporation and forego the capital gains exemption in order to benefit from the many years’ worth of write offs.  My hesitation lay on the obviously large initial investment that will gut about 2/3’s of my savings in order to give the city the finger while staying within a couple hours drive of both our families. Advice? All the best and keeping rockin’ it.”

Why would I mock a 30something who is self-employed with an online biz who aspires to having dirty fingernails and wearing wellies while driving the F150 to town for more seed and binder twine? Sounds like a reasonable goal to me and makes a helluva lot more sense than dropping $1.2 million on an urban semi on 17 feet of questionable dirt. Be careful with financing, since some banks will insist on a higher rate for a mortgage on rural property or anything to do with agribusiness. No way you’ll qualify for a rate subsidy until the business has proved itself, ditto for property tax rebates and other farmerly incentives.

Buying through a corp is a bad idea. Accounting fees are high, the capital gain tax exemption on the house will be eliminated and you’ll have to claim a taxable benefit for living on the property. Plus there are not really any costs that you cannot write off through a sole proprietorship, which costs nothing to set up or maintain accounting for.

Ah, just one question. Is this a weed ranch?