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The trap

Sunday, February 12, 2017 14:45
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This is post number 2,589 for GreaterFool. That’s about two million words. Or 32 books. There are also 467,250 comments on this site, each one personally eyeballed and approved (or not). You’d think that by now I’d have earned a little slack. Fuggedaboutit.

Q: “You’re always jabbering about investing money in TFSAs or RRSPs, which is fine for rich people like Garth. But what about the rest of us who have some investments, but not nearly enough to max out these things? What are we supposed to do? Steal it?” – Dave in Kelowna.

A: First, dinglenuts, lose the attitude. I could be playing with Bandit in a snow storm instead of typing this. But here’s a suggestion: a contribution in kind. You don’t need actual extra money to plump up your tax-free or retirement vehicles. Instead simply move assets you already own into either a TFSA or an RRSP and it’ll count the same as using cash. The limit is $5,500 for the former and 18% of your income for the latter (to a max of about $25,000, plus any unused room from the past). This strategy works best for an RRSP because it magically generates a tax refund for making the contribution.

For example, if you live in Ontario, earn $100,000 and have $25,000 in accumulated room, sliding over existing assets (mutual funds, ETFs, stocks etc.) will end up in a tax savings or refund of a whopping $10,000. That’s ten grand for selling yourself things you already owned. Just remember moving stuff you’ve made a profit on will trigger capital gains tax – so use those comatose GICs and when they mature inside the RRSP convert to growth-based ETFs.

Q: “We have three years left on a 5-year mortgage at 2.4%, and my wife has been obsessed with accelerating payments to get it paid off as fast as possible. That leaves nothing for our TFSAs. She says we’re investing in the mortgage and that’s the same thing. I think she’s nuts. What do I tell her?” Darcy, Windsor ON.

A: Mars and Venus, dude. Just the way things are in many marriages. Guys think financial security is based on the size of your wad. Women think it’s based on owing nothing. Real estate is the ultimate test. Most men are fine with a reasonable level of debt if the asset is rising. Most women crave a debt-free nest. In this instance, and in this environment, the ladies are wrong.

Pure math proves that. Why pay off a 2.4% loan when a 60/40 balanced portfolio last year earned more than 8% and has averaged 6.5% over the last seven years? You’d be better off growing money during a five-year mortgage term, then using the investment gains to pay down the principal upon renewal. And now that Trumponomics is clicking in, some investments will be on steroids.

More importantly, the biggest risk people (especially women) face is not being homeless, or even losing money. It’s running out of it. You can always rent a roof. You can’t rent cash flow. Tell her she’s being emotional, unreasonable, selfish and irritatingly female. That should work.

Q: “I don’t know how many times your pathetic blog has been saying prices in Vancouver are dropping. Well, they’re not. Have toy actually tried buying a condo here lately? I’ve lost four bidding wars now. It sucks. Can’t you get anything right?” Lisa, in Surrey.

Sigh. Listen, Lisa, sales and prices are actually on the decline. Over the past year there’s a been a 40% crash in the number of properties changing hands, while prices of detached homes – actual selling prices – have plopped by double-digits. The number of listings overall is going up, while in some areas (like the Westside) and some categories (over $3 million) this market’s already crashed and burned.

So if you want to blame anyone for bidding wars on properties selling for less than $750,000, go ahead. Her name is Christy Clark and this is her email: As you might know, the province of BC decided to piddle on federal efforts to cool off the housing market by bringing in fat downpayment-subsidy loans for first-time buyers. So far about 400 kids have been approved, and are now busy jacking up condo prices as a result. So while the top end of the market has been pummeled, and detached home process under pressure, condo sales and prices are Lady Gaga hot.

You want advice, Lisa? Leave Surrey. Go to Winnipeg or Saskatoon. Real estate’s cheap there, and they need some spice.


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