Dr. Garth

Bend over! It’s that time again. The clinic is now open. The discarded pet fur has been neatly blown into the exam room corners. Nurse Jiggles looks fetching today. We’re good to go.

Who’s first?

“Your recent blog on the math of renting or owning a condo was a really, really good one,” says Steve, hoping the MSU will help avoid pain. (It won’t.) “What about the lucky people who are sitting on a significant pile of home equity mortgage free?”

“Let’s say the kids have moved out, a home of this size is not needed, the pool is no longer used (etc.), and the satisfaction of maintenance is no longer there? Is it better to move buy a smaller home?  Or is it better to rent for a few years and enjoy a bit of the carefree attitude that we experienced when we first rented in our 20’s.  Do it now while we are still fit and mobile?  Be able to just lock the door and walk away for a few weeks or months……knowing that if anything goes wrong, well, its not really my problem.

“Old, possibly outdated sayings come to mind, such as, ‘if you get out of the house market you might never be able to get back in’….but, as far as I see it, anyone who makes it to an old enough age eventually turns into a renter anyways….. What do the calculations say?”

It’s personal, Steve. And emotional. People with well-funded retirements, fat DB pensions or heaps of investments may have no financial need to bail out of real estate during the final innings. Others fall victim to this demented Canadian mentality that renters are serfs or that whoever dies with the biggest pile of assets wins.

Having said that, surveys show only a third of us retire with enough to live happily on, while seven in ten own real estate. That’s dumb. Even a mortgage-free house does not mean you live for free. Properties are expensive in terms of taxes, insurance, maintenance, repairs and fees. Worse, huge gobs of net worth are trapped in a house instead of generating income.

So no shame in selling and leasing. Actually, there is wisdom in doing so. Sell and reap a million, for example, and a B&D portfolio should generate a long-term cash flow of about five grand a month. That will probably rent you a far better place than you owned. In other words, the portfolio pays the rent. You live for free, with CPP, OAS and personal accounts, plus any corporate pension, throwing off income to enjoy. How is that not better than being financially entombed in your own digs?

Owning is overrated. It can make you old before your time. Staying put until the finish line leads to a smaller and ever smaller world. Some may find comfort in that. But it’s a squandering of life. Ponder your options and goals, Steve. Be bold. Just don’t take an evil reverse mortgage.

Now, here’s Pete. He’s completely weird.

“I am a millionaire,” he brags, “but by strategically borrowing money, I keep my reported income below 22K. This enables me to receive financial assistance from the Alberta government, covering the costs of my Naltrexone medication for alcohol addiction, as well as my family’s dental and other medical expenses.”

However, as my wealth continues to grow, there may come a point when my dividends exceed 22K. Can you suggest an ETF that does not pay dividends? Currently, all my investments are in XUS.

The ETF you hold is a decent one, and tracks the S&P 500 – which lately sailed to a historic high. But having all the eggs in one US equity basket does not give balance or diversification. So work on broadening your holdings, including some fixed income stuff which will yield a capital gain (which you do not need to realize) as interest rates fall. As for an equity ETF that pays no distribution, good luck in finding one. Another option is to invest in a basket of non-dividend-paying stocks and hold them for capital appreciation (Mr. Google will cough up a list).

Of course, you can just hold cash. Or buy an annuity with a small, taxable, interest component. Or move growth funds into tax shelters like TFSAs, FHSAs or retirement accounts. Or do something totally rad, like stop drinking, get a job and pay your damn taxes.

Now, a normal person.

“I just started reading your blog in the last year and have really appreciated it,” says Lauren. “My husband and I did feel like we “missed the boat” a bit with buying a house and it’s nice to be reminded that despite the constant pressure to buy, that renting and investing is a great option as well.

“We’re 31, and 30 respectively. Live in the Fraser Valley. We have 2 young girls and another baby on the way. We have around $500,000 in savings and no debt. I work part time as a registered nurse and my husband earns about $140,000 as an account manager. Family and faith is important to me so I want to be able to raise my children in the home so being mortgage poor and both working full time is out of the question. Like you’ve said many times, better to move!

“We both use RRSPs, TFSAs and the newest FHSA. My question is you often talk about ETFs as being more reasonable than mutual funds due to the decreased overhead costs. I admit that I’m at a loss where to start with ETFs? Through something simple like wealthsimple? Dump it all in one or diversify? We do currently have half our savings in GICs as we hoped that housing prices might decline. But recently we have been thinking about just pivoting and investing everything. Always impressed you give free advice, and so helpful for a financial newbie!”

Thirty years old with a growing family, no debt and half a mill in savings? Impressive these days. You did not ‘miss the boat’ since if you had had jumped into homeownership the odds are your liquidity would be zilch, with a mortgage of  hundreds of thousands about to renew at double the rate. Stay on your path. When the day comes that buying makes sense for your family, you’ll know it.

As for investing, if the GIC is 5% or north of it, consider hanging on. The is the Year of the Trump, and anything can happen. No harm in a safety net, especially since a new baby will keep you both preoccupied.

Wealthsimple for $500,000? Nope. That’s enough dough to easily afford a customized ETF portfolio (plus financial planning and tax advice) with a full-service advisor. The robos are for folks with less to invest, who are looking for cheap fees, no personalized professional help and want a Tesla. You deserve better. You’ve earned it.

About the picture: “We’re big fans of the Greater Fool blog,” writes Nahim. “Here’s Pino — our lovely geriatric chihuahua. She’s got arthritis and relies on sound capital management and dividends to pay for her librela (arthritis) shots. Your blog helps keep Pino moving! Thank you for keeping this blog going day-in-day-out.”

To be in touch or send a picture of your beast, email to ‘[email protected]’.