Dr. Garth

– DogArtists.co.uk

The Doctor is IN. The waiting room is teeming. So much angst, and so little time before tee-off. Who’s first?

“Thanks for the daily reading,” says Brock. “It helps get me through the day. Now the question.”

When does it make sense to refinance your mortgage for more than is left owing, so you can invest some assets to get closer to your rule of 90. With mortgage rates low, and maybe getting lower when its renewal time for myself, I was thinking of adding on 100k to my mortgage so I can invest it. It would help my assets diversify and get my closer to the 90. I have pretty low mortgage payments now, and adding the extra 100k wouldn’t put my monthly payments anywhere close to nervous payment territory. Please do let me know your thoughts.

The good news – mortgage money’s relatively cheap. The better news is any additional amount you borrow can save on tax. All the interest (not principal repayments) on funds used in your non-registered portfolio can be deducted from taxable income. But if the money’s dumped in an RRSP or TFSA, no such luck. Also be aware you might be better off just adding the extra amount not as part of the mortgage but as a separate HELOC. Then interest-only payments are possible, and 100% of those can be written off.

Sure, borrowing at 3% to get a return of 6% or 7% makes sense, especially with the tax break. But wait. You need a long-term focus, a balanced, lower-risk portfolio and resolve not to freak out and sell if assets temporarily decline. Borrowing to invest brings benefits and risks. Above all, it must pass the Spouse Test.

Now here’s James. He looks hostile, plus I’m not too thrilled about letting a guy into my office who’s wearing a sidearm.

“Why do you hate gold so much?”

Simple. I don’t. But it’s metal, not money. You can’t buy anything with gold, use it when the power goes off or terrorists kill the Internet, nor has it performed that well in times of inflation. Gold is worth $600 less an ounce than eight years ago, which must tell you something. It pays no dividends or interest. All gains are subject to tax. Buying it is purely speculative and a form of gambling, since there’s no income. Bullion is a cult asset, often pushed by the unscrupulous as some kind of moronic insurance against events that never materialize.

Hey, gold up if you want. But don’t call it an investment. And stop loading that thing.

Now, fresh off the line making Silverados and Impalas is Jonathan. Sadly the big GM plant outside Toronto is in trouble, but J’s got a golden parachute.

“Hey Garth a friend got me onto your Blog a few years ago and another friend has you managing his retirement. I respect your insight and am looking for advice if possible. I’m a GM Oshawa worker who fortunately just got my 30 years so full pension eligible. We are also receiving a $130,000 buyout. My C.V. is currently worth approx $750,000. My forced Lira contribution is approx $230,000 and I’ve got $80,000 is rrsp contribution room left. My pension is worth just shy of $3,300/month. Our savings are minimal sadly. We have purchased our retirement property in a small town and plan to sell our current home next spring which if housing conditions stay about where they are now we should be in the clear about $200,000 with a new home to move into. I’m going to be 51 when I leave this fall and am battling with myself over the Pension or C.V. option. Grateful to have the option and feel extremely saddened by those left less fortunate in the wake of this closure. Any advice would be appreciated.”

We’ve dealt with this topic a few times, J. My opinion has not changed. Commute it. Several reasons.

First, if you take the money instead of the monthly pension you’ll be in control of your own destiny and financial future. The big Car Guys like GM are struggling to find their way in a post-carbon world, so the corporate pension plan might well be a sick puppy in 25 years, when you need it most. Second, you (plus an advisor) can probably do a better job of investing the money to suit your income needs – odds are you’ll land another job for a while (you’re just a kid) and want this cash to grow. Third, if you commute, all of the money becomes the property of your family. If you croak early, your spouse and kids get it all (write a will). Not so if you stick with the plan.

As for taxes, remember that staying with the pension plan means 100% of every monthly payment is taxed. If you commute, a chunk will be taxable in one year – but the rest can grow tax-free inside the LIRA, plus you can use the RRSP room to shelter more, and stick six figures in TFSAs for you and your partner.

Selling the house is good, but why wait until 2020? Do it now with a long close. Come next spring, you’ll know why.

And finally, before the office shuts, a few moments for poor Phil. I think he’s pooched.

“I’m a recent worshipper of your perspectives, insights and blog.  At the very least, it has given me the confidence to put my guards up when showered with illogical, past-generation propaganda.   I’m a 32 year old moisty-moist living in the GTA and have only recently started to learn and see the light.  I’m currently renting and am happy doing so.  On my own, I wouldn’t be able to buy right now anyway, even if I wanted to.

My girlfriend and I would really like to start living together (likely in Hamilton) but she is quite adamant about owning instead of renting (from what I can tell she’s been raised on a diet of “renting is a waste of money”).  She CAN afford a down-payment for what she wants but wouldn’t be able to further afford/get approval for a low rate without another person (i.e. me) going in with her.  From what I understand most of her net-worth would be going into the house whereas mine would go relatively untouched as I ride shotgun.

Girlfriend:  savings after down-payment: $0 Me: savings after down-payment: $25,000.

All my “new” instincts are saying NOOOO!!! but I couldn’t help but wonder…

…if the housing prices in Hamilton are indeed going up and despite our differing opinion I definitely see a future with this girl, is there some sense to buying now vs later?  Or is it inevitably filled with the same house-poorness seen across Canada?  Am I falling for the trap? I’m ready for whatever you might think of me…”

To summarize: the GF wants real estate (because her parents are pushing) which she can’t finance on her own, and will then have no money left after you get into the obligation and put your name on the mortgage. Seriously?

Man, she must be good. And you already know the answer.