Our net worth crossed the million-dollar mark at the end of 2020, but that included about $300,000 in home equity. This week I noticed the total amount we had invested across our RRSPs, corporate account, RESPs, and my LIRA had surpassed the $1M threshold for the first time. We’re managing a million dollar portfolio!
- RRSP – $331,400
- LIRA – $219,900
- RESP – $112,000
- Corporate – $372,000
- Total = $1,035,300
I started my DIY investing journey back in 2009 with about $25,000 from a group RRSP at a former employer. I bought a handful of dividend stocks and thought I was pretty, pretty, pretty good at this whole investing thing.
Little did I know that a rising tide lifts all boats and my stocks just happened to be soaring because the entire market was on fire coming out of the depths of the global financial crisis.
While it was cool to see a 30%+ return on my investments that year, the growth meant little due to the tiny size of my portfolio. In fact, my own savings contributions added more to my portfolio balance than market returns did that year.
Indeed, in the beginning your savings rate matters the most. Contributing $10,000 to a $25,000 portfolio makes a bigger impact than earning a 10% return on that same investment ($2,500).
Fast forward 15 years and more than $1M later, and market movements have a much larger effect on our portfolio balance. Now, a 10% gain on our investments means growth of $100,000 (although the reverse is true as well).
The stakes are much higher now, and there’s more room for error. That’s why I’ve largely removed my own judgement and decision making from our investment management.
No more picking individual stocks or trying to guess which sector, country, or region will outperform. Just buy the entire global market for as cheap as possible and move on with my life.
Related: How I Invest My Own Money
The beauty is that it’s a strategy you can embrace whether your portfolio is worth $25,000 or $2,500,000.
This Week’s Recap:
In the last edition of Weekend Reading I explained the federal government’s proposed changes to the capital gains inclusion rate, which will move from 50% to 66.67% inside of corporations and trusts, while remaining at 50% for the first $250,000 of personal capital gains and then moving to 66.67% of the gains in excess of $250,000.
From the archives: Here are eight overlooked ways to save taxes in retirement.
Our mortgage renewal at Pine Mortgage is almost complete and should be in place this week. So far, so good with Pine – so if anyone’s in the market for a new mortgage just let me know and I can pass along our contact.
Promo of the Week:
With all of my credit card wheelings and dealings (and with us in the market for a new mortgage lender) I tend to keep a close eye on my credit score.
I’ve seen it dip below 700 after a credit card sign-up spree (13 cards in one year), and reach as high as 820 thanks to diligent bill paying, low credit utilization, a long history, and no new inquiries.
My credit score was 804 when I last checked before switching mortgage lenders. It dropped 30 points after that hard inquiry and one new credit card sign-up (I couldn’t help myself!).
Your credit score can vary widely depending on when you check, and with whom.
I get my Equifax credit score for free from Borrowell. It won’t affect your credit score and Borrowell uses bank-level encryption to ensure your information stays safe. Get your free credit score here.
Weekend Reading:
Preet Banerjee’s latest Globe and Mail column argues that biases around house-rich cash-poor homeowners are impacting financial planning for retirement. What is your home equity release strategy?
On Kiplinger, here are five ways to make retirement a little less scary:
The most important thing about retiring “to” something is that you know who you are. Remember: “Retired” says only what you don’t do. Make sure you know what you do do.
Happy 71st birthday! You now must convert your RRSP into a RRIF. Here’s what you need to know.
Like me, Jonathan Clements is forever an optimist and not scared of bears (bear markets, that is). But the future isn’t limited to two alternatives, either continued economic growth or economic apocalypse.
Investors in ARKK have experienced dramatic ups and downs, with an emphasis on downs for most investors. The question anyone still holding these funds must be asking – or should be asking – is whether it will recover:
I like this idea from Michael Kitces about reframing retirement risk away from Monte Carlo style success/failure and towards over-or-under-spending:
The Monte Carlo success/failure framing, in essence, focuses only on minimizing the risk of overspending, hiding a bias towards underspending by calling it a “success”. Or, put another way, a 100% probability of success is exactly a 100% probability of underspending.
Tomas Pueyo shares why he doesn’t invest in real estate and explains why real estate won’t continue to go up forever.
A Wealth of Common Sense blogger Ben Carlson explains why convenience is a form of wealth.
Finally, a loyalty points lesson on why credit card reward charts rarely provide good value for economy class flights to Europe.
Enjoy the rest of your weekend, everyone!
The federal government unveiled its 2024 federal budget with a proposed $53B in new spending over five years, including an ambitious $8.5B plan to tackle the housing crisis. The feds also proposed an increase to the capital gains inclusion rate, from 50% to 66% on gains in excess of $250,000 (personally) and from 50% to 66% on capital gains realized within a corporation or trust (no $250,000 threshold).
The proposed changes to the capital gains inclusion rate will apply to dispositions after June 24th, 2024.
A quick explanation on the inclusion rate: This does not mean a tax rate of 66% on capital gains. It means that two-thirds of a capital gain will be taxable as income. And only 50% of the first $250,000 of a gain will be taxable (for individuals).
For corporations and trusts, two-thirds of every $1 of capital gain will be taxable. This brings the taxation of capital gains closer in-line with dividends and interest.
A capital gain (or loss) is the difference between the original price paid and the price for which it was sold.
For individuals, this will mostly apply to second properties. If you bought a rental property or a cottage for $300,000 and then sold it for $600,000, you will have incurred a capital gain of $300,000:
- $250,000 of that gain will have the 50% inclusion rate applied – meaning $125,000 will be added to your income and taxable at your marginal tax rate.
- $50,000 of that gain will have the 66% inclusion rate applied – meaning an additional $33,000 will be added to your income and taxable at your marginal tax rate, for a total of $158,000 in taxable capital gains.
If you sold that property on or before June 24th you would have $150,000 in taxable capital gains rather than $158,000 in the proposed new inclusion rate. The difference in actual taxes paid for someone in the highest marginal tax bracket in Ontario would be $4,282.
Note that if you held that second property jointly with a spouse, each individual gets to apply the 50% inclusion rate to the first $250,000 of capital gains. That means a $300,000 capital gain on a property jointly held could be split $150,000 per spouse.
- $150,000 of that gain will have the 50% inclusion rate applied – meaning $75,000 will be added to each spouse’s income and taxable at their marginal tax rate.
No doubt there are many individuals wondering whether it makes sense to trigger the sale of a property prior to June 24th. If you’re one of them, make sure you assess your situation and know the adjusted cost base of your property (original price paid plus certain capital expenses) and current market value.
Do you own the property individually, or jointly with a partner? Is the difference between the book value and market value under or over the $250,000 threshold? Do you have any capital losses that can be applied to offset some of the gains? Do you have RRSP contribution room that can be used to reduce your taxable income if you do trigger a gain?
Finally, how long were you planning to hold the asset (before these changes gave you pause)? Know that pre-paying tax now, even at a lower inclusion rate, might make you worse off in the long-run.
PWL Capital built a tool to test whether it makes sense to realize a gain now or defer it into the future.
It’s unlikely I will ever incur a personal capital gain (owning a second property sounds like my personal nightmare), but the proposed increase to the capital gains inclusion rate inside a corporation will impact me at some point in the future.
Up until now, my wife and I paid ourselves dividends and invested any retained earnings inside a corporate investment account. We did this because we already have considerable assets saved inside our RRSPs and a LIRA (and TFSAs, before we used them to top-up the downpayment on our new house). Building up a corporate investment portfolio gave us another tax shelter and more flexibility in how we pay ourselves in retirement.
Smarter people than me are still working out the details on optimal compensation and structure of investments after these changes take effect. It’s possible this is the impetus my wife and I needed to finally make the switch to salary (or some salary + dividends combo), but we’ll see.
I think it’s fairly clear that it makes sense to take larger personal withdrawals from the corporation to fill our TFSAs back up more quickly, rather than investing those extra dollars inside the corporation. We planned on doing that anyway, but may accelerate that plan.
This Week’s Recap:
In the last Weekend Reading I looked at the best time of year to retire and determined that the second quarter (April-May-June) might be the sweet spot. Thanks so much for the thoughtful responses on your own retirement decisions!
We’re still working on our mortgage switch with Pine Mortgage (that is to say, all of our documentation has been submitted and approved, and Pine is busy doing what they need to do to move the mortgage from TD before the end of the month.
From the archives: No, RRSPs are not a scam – a guide for the anti-RRSP crowd.
Promo of the Week:
The American Express Business Gold Rewards Card is still the top credit card on the market, giving you up to 75,000 Membership Rewards points when you spend $5,000 within three months.
Use this link to sign up for your own American Express Business Gold card and earn 75,000 Membership rewards points when you do the same. Then activate your player two for a chance to earn another 90,000 points (15k referral plus 75k welcome bonus).
If you’re looking for hotel rewards, this one is an absolute no-brainer card to have in your wallet. The Marriott Bonvoy Card gives you 55,000 bonus (Bonvoy) points when you spend $3,000 within the first three months. Not only that, you get an annual free night certificate to stay at a category five hotel (easily worth $300+), making this a card a keeper from year-to-year. The annual fee is just $120.
Weekend Reading:
PWL Capital’s Ben Felix shares a great explanation of the capital gains tax increasing and what it means for you:
Family doctors are one group unfairly swept up in the proposed changes to capital gains – here’s how the changes impact them.
Erica Alini lists the seven ways the 2024 federal budget affects your finances, from selling your cottage to RESPs (subscribers):
“The budget also proposes automatically opening an RESP for eligible children born in 2024 and later years starting in fiscal year 2029. This will ensure an additional 130,000 children will receive up to $2,000 through the Canada Learning Bond, which helps low-income families save for postsecondary education.
While the aid isn’t tied to contributions, families must have an account open to receive the funding.”
Some excellent thoughts on selling your business from advice-only planner Julia Chung.
Divorced parents are supposed to share kid costs fairly – but Anita Bruinsma explains why that’s often not the case.
Mark Walhout explains how to avoid tax surprises with CPP and OAS.
Don’t wait until the last minute to fill your cash bucket. Why you should take this simple step as you approach retirement. I like the idea of filling up your cash bucket with new contributions in your final working year (or two).
Finally, with Japanese stocks awake from their decades-long slumber, Of Dollars and Data blogger Nick Maggiulli explains why we invest for the decades, not the years.
Enjoy the rest of your weekend, everyone!
When is the best time of year to retire? For retirement projections 10-20 years out we might use a random date like your birthday, your pension’s normal retirement date, or the end of the year. Once you get closer to retirement, the details matter.
For instance, you might consider timing your retirement date just after bonuses are paid. Or matching up with your spouse’s retirement date. The weather can even play a role. Golfers don’t want to retire in December or January – might as well work until spring. Avid skiers might not mind as much.
Meanwhile, teachers might want to (or have to) wait until the end of the school year in June. Snowbirds, on the other hand, might relish the idea of spending their first few months of retirement in the winter down south.
I’ll admit I’ve never paid much attention to the best time of year for retiring, but lately a few soon-to-be retired clients have made that point – they don’t want to retire in the depths of winter, or they want to wait until a lucrative bonus gets paid out.
“Mike doesn’t want to retire on December 31st. The golf courses aren’t open yet. He’d rather wait until April.”
“Bonuses are paid out at the end of February, so I’ll stick it out until March.”
That’s why I think the second quarter (April – June) might be the sweet spot for calling it quits. Bonuses are paid, the weather has warmed up, and you’ve earned a bit of income for the year, but not so much as to drive your tax rate up too high.
I haven’t given much thought to my own retirement date, but I can absolutely see myself working through winter and into the spring months. I wouldn’t wait until my birthday (August), but April/May sounds about right.
Readers, did you choose your retirement date – and how did you decide? Was it weather, money, aligning the date with your spouse? Let me know in the comments.
This Week’s Recap:
In the last Weekend Reading I updated readers about our mortgage renewal and why we decided to go with a 3-year fixed rate term.
To update this saga, TD would not match the best rates I found elsewhere and so I put on my DIY mortgage broker hat to find the best deal. I had to hurry, too, because our term is coming up at the end of the month and switching can take time.
RBC has an excellent promotion, offering 5.09% plus paying $1,100 in switch fees, $1,000 cash back, and 55,000 Avion points. I was just about to sign this offer when a reader tipped me off on an even better deal.
Pine Mortgage was able to give us 4.94% for the 3-year term, plus $3,000 in cash back. They were fast, professional, and easy to deal with. The mortgage still has generous pre-payment privileges.
We signed the paperwork Friday and got the ball rolling so we can hopefully meet our end of month deadline.
Pine is relatively unknown, but has a partnership with Wealthsimple where they’ll give clients a discount (up to 0.25%) depending on the amount of assets held with Wealthsimple.
Since we are “Generation” clients ($500k in assets) we qualified for the 0.25% discount off of their published rate of 5.19%. Note that the initial online application gave us 5.19% but we were able to negotiate that down once a Pine representative reached out.
If you’re in the market for a mortgage (new house, refinance, or term renewal) send me a message and I’ll get you in touch with the Pine Mortgage rep that I used.
Weekend Reading:
The federal government unveiled a bold new strategy designed to tackle the housing crisis from both the supply and demand side. Part of the sweeping changes includes a boost to the Home Buyers’ Plan withdrawal limit (increasing from $35,000 to $60,000).
Despite high fees, Canadians remain perplexingly loyal to mutual funds (subscribers):
“It’s officially been a century since the advent of the mutual fund, which remains the investment of choice for millions of Canadians saving for retirement.
That loyalty comes with a steep cost. The premium fees that traditional mutual funds carry are silent portfolio-killers, devouring returns on a scale that Canadians still don’t seem to appreciate.
Even the average everyday investor will pay hundreds of thousands of dollars in fees over their lifetimes if they rely on mutual funds. The baffling part is that they do so voluntarily.”
Morningstar’s Christine Benz discusses three risks higher interest rates pose to your retirement plan.
Your spending drives your retirement plan. Meaning, if you’re nearing retirement it’s time to figure out where all of your money goes.
For the DINKs out there – How Canada’s child-free and cash-rich couples are spending their time and money.
PWL Capital’s Ben Felix has interviewed some of the smartest people in finance, economics, and psychology on the Rational Reminder podcast. Here’s some of the most important investing lessons he’s learned:
One of the biggest problems people have when it comes to money is figuring out what to do with it and when. Nick Maggiulli has you covered in his latest blog post.
Want to put money away for your kids or grandkids? Mark McGrath explains the unknown dangers of In-Trust-For Accounts.
Finally, Heather & Doug Boneparth explain why allowances are for kids – not your spouse.
Have a great weekend, everyone!