Comments on: Reader Question on a Negative Opinion on ETFs http://www.canadiancapitalist.com/reader-question-on-a-negative-opinion-on-etfs/ Helping you invest and prosper Sun, 12 Feb 2012 00:54:40 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: Traciatim http://www.canadiancapitalist.com/reader-question-on-a-negative-opinion-on-etfs/#comment-106357 Traciatim Sat, 26 Jan 2008 17:37:48 +0000 http://www.canadiancapitalist.com/2007/12/09/reader-question-on-a-negative-opinion-on-etfs#comment-106357 Are the calculations done on the actual amount of the dividends, or the grossed up amount though like they would be for your child tax benefit? Here's a situation, say a couple are both 50 and they just saw their kids through school so they have no savings. They think 'Holy crap, what should we do?', they have such a pile of choice it's insane, but it comes down to thee basic things: 1) Do nothing 2) Save/Invest in an RRSP 3) Save/Invest Outside an RRSP Lets go through 1 and 3 just for ease, since it gets really darn complicated with all the stuff they could do. In one, they do nothing. They retire at 65 having enjoyed the last 15 years to a combined monthly income with OAS and GIS of: 921.00, for a total of 1842 a month giving them 22104 a year. In three, they scrimp and save as much as possible and in 15 years each have 250000, they decided a complete dividend strategy where they make 4% yields reliably is for them. So they each make 10000 a year. This is grossed up on line 236 of their T1 forms so it looks like they each make 14500 in the eyes of the government. Since they make 29000 in family income they OAS/GIS each would end up being 502 per month each, 1004 combined or 12048 yearly. So this couple sacrificed for 15 years to come out with 20000+12048 or 32048 per year. Now, since they made dividend income, their OAS payments will be taxable as actual income. So in Ontario they marginal rate would be something like 20% so they would owe back something like 2400 bucks or so leaving them with around 29.6K per year of usable income. So, it comes down to: 1) 15 years of using your full income to enjoy life because your kids are gone and then retiring on OAS/GIS 2) 15 years of sacrifice for an increase of spendable income by 7.5K a year. I dunno, is it really worth it? I don't want anyone to misunderstand, I'm only 28 and I'm packing away for my retirement, and hope to not have to rely on any social programs when I retire, but there are many (probably the majority of) people in the situation above. What's the incentive for them to continue saving when they can just rely on the rest of us to put them through their retirement years. If you own a house, your watching your children make families of their own, and you keep your expenses low by keeping your spending under control two people can live quite easily on 22K a year. It's not only OAS, keep in mind the GIS and Allowance (I'm not sure on the allowance and all these rules, so don't quote me) are clawed back from dollar one. Are the calculations done on the actual amount of the dividends, or the grossed up amount though like they would be for your child tax benefit?

Here’s a situation, say a couple are both 50 and they just saw their kids through school so they have no savings. They think ‘Holy crap, what should we do?’, they have such a pile of choice it’s insane, but it comes down to thee basic things:

1) Do nothing
2) Save/Invest in an RRSP
3) Save/Invest Outside an RRSP

Lets go through 1 and 3 just for ease, since it gets really darn complicated with all the stuff they could do.

In one, they do nothing. They retire at 65 having enjoyed the last 15 years to a combined monthly income with OAS and GIS of: 921.00, for a total of 1842 a month giving them 22104 a year.

In three, they scrimp and save as much as possible and in 15 years each have 250000, they decided a complete dividend strategy where they make 4% yields reliably is for them. So they each make 10000 a year. This is grossed up on line 236 of their T1 forms so it looks like they each make 14500 in the eyes of the government. Since they make 29000 in family income they OAS/GIS each would end up being 502 per month each, 1004 combined or 12048 yearly. So this couple sacrificed for 15 years to come out with 20000+12048 or 32048 per year. Now, since they made dividend income, their OAS payments will be taxable as actual income. So in Ontario they marginal rate would be something like 20% so they would owe back something like 2400 bucks or so leaving them with around 29.6K per year of usable income.

So, it comes down to:
1) 15 years of using your full income to enjoy life because your kids are gone and then retiring on OAS/GIS

2) 15 years of sacrifice for an increase of spendable income by 7.5K a year.

I dunno, is it really worth it?

I don’t want anyone to misunderstand, I’m only 28 and I’m packing away for my retirement, and hope to not have to rely on any social programs when I retire, but there are many (probably the majority of) people in the situation above. What’s the incentive for them to continue saving when they can just rely on the rest of us to put them through their retirement years.

If you own a house, your watching your children make families of their own, and you keep your expenses low by keeping your spending under control two people can live quite easily on 22K a year.

It’s not only OAS, keep in mind the GIS and Allowance (I’m not sure on the allowance and all these rules, so don’t quote me) are clawed back from dollar one.

]]> By: Cristian http://www.canadiancapitalist.com/reader-question-on-a-negative-opinion-on-etfs/#comment-106081 Cristian Sat, 26 Jan 2008 02:44:38 +0000 http://www.canadiancapitalist.com/2007/12/09/reader-question-on-a-negative-opinion-on-etfs#comment-106081 Just to let you know that OAS clawback starts to kick in at >65K year income. I would not mind if I had this kind of income in retirement. Most people who's income is <65K / year, will not be affected by dividends. --cristian Just to let you know that OAS clawback starts to kick in at >65K year income. I would not mind if I had this kind of income in retirement. Most people who’s income is <65K / year, will not be affected by dividends.

–cristian

]]> By: Plan Your Escape http://www.canadiancapitalist.com/reader-question-on-a-negative-opinion-on-etfs/#comment-91248 Plan Your Escape Mon, 10 Dec 2007 23:38:30 +0000 http://www.canadiancapitalist.com/2007/12/09/reader-question-on-a-negative-opinion-on-etfs#comment-91248 I'm also in the Don't-Count-On-OAS-Or-CPP camp on this one. I've got many years until that becomes an issue and I'm going to make sure I've got my own retirement covered. In the meantime I'm making full use of the tax credits available today. I don't want to end up relying on OAS or CPP. I’m also in the Don’t-Count-On-OAS-Or-CPP camp on this one. I’ve got many years until that becomes an issue and I’m going to make sure I’ve got my own retirement covered. In the meantime I’m making full use of the tax credits available today. I don’t want to end up relying on OAS or CPP.

]]> By: Canadian Capitalist http://www.canadiancapitalist.com/reader-question-on-a-negative-opinion-on-etfs/#comment-91237 Canadian Capitalist Mon, 10 Dec 2007 22:18:06 +0000 http://www.canadiancapitalist.com/2007/12/09/reader-question-on-a-negative-opinion-on-etfs#comment-91237 MG: Do you have any studies that show that dividend payers as a group outperform a broad index with <em>less volatility</em>, which seems to me is saying you can get more reward without taking on more risk? MG: Do you have any studies that show that dividend payers as a group outperform a broad index with less volatility, which seems to me is saying you can get more reward without taking on more risk?

]]> By: moneygardener http://www.canadiancapitalist.com/reader-question-on-a-negative-opinion-on-etfs/#comment-91191 moneygardener Mon, 10 Dec 2007 18:59:12 +0000 http://www.canadiancapitalist.com/2007/12/09/reader-question-on-a-negative-opinion-on-etfs#comment-91191 Yes, you would expect that to be true - although, when you include dividends, high dividend paying stocks have outperformed the broad indices when you include dividends over long periods of time. Yes, you would expect that to be true – although, when you include dividends, high dividend paying stocks have outperformed the broad indices when you include dividends over long periods of time.

]]> By: Canadian Capitalist http://www.canadiancapitalist.com/reader-question-on-a-negative-opinion-on-etfs/#comment-91156 Canadian Capitalist Mon, 10 Dec 2007 16:36:50 +0000 http://www.canadiancapitalist.com/2007/12/09/reader-question-on-a-negative-opinion-on-etfs#comment-91156 MG: And who knows what the market will do in the future? If as you say dividend-paying stocks (as a group) have lower volatility than broad-based stock indices, then according to theory at least you can expect them to have lower returns. MG: And who knows what the market will do in the future? If as you say dividend-paying stocks (as a group) have lower volatility than broad-based stock indices, then according to theory at least you can expect them to have lower returns.

]]> By: Canadian Capitalist http://www.canadiancapitalist.com/reader-question-on-a-negative-opinion-on-etfs/#comment-91149 Canadian Capitalist Mon, 10 Dec 2007 15:35:54 +0000 http://www.canadiancapitalist.com/2007/12/09/reader-question-on-a-negative-opinion-on-etfs#comment-91149 FT: I share your opinion about OAS. Who knows what will happen to the program in 30 years? Also, even the CPP isn't a sure thing. Yes, they say the CPP is in good shape but that doesn't mean they could tinker with the benefits. A few months ago, the press reported economists recommending increasing the CPP age to 67 and cutting benefits for early retirees. Thirty years is a long time; anything could happen... FT: I share your opinion about OAS. Who knows what will happen to the program in 30 years? Also, even the CPP isn’t a sure thing. Yes, they say the CPP is in good shape but that doesn’t mean they could tinker with the benefits. A few months ago, the press reported economists recommending increasing the CPP age to 67 and cutting benefits for early retirees. Thirty years is a long time; anything could happen…

]]> By: moneygardener http://www.canadiancapitalist.com/reader-question-on-a-negative-opinion-on-etfs/#comment-91142 moneygardener Mon, 10 Dec 2007 15:21:21 +0000 http://www.canadiancapitalist.com/2007/12/09/reader-question-on-a-negative-opinion-on-etfs#comment-91142 I can see both sides of the argument. It just depends what the market does. I agree that in a dramatic run up followed by a dramatic correction I would not want to be indexed. In this situation I would not worry as much about my portfolio of dividend growing stocks. You could argue too that with the proliferation of derivitives hedge funds etc., there is more likely to be more wild swings in the market than there has been historically so the indexer could be in for a bumpier ride than the large cap dividend growth investor. I can see both sides of the argument. It just depends what the market does. I agree that in a dramatic run up followed by a dramatic correction I would not want to be indexed. In this situation I would not worry as much about my portfolio of dividend growing stocks.

You could argue too that with the proliferation of derivitives hedge funds etc., there is more likely to be more wild swings in the market than there has been historically so the indexer could be in for a bumpier ride than the large cap dividend growth investor.

]]> By: Qcash http://www.canadiancapitalist.com/reader-question-on-a-negative-opinion-on-etfs/#comment-91141 Qcash Mon, 10 Dec 2007 15:19:32 +0000 http://www.canadiancapitalist.com/2007/12/09/reader-question-on-a-negative-opinion-on-etfs#comment-91141 I agree with MDJ about planning a retirement strategy around the OAS is strange. I hope to have such a huge portfolio and income in retirement that I could care less about the OAS. :-) Q I agree with MDJ about planning a retirement strategy around the OAS is strange.

I hope to have such a huge portfolio and income in retirement that I could care less about the OAS.

:-)

Q

]]> By: TonyR http://www.canadiancapitalist.com/reader-question-on-a-negative-opinion-on-etfs/#comment-91138 TonyR Mon, 10 Dec 2007 15:00:17 +0000 http://www.canadiancapitalist.com/2007/12/09/reader-question-on-a-negative-opinion-on-etfs#comment-91138 I think people should remember that the last time index investing was being talked up was 1999 when markets were soaring (like now) AND just before the markets dropped significantly. Like most investing methodologies, the most popular one is usually 5 years too late. An out of style methodology is more likely to make you more money. Remember in 1999, Warren Buffet was considered out of date. I think people should remember that the last time index investing was being talked up was 1999 when markets were soaring (like now) AND just before the markets dropped significantly. Like most investing methodologies, the most popular one is usually 5 years too late. An out of style methodology is more likely to make you more money. Remember in 1999, Warren Buffet was considered out of date.

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