Comments on: The Smith Manoeuvre Revisited http://www.canadiancapitalist.com/the-smith-manoeuvre-revisited/ Helping you invest and prosper Sun, 12 Feb 2012 00:54:40 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: bob http://www.canadiancapitalist.com/the-smith-manoeuvre-revisited/#comment-194406 bob Sat, 27 Jun 2009 00:21:46 +0000 http://www.canadiancapitalist.com/2006/09/25/the-smith-manoeuvre-revisited#comment-194406 Wfuc.G who? WFG stay away, indeed build a brick wall and change your phone #. You will be "helped" by a janitor who happens to be a part time inspiring adviser/director and is also is interested in making you just kike him! Go to a reputable place and talk to a CFP. Wfuc.G who?

WFG stay away, indeed build a brick wall and change your phone #. You will be “helped” by a janitor who happens to be a part time inspiring adviser/director and is also is interested in making you just kike him! Go to a reputable place and talk to a CFP.

]]> By: brian http://www.canadiancapitalist.com/the-smith-manoeuvre-revisited/#comment-160767 brian Tue, 14 Oct 2008 04:32:56 +0000 http://www.canadiancapitalist.com/2006/09/25/the-smith-manoeuvre-revisited#comment-160767 Hi Kiasmine, I have been following these threads and was wondering how and if you went ahead with the SM? Recently "World Finance Group" has been "educating" me on ways to better handle my mortgage. Little leary on the agents lack of experience but they do raise some interesting views. Does anyone have an opinion on WFG in Canada? Hi Kiasmine, I have been following these threads and was wondering how and if you went ahead with the SM? Recently “World Finance Group” has been “educating” me on ways to better handle my mortgage. Little leary on the agents lack of experience but they do raise some interesting views. Does anyone have an opinion on WFG in Canada?

]]> By: Kiasmine http://www.canadiancapitalist.com/the-smith-manoeuvre-revisited/#comment-118932 Kiasmine Wed, 05 Mar 2008 14:10:57 +0000 http://www.canadiancapitalist.com/2006/09/25/the-smith-manoeuvre-revisited#comment-118932 Thanks David for your reply....... curious if it would be the SM if we took the net accumilated and applied it to the mortgage instead of a mutual fund then used the $ against taxes? Perhaps I am not understanding the SM. Thanks in advance Thanks David for your reply……. curious if it would be the SM if we took the net accumilated and applied it to the mortgage instead of a mutual fund then used the $ against taxes?

Perhaps I am not understanding the SM.

Thanks in advance

]]> By: David http://www.canadiancapitalist.com/the-smith-manoeuvre-revisited/#comment-118850 David Wed, 05 Mar 2008 02:04:01 +0000 http://www.canadiancapitalist.com/2006/09/25/the-smith-manoeuvre-revisited#comment-118850 Kiasmine, What you have described does not sound like the Smith Manoeuvre, but some other form of leveraged investing. You might wish to look at Million Dollar Journey's Blog for more information on this process. DAvid Kiasmine,
What you have described does not sound like the Smith Manoeuvre, but some other form of leveraged investing. You might wish to look at Million Dollar Journey’s Blog for more information on this process.

DAvid

]]> By: Kiasmine http://www.canadiancapitalist.com/the-smith-manoeuvre-revisited/#comment-118791 Kiasmine Tue, 04 Mar 2008 18:46:41 +0000 http://www.canadiancapitalist.com/2006/09/25/the-smith-manoeuvre-revisited#comment-118791 My Husband and I bought our first home 4 months ago (we are 30 years old no children we have approx. $20,000 worth of personal debt/student loans). Our mortgage is 290,000 we used a no down payment mortgage 100% financing. We have been offered a 50,000 LOC to attach to the mortgage to perform the smith manouver. This 50K is also 100% financed – higher interest – invested in mutual funds. We view this as we have nothing to loose if we go with it. We put "0" into our house other than our regular accelerated biweekly mortgage payments which could be considered as rent because he did not put a 5%-20% down payment on the home. We were told that we will not be required to pay anything extra (considering the additional $50K) other than our original accelerated mortgage payment and we still benefit by gettin the net distribution. Do you think it is in our best interest to start the smith manouver My Husband and I bought our first home 4 months ago (we are 30 years old no children we have approx. $20,000 worth of personal debt/student loans). Our mortgage is 290,000 we used a no down payment mortgage 100% financing. We have been offered a 50,000 LOC to attach to the mortgage to perform the smith manouver. This 50K is also 100% financed – higher interest – invested in mutual funds.
We view this as we have nothing to loose if we go with it. We put “0″ into our house other than our regular accelerated biweekly mortgage payments which could be considered as rent because he did not put a 5%-20% down payment on the home.
We were told that we will not be required to pay anything extra (considering the additional $50K) other than our original accelerated mortgage payment and we still benefit by gettin the net distribution.

Do you think it is in our best interest to start the smith manouver

]]> By: Canadian Capitalist http://www.canadiancapitalist.com/the-smith-manoeuvre-revisited/#comment-117004 Canadian Capitalist Tue, 26 Feb 2008 16:22:29 +0000 http://www.canadiancapitalist.com/2006/09/25/the-smith-manoeuvre-revisited#comment-117004 Good discussion. The SM works by arbitraging the difference between the tax treatment of interest expenses (fully deductible against income) against the favourable way in which dividends and capital gains are taxed. I haven't checked but I believe Traciatim is right. You probably need less in dividend income than interest charges to break even (without taking taxes into account). Good discussion. The SM works by arbitraging the difference between the tax treatment of interest expenses (fully deductible against income) against the favourable way in which dividends and capital gains are taxed. I haven’t checked but I believe Traciatim is right. You probably need less in dividend income than interest charges to break even (without taking taxes into account).

]]> By: Traciatim http://www.canadiancapitalist.com/the-smith-manoeuvre-revisited/#comment-116980 Traciatim Tue, 26 Feb 2008 12:09:10 +0000 http://www.canadiancapitalist.com/2006/09/25/the-smith-manoeuvre-revisited#comment-116980 Hmmm, maybe I'm miscalculating, but a 4.3% yield on 10G would have 430 dollars for the year. The marginal rate on eligible dividends is around 20% or so (depending on province) which would make 86 bucks go to tax, leaving you with 344 left over. The 600 bucks you pay to interest comes off of our income, so someone with a high income (80K) would get around 250 back on the 600 bucks, leaving them with 350 paid in interest. I think I may have miscalculated slightly, but my example of just CIBC and BMO both at 4.8% at the time would be more than enough to keep you afloat. I'm not sure what their yields are now, I need to get ready for work, but I'm sure you can find it quick enough on google/yahoo/globeinvestor. Also keep in mind that in year 2 your interest costs go down and your yield (if a dividend increase happens) goes up . . . so eventually you pay off your loan and still have the income (in a perfect world). I'm not too sure if I like the leveraged strategy like this, but to each his own. I think I like the safer route of just putting in money over time to the same securities. Also, I'm not sure if you can deduct interest paid on loans that are for capital gains, the rule is very specific to investing for income, which would mean interest and dividends. I wouldn't want the CRA to come knocking and having a lecture and audit on what's considered income so I'd just stay on the safe side. Hmmm, maybe I’m miscalculating, but a 4.3% yield on 10G would have 430 dollars for the year. The marginal rate on eligible dividends is around 20% or so (depending on province) which would make 86 bucks go to tax, leaving you with 344 left over. The 600 bucks you pay to interest comes off of our income, so someone with a high income (80K) would get around 250 back on the 600 bucks, leaving them with 350 paid in interest.

I think I may have miscalculated slightly, but my example of just CIBC and BMO both at 4.8% at the time would be more than enough to keep you afloat. I’m not sure what their yields are now, I need to get ready for work, but I’m sure you can find it quick enough on google/yahoo/globeinvestor.

Also keep in mind that in year 2 your interest costs go down and your yield (if a dividend increase happens) goes up . . . so eventually you pay off your loan and still have the income (in a perfect world).

I’m not too sure if I like the leveraged strategy like this, but to each his own. I think I like the safer route of just putting in money over time to the same securities. Also, I’m not sure if you can deduct interest paid on loans that are for capital gains, the rule is very specific to investing for income, which would mean interest and dividends. I wouldn’t want the CRA to come knocking and having a lecture and audit on what’s considered income so I’d just stay on the safe side.

]]> By: Freedom Seeker http://www.canadiancapitalist.com/the-smith-manoeuvre-revisited/#comment-116825 Freedom Seeker Mon, 25 Feb 2008 22:03:39 +0000 http://www.canadiancapitalist.com/2006/09/25/the-smith-manoeuvre-revisited#comment-116825 Traciatim, correct me if I'm wrong: The 4.3% yield on 10G would give you an after-tax profit of $245.10 which is less than the $342 of after-tax interest payment on the loan. Break-even is at 6% yield. My understanding is that had you invested in Index fund over the last 10-year period, you'd have earned a return of 7-9%. Thanks. Traciatim, correct me if I’m wrong:
The 4.3% yield on 10G would give you an after-tax profit of $245.10 which is less than the $342 of after-tax interest payment on the loan. Break-even is at 6% yield. My understanding is that had you invested in Index fund over the last 10-year period, you’d have earned a return of 7-9%.
Thanks.

]]> By: Traciatim http://www.canadiancapitalist.com/the-smith-manoeuvre-revisited/#comment-105757 Traciatim Fri, 25 Jan 2008 13:22:25 +0000 http://www.canadiancapitalist.com/2006/09/25/the-smith-manoeuvre-revisited#comment-105757 Hey Tomw, the way to be sure is that your investment has to have a reasonable expectation of income. You could to a small venture capital loan to a business or startup, you could invest for dividends or get bonds or other interest bearing instruments. Plus, you don't have to beat your interest rate to break even either. For instance lets say you have a 10000 loan at 6% so it cost you 600 to carry this year. That will come off of your income If your income was 80000 your marginal rate in Ontario you will get back 43% of that on your taxes so you get 258 back leaving with a needed profit of 342 to succeed. Keep in mind this will be after tax, so if you are investing the 10000 in eligible dividends in order to get 342 after tax in the same income bracket you will need to earn about a 4.3% yield on the 10G. I'd also like to point out that currently CIBCs yield is 4.8%, that is, if they can stop walking in to sharp objects. BMO also is yielding around there right now too. In the right situations it works out, what happens in the fall when they jack interest rates by 1.5% to [stick it to the average person] slow the booming economy as our dollar falls and inflation spikes? Hey Tomw, the way to be sure is that your investment has to have a reasonable expectation of income. You could to a small venture capital loan to a business or startup, you could invest for dividends or get bonds or other interest bearing instruments.

Plus, you don’t have to beat your interest rate to break even either. For instance lets say you have a 10000 loan at 6% so it cost you 600 to carry this year. That will come off of your income If your income was 80000 your marginal rate in Ontario you will get back 43% of that on your taxes so you get
258 back leaving with a needed profit of 342 to succeed.

Keep in mind this will be after tax, so if you are investing the 10000 in eligible dividends in order to get 342 after tax in the same income bracket you will need to earn about a 4.3% yield on the 10G. I’d also like to point out that currently CIBCs yield is 4.8%, that is, if they can stop walking in to sharp objects. BMO also is yielding around there right now too.

In the right situations it works out, what happens in the fall when they jack interest rates by 1.5% to [stick it to the average person] slow the booming economy as our dollar falls and inflation spikes?

]]> By: tomw http://www.canadiancapitalist.com/the-smith-manoeuvre-revisited/#comment-105561 tomw Fri, 25 Jan 2008 03:43:29 +0000 http://www.canadiancapitalist.com/2006/09/25/the-smith-manoeuvre-revisited#comment-105561 the SM is risky sure: "if a mortgage debt is converted to an investment debt?" You need to know how to invest to beat the prime rate, simple " debt is converted to an investment" means you need to borrow to invest in stocks or mutual funds that return more then the prime rate which you are presumably borrowing at on from your readvanceble HELOC. I am doing this now I borrowed to invest as the markets look like they may have bottomed out and stock prices are rising. Derek Foster tells us dividends matter and so you can invest for dividend income, in stocks that have a PROVEN TRACK RECORD of dividend increases over many years (S&P now has a Canadian Dividend Aristocrats list but I don't trust it completely). My only question is I am not completely sure of how to make sure my investments and my investment loan qualifies for the Canadian Tax deduction for loans on investments? the SM is risky sure:

“if a mortgage debt is converted to an investment debt?”

You need to know how to invest to beat the prime rate, simple ” debt is converted to an investment” means you need to borrow to invest in stocks or mutual funds that return more then the prime rate which you are presumably borrowing at on from your readvanceble HELOC.

I am doing this now I borrowed to invest as the markets look like they may have bottomed out and stock prices are rising. Derek Foster tells us dividends matter and so you can invest for dividend income, in stocks that have a PROVEN TRACK RECORD of dividend increases over many years (S&P now has a Canadian Dividend Aristocrats list but I don’t trust it completely).

My only question is I am not completely sure of how to make sure my investments and my investment loan qualifies for the Canadian Tax deduction for loans on investments?

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