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moneysense.ca, 8/02/07
This and That
- The Toronto Star’s Ellen Roseman has some tips for finding a good financial adviser.
- In the spirit of the RRSP season, here is a list of myths you should be aware of, courtesy of The Globe and Mail.
- Rob Carrick of The Globe and Mail evaluates the performance of six investment newsletters. I do have a quibble with the methodology though: one year performance numbers are totally meaningless and have no predictive value of future performance.
- Tax expert Tim Cestnick wades into the RRSP vs. mortgage debate and finds that you can get the result you want by making a different set of assumptions.
- Larry MacDonald writes in the Investment Ideas blog that dollar-cost averaging is fine when money is invested regularly out of a paycheck but not so much when investing a lump sum.
- Dave at Investing Intelligently deconstructs a column in The Globe and Mail that claimed that a mutual fund with high MER might be worth it without offering any real proof to back up the claim.
moneysense.ca, 8/02/07
Dear CC,
Ellen’s article promises advice on how to find a financial advisor, and to how to stay off the ‘C’ list. However, the article concentrates on the latter and ingores the former. (Damn !).
John, I’m a new financial planner and I would suggest you find out how many clients your advisor has. I got into this business (second career)to help people and keep busy, not to get rich, so I plan to keep my client list below 100 people to make sure I have time to look after each individual properly. If an advisor has 200+ clients, how well can they take care of the “C” clients? The “A” clients porfolios will take up more time (tax issues, estate issues, trusts, charities etc).
John: You’re right. I should pay more attention to my synopsis of the article
Another tax advantaged savings method is to incorporate your investment portfolio, which none of the items in your “this and that” mentioned. The disadvantage is that you have to open a corporation and file a corporate tax return every year, else pay someone else to do it. But the investment income doesn’t get added to your earned income on your personal tax return and instead is taxed at the corporate rate.
In a section of Tim Cestnick’s book “tax freedom zone”, he details the advantages and pitfalls of incorporating your investment portfolio. In my case, I had a dormant corporation sitting around anyways, so I just decided to use it as a holding company which holds all of my personal investments.
Re:”Tax expert Tim Cestnick wades into the RRSP vs. mortgage debate”
I find it interesting that Mr. Cestnick carefully steps us through the math of his first examples, but not through the last. There is no mention of the approximately $57,000 in additional interest plus lost opportunity from the nearly 4 years of paying out the mortgage late rather than early. In addition, some tax gurus will also state that the money saved in mortgage interest has a higher value, as you never have to earn it. That is, the $65,024 that you save in interest costs is equal to earning $108,373 and paying the taxes on it to have the $65,024 to pay the interest.
Finally the link he refers at empire.ca seems to assume that there is no tax penalty on withdrawl of the RSP, so it’s value is artifically inflated.
David
Re:”Tax expert Tim Cestnick wades into the RRSP vs. mortgage debate”
Here’s a really good calculator I found – http://www.insurecan.com/mod.php?mod=mortgageRRSP – that compares three scenarios:
1) investing 100% in RRSP (including re-investing tax refund in RRSP),
2) 100% prepay mortgage (and then invest in RRSP when mortgage paid off),
3) contributing to RRSP and using tax refund to pre-pay mortgage.
It lets you put in personal information like marginal tax rate and expected rate of return, so that the results are personal to your situation. Here’s a good site for figuring marginal tax rate: http://www.walterharder.ca/MarginalTaxRateCalculator.html
I found for me that option 3 provided the best results (unless I expect more than 10% return on my RRSPs, which seems pushing it).
Mike