Comments on: My Investment Plan http://www.moneysmartsblog.com/my-investment-plan/ Investing and Personal Finance Sat, 31 Jul 2010 15:45:55 +0000 http://wordpress.org/?v=2.9.2 hourly 1 By: FourPillars http://www.moneysmartsblog.com/my-investment-plan/comment-page-1/#comment-858 FourPillars Sat, 08 Sep 2007 05:30:06 +0000 http://www.moneysmartsblog.com/my-investment-plan/#comment-858 Lewis, I haven't done the post yet where I have all my exact calculations but basically I assume 4% real return on my investments, approx $15k per year contributions and about a 5% withdrawal (first year) from the rrsp upon retirement which hopefully will work out to about $46k. Mike Lewis, I haven’t done the post yet where I have all my exact calculations but basically I assume 4% real return on my investments, approx $15k per year contributions and about a 5% withdrawal (first year) from the rrsp upon retirement which hopefully will work out to about $46k.

Mike

]]> By: Lewis Empire http://www.moneysmartsblog.com/my-investment-plan/comment-page-1/#comment-857 Lewis Empire Sat, 08 Sep 2007 05:24:04 +0000 http://www.moneysmartsblog.com/my-investment-plan/#comment-857 I was just running some calculations and I just wanted to ask a few questions: If you've currently got $250K in investments, then at 8% average return from today (39 yrs) to 2023 (55 yrs) you should have approximately $870,000 without adding another dime to your account? On $870K (at 8%) you would be creating a return of $68,500 per year. Even if you assume that your expenses will increase by 3% inflation per year, you should still be able to withdraw a starting value of $56K (allowing for $20K in travel!) for at least 30 years. Since you're probably still investing monthly, your account should be significantly higher in 2023. Why limit yourself to $46,000 per year? That being said, having $250K invested plus your home equity puts you WELL ahead of the average Joe with $20K in credit card debt and a nice TV. Thanks for giving me something to think about tonight! I was just running some calculations and I just wanted to ask a few questions:
If you’ve currently got $250K in investments, then at 8% average return from today (39 yrs) to 2023 (55 yrs) you should have approximately $870,000 without adding another dime to your account? On $870K (at 8%) you would be creating a return of $68,500 per year.

Even if you assume that your expenses will increase by 3% inflation per year, you should still be able to withdraw a starting value of $56K (allowing for $20K in travel!) for at least 30 years.

Since you’re probably still investing monthly, your account should be significantly higher in 2023. Why limit yourself to $46,000 per year?

That being said, having $250K invested plus your home equity puts you WELL ahead of the average Joe with $20K in credit card debt and a nice TV. Thanks for giving me something to think about tonight!

]]> By: FourPillars http://www.moneysmartsblog.com/my-investment-plan/comment-page-1/#comment-843 FourPillars Thu, 06 Sep 2007 20:19:10 +0000 http://www.moneysmartsblog.com/my-investment-plan/#comment-843 Yes, it is. You're right - deducting interest will bring down your marginal tax rate the same way rrsp contributions do so that's something to watch for. Mike Yes, it is.

You’re right – deducting interest will bring down your marginal tax rate the same way rrsp contributions do so that’s something to watch for.

Mike

]]> By: telly http://www.moneysmartsblog.com/my-investment-plan/comment-page-1/#comment-842 telly Thu, 06 Sep 2007 19:56:51 +0000 http://www.moneysmartsblog.com/my-investment-plan/#comment-842 Yes, I remember that spreadsheet. Another question, is the interest on the loan deducted from your gross income (pre-RRSP contribution)? I guess I should know this but I'm not entirely sure as I've never actually deducted investment interest. This might be a substantial difference if yoour RRSP contributions bring you down 2-3 tax brackets for example (such as for me). Yes, I remember that spreadsheet.

Another question, is the interest on the loan deducted from your gross income (pre-RRSP contribution)? I guess I should know this but I’m not entirely sure as I’ve never actually deducted investment interest. This might be a substantial difference if yoour RRSP contributions bring you down 2-3 tax brackets for example (such as for me).

]]> By: FourPillars http://www.moneysmartsblog.com/my-investment-plan/comment-page-1/#comment-841 FourPillars Thu, 06 Sep 2007 19:38:39 +0000 http://www.moneysmartsblog.com/my-investment-plan/#comment-841 MG - consider it done! Telly - that's exactly it. I have a HELOC - I didn't incur any costs - when I switched over from my former mortgage lender the mortgage broker paid the fees to end the HELOC at the old place and the new mortgage had a $500 cash back to pay the lawyer (which u need). If you want to set up a secured LOC then you should talk to your bank. Obviously you don't want to break your current mortgage because of the fees. Interest rates and break even point: I attached a spreadsheet to one of the leveraged posts - by changing the interest rate or dividend growth rates you can see the effect on the success of the plan. It's really a combination of interest rates staying reasonably low and dividend growth rates that will determine how it works out in the long run. One risk of the interest rates of course is that the cash flow of the plan can go quite negative if the rates jump up a lot. MG – consider it done!

Telly – that’s exactly it.

I have a HELOC – I didn’t incur any costs – when I switched over from my former mortgage lender the mortgage broker paid the fees to end the HELOC at the old place and the new mortgage had a $500 cash back to pay the lawyer (which u need).
If you want to set up a secured LOC then you should talk to your bank. Obviously you don’t want to break your current mortgage because of the fees.

Interest rates and break even point: I attached a spreadsheet to one of the leveraged posts – by changing the interest rate or dividend growth rates you can see the effect on the success of the plan. It’s really a combination of interest rates staying reasonably low and dividend growth rates that will determine how it works out in the long run.

One risk of the interest rates of course is that the cash flow of the plan can go quite negative if the rates jump up a lot.

]]> By: telly http://www.moneysmartsblog.com/my-investment-plan/comment-page-1/#comment-840 telly Thu, 06 Sep 2007 19:17:26 +0000 http://www.moneysmartsblog.com/my-investment-plan/#comment-840 I see what you mean. I kind of ignored the fact that you never actually added any of your own money into the mix so the non-registered money is NOT money that could have been ear marked for something else as it's technically not your money. Do you leverage with a HELOC? Did you incur a scost to set this up? I did read your leverage plan post - I guess I should go back to it. :) You mention that you expect a cash flow from dividends as they are increased but what happens if interest rates climb as well? Do you have a break-even point? Again, I should really go back to your post. We've been debating about non-registered investments ourselves. I guess I'm still trying to figure out if it's right for us. I see what you mean. I kind of ignored the fact that you never actually added any of your own money into the mix so the non-registered money is NOT money that could have been ear marked for something else as it’s technically not your money.

Do you leverage with a HELOC? Did you incur a scost to set this up? I did read your leverage plan post – I guess I should go back to it. :)

You mention that you expect a cash flow from dividends as they are increased but what happens if interest rates climb as well? Do you have a break-even point? Again, I should really go back to your post.

We’ve been debating about non-registered investments ourselves. I guess I’m still trying to figure out if it’s right for us.

]]> By: moneygardener http://www.moneysmartsblog.com/my-investment-plan/comment-page-1/#comment-839 moneygardener Thu, 06 Sep 2007 18:59:51 +0000 http://www.moneysmartsblog.com/my-investment-plan/#comment-839 Mike - Tranfer the whole kit and kabootle into Walgreens shares! :) Mike – Tranfer the whole kit and kabootle into Walgreens shares! :)

]]> By: FourPillars http://www.moneysmartsblog.com/my-investment-plan/comment-page-1/#comment-838 FourPillars Thu, 06 Sep 2007 18:40:22 +0000 http://www.moneysmartsblog.com/my-investment-plan/#comment-838 Telly - actually no I haven't - good question! I'll assume you read my posts on my leveraged plan but basically I wanted to do a plan that wouldn't cost me any cash flow. The only way I could do that was to do a leverage outside the rrsp (this reduces the effective interest costs) and I can use the dividends to help pay the interest. A stock like BMO pays enough dividend to cover the remaining portion of the interest after the tax rebate - this is including the tax payable on the dividend. In a rrsp I wouldn't be able to get the dividends out to help pay the interest. If the plan is successfull then there should be a small profit from the annual cash flows (assuming the dividend goes up) and some capital gain profit as well. Since I didn't use any of my own money, this will be straight profit. I already contribute as much as I can to the mortgage & rrsp and by doing the leverage plan as well it means adding some risk and hopefully some reward as well. Does that make sense? Mike Telly – actually no I haven’t – good question!

I’ll assume you read my posts on my leveraged plan but basically I wanted to do a plan that wouldn’t cost me any cash flow. The only way I could do that was to do a leverage outside the rrsp (this reduces the effective interest costs) and I can use the dividends to help pay the interest.

A stock like BMO pays enough dividend to cover the remaining portion of the interest after the tax rebate – this is including the tax payable on the dividend. In a rrsp I wouldn’t be able to get the dividends out to help pay the interest.

If the plan is successfull then there should be a small profit from the annual cash flows (assuming the dividend goes up) and some capital gain profit as well. Since I didn’t use any of my own money, this will be straight profit.

I already contribute as much as I can to the mortgage & rrsp and by doing the leverage plan as well it means adding some risk and hopefully some reward as well.

Does that make sense?

Mike

]]> By: telly http://www.moneysmartsblog.com/my-investment-plan/comment-page-1/#comment-836 telly Thu, 06 Sep 2007 18:09:23 +0000 http://www.moneysmartsblog.com/my-investment-plan/#comment-836 Mike, Have you run some numbers that show you're better off leveraging in the non-reg account (for the tax deductible interest) than by further contributing to the RRSP? I guess I'm still not sure why you chose non-reg (even with tax deductible leveraging) over RRSPs. Mike,
Have you run some numbers that show you’re better off leveraging in the non-reg account (for the tax deductible interest) than by further contributing to the RRSP? I guess I’m still not sure why you chose non-reg (even with tax deductible leveraging) over RRSPs.

]]> By: FourPillars http://www.moneysmartsblog.com/my-investment-plan/comment-page-1/#comment-834 FourPillars Thu, 06 Sep 2007 17:42:48 +0000 http://www.moneysmartsblog.com/my-investment-plan/#comment-834 MG - I'm not a fan of the SM because I think it's a marketing package designed for financial advisors. SM is just a form of leveraged investing with no reasonable limits as to how much you borrow. In my case if I could borrow up to 80% of house value (not sure if the bank would even go for it), I'd be looking at a leverage of about $270k which is ridiculous. Mike MG – I’m not a fan of the SM because I think it’s a marketing package designed for financial advisors. SM is just a form of leveraged investing with no reasonable limits as to how much you borrow.

In my case if I could borrow up to 80% of house value (not sure if the bank would even go for it), I’d be looking at a leverage of about $270k which is ridiculous.

Mike

]]>