Weekend Reading – Canada Day Edition!
Welcome to my latest Weekend Reading edition – where I share some of my favourite articles from the week that was across the personal finance and investing blogosphere.
Happy Canada Day Weekend!
Do you know your Canada Day trivia and facts?
I’ll be honest, I didn’t know these ones:
- The term “trick or treat” was first used in Alberta.
- The first YMCA started in 1851 in Montreal.
- 77% of the world’s maple syrup is made in Quebec.
- And more…
I hope you have a safe and fun-filled Canada Day weekend. See you around the site this weekend and I’ll be back with some new articles next week!
Mark
Other articles…and a giveaway!
A reminder that I encourage you to enter this giveaway here from my personal finance library – enter to win a draft of this book Building Wealth and Being Happy – The Practical Guide to Financial Independence – a book I reviewed here.
The C.D. Howe Institute (who has a mandate to deliver independent, not-for-profit research about economic principles and government policy) released a statement this week suggesting most Canadians would be far better off (financially) if they deferred Canada Pension Plan (CPP) and/or Old Age Security (OAS) for essentially, as long as possible. To assist with this, they encouraged governments “push back” the potential deferral period for public pension benefits to age 75 from 70 as a first step in government benefits reforms.
“Our modelling shows this step could help retirees worried about running out of savings or not hitting their retirement income goals. Delaying public pension take-up would allow middle- and upper-middle income Canadians greater retirement planning flexibility, to the extent they have private savings to rely on in the meantime.”
You can read about the pros and cons of deferring CPP in this comprehensive article on my site here.
I recently read an article about seniors – with almost $1.6 million in net worth – feel there are on the brink of financial disaster. It’s always interesting to read about the financial habits (and psychology) of others – although from the article, I personally wouldn’t want the majority of my assets tied up in real estate as a 60-something. My wife and I are working on having a diverse portfolio of assets in the coming years to fight market calamity and to help ensure our portfolio is sustainable for our needs:
- Maxed out TFSA equity assets
- Maxed out RRSP equity assets
- Non-registered equity assets
- A paid off home/condo
- ~20 years vested into a workplace pension (each)
- General savings/cash accounts
To avoid becoming a stress-out senior, a reminder millennials can get rich slowly if they follow the advice here – or anyone can for that matter. This post includes a link to a free ebook from the author.
Here’s my take on minimizing tax in retirement – from the recent-but-goodie file.
Happy Investing!
Mark
Mark
My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I'm looking to start semi-retirement soon, sooner than most. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.
I am a bit late to this discussion, but all the talk about net worth made me think I should do a mid-year update.
The reason I like to do a net worth calculation, is because I wanted to know the value of our assets that we could draw from after retirement. I spent a lot of time reading about how much might be needed and in the end, ending up liking the 4 percent rule. The Blunt Bean Counter has a great series of articles, that made very informative reading on that subject.
What I do is put our assets into 3 categories: All taxable–RRSPs and Defined Contribution Pension fund, which is just another name for an RRSP; Completely Non taxable–TFSAs and the Book Value of my non-registered investment accounts; and 50% Taxable–the capital gains portion of the non-registerd investment accounts. I had a rental property that I sold last year and paid the tax on the capital gain, so things are getting more straightforward.
I make a note of the market value of our home, as listed by the city on our property tax statement, but I don’t include the value in any sort of planning, because I intend to stay in this house forever. After moving 5 times in 6 years, I never wanted to move again and fortunately still love this place after being here 16 years already.
I first did a Net worth 4 1/2 years ago, after being too discouraged to do so for over a decade or more. But I am pleased that in that time, our assets (not including our home) have increased 90 percent! I am no longer worried about retirement. Mark’s blog has given me so much encouragement and great advice over the years. Thanks Mark!
“I first did a Net worth 4 1/2 years ago, after being too discouraged to do so for over a decade or more. But I am pleased that in that time, our assets (not including our home) have increased 90 percent! I am no longer worried about retirement. Mark’s blog has given me so much encouragement and great advice over the years. Thanks Mark!”
Geez…thanks but I suspect you did all the work 😉
That’s some pretty impressive results Barbara. And nice news you’re not worried about retirement now.
Outstanding news from Barbara.
It is nice that I am no longer worried. I do all the finances, so my husband doesn’t have a clue about anything. We have been pretty frugal by necessity, 3 kids on one income isn’t easy. I love getting a bargain and decorating my home at a fraction of the price others would pay. I don’t like shopping and don’t care much for cars, just want them to be reliable.
I do like to travel and would like to do more. But now my husband says he doesn’t want to retire until he is 70. He is an academic and loves to work all the time. I need to find another travelling companion, my daughter was going with me quite often, but now that she has graduated (so will soon be working full time) and has a solid boyfriend, mom isn’t quite so important, lol. We had some great adventures, though. I like roughing it in foreign countries. My mom died at an age younger than I am now, so every year is a gift, you just never know.
Interesting discussion on net worth.
May, I agree on NW. However I take the approach Lloyd does. My home is shelter, not an investment. I will always need that asset to pay shelter even if it is monetized and I rent. When I “downsized” I spent considerably more. I also don’t count other “assets” like vehicles etc. Not certain of where you are but if VCR real estate has stratosperic rises, so maybe your downsizing at some point will generate a large gain and additional capital to generate cash flow for you in retirement. Hasn’t happened for us here. Or maybe VCR prices come back down to earth.
Re senior couple: another interesting one. They fret over CDN banks going under, think RRSPs are a trap, and have almost all of their assets tied up in real estate with 2 properties 1M+ generating 1% after doing all the maintenance work themselves, plus PITA factor. Strange indeed. Sell the real estate boat anchors, educate themselves on factual (not Trump approach) appropriate investing they’re comfortable with. 5% portfolio dividends out of the gate? Sounds like that advisor is reaching.
Net worth = cost?
I guess I went to the wrong school.
But I’ve never really paid much attention to NW other than seeing we were moving ahead some over time, up to retirement .
@RBull, I remember your downsizing was actually moving to a much larger lot? It’s not a downsizing, just a life style changing. 🙂
I will certainly need to pay for a shelter but I figure once the kids leave the home and we are getting older, we won’t need such big a house any more and we will not have enough energy to maintain a big house any more. We might downsize to a smaller house with a smaller lot, or maybe a townhouse. For our case, it is quite certain when that happened, we will free up some asset.
It’s a backup plan though. We do not rely on it for retirement plan.
Moved from the city to rural ocean front 3 acres, renovated and added on to home, built a couple of garages etc. My last home was exact same size as yours for 2 of us. This one much smaller but takes 20X the amount of energy to maintain and more $$.
I’m sure you’ll lots of great options when the time comes.
I will certainly include my house into my net worth calculation. By definition, Net worth is the value of all the non-financial and financial assets owned by an institutional unit or sector minus the value of all its outstanding liabilities. So it includes the house.
But I am not a PF blogger, so I have no use of an exact number. All I care is if I downsize, roughly how much money can be freed up and used to do other things like generating income for our retirement or helping kids to go a top university in USA or UK if they want to.
RE: Senior couple with rental properties and only a little RRSP. Price to Rent ratio is terrible in BC. They bought those rentals with very low price I believe. So overall, it’s actually very successful investment. It’s just investment target changes in life’s different phases. Before retired, maybe we focus on growth, after retired, maybe we focus on income.
And I really don’t understand all these anti-RRSP opinions and really surprised so many people actually buy it.
Even as a PF blogger May, I have no use for detailed net worth numbers either. Actually, I wrote a bit about that on my site.
https://www.myownadvisor.ca/stop-obsessing-net-worth/
I suspect most bloggers (when they do those updates) don’t care or factor in that RRSP assets are not entirely theirs.
Like you, I include my house as an asset (geez, I hope it is?!) but I don’t care about detailed numbers. I don’t even include our cars in our net worth calculation. I can’t be bothered with the market value, tax implications of net worth values. Cash flow is king 🙂
May, it seems to me they can’t have bought those places for a low price. Otherwise they’d have reasonable proper cash flow even if rents haven’t kept pace with the market. They’re earning a tiny fraction of what they should in RE.
I forgot to mention I agree with your anti RRSP comments. They aren’t perfect but there are some very weird misinformed ideas from some people on this.
For last few years, condos in metro Vancouver were just insane. The price was up almost every month, and up in a rocket speed. That’s why I think they bought the condos with much lower price as I assume they should have bought them at least a few years back.
You may be right. I just don’t understand why keep them if you’re retired and they’re not gnerating any cash flow.
Condos are becoming insanely priced everywhere it seems. I get the convenience factor, it comes at a cost (we’ll be paying for it in another year) but Vancouver prices are really off the charts. I recall reading that VanCity condos in the downtown area cost over $1,000 per sq. foot!!! Ottawa by comparison is half that.
We’ve always,well since 1987, used an accounting program to record all our financial transactions. Everything is recorded at cost, including our investments. Likewise our net worth is at cost. Only when we sold investments or other assets did we record the gain or loss.
That’s interesting. So, if for example, you bought 100 shares of TD on the first trading day of 1987 ($2.94) you’d show the current value at $294?
Yes everything is at cost. We do record depreciation of vehicles as we normally got a new vehicle every 3-5 yrs and wanted the loss to be expensed. Even in our Excel all items are recorded at cost, though there is a column for Current Price/Value/Gain-Loss. But I only update that every quarter or at yearend.
We also watch our YOC because we monitor our income and as it grows so does our YOC, confirming the growth.
That certainly sounds far more encompassing than what I do. I treat every vehicle as zero worth. I keep them until they are no longer safe or relatively reliable so I know at the end they worth whatever scrap steel is worth. Even the farm machinery (they’re all old castoffs for the most part anyways) are valued at zero. I only fairly recently started to track YOC and even total income from the portfolio. I always used to just take the net worth of the investments and fudged in a WAG growth factor to come up with an expected income for retirement. I was (and mostly still am) incredibly unsophisticated when it came to analysis.
I don’t care about the cars in our net worth even though they are worth/market value > $20,000 combined.
Furniture and other stuff, nah.
I know when we look at the present/market values of our house, pensions, assets, etc. we are well over a milestone but I don’t really care about that. I do care about the cash flow that our portfolio can generate since that’s what we need to pay for stuff. Hopefully we can get to our dividend income goal!
Happy Canada Day Lloyd!
Nothing wrong with keeping detailed track of stuff cannew, everyone has a way that works for them. All the best this Canada Day!
Hi, cannew, wondering if you could give me some help. I have talked to the kids about investment and they want to buy stocks using their allowance money. The older one wants to buy two shares of TD, the younger one wants to buy one share of TD. What is the best way to do this? Many thanks in advance.
@May: The problem with TD (and Royal) s that they do not offer Optional Share Purchase so one cannot invest extra money to buy shares, as we did for our grandkids with BNS. DRIP’s are the simplest (once its set up) way to invest small amounts with a particular stock.
I’d suggest you recommend one of the other three bank stocks, BMO, BNS & CM and look into setting up a DRIP account for them. If you own any of the shares, you could request your broker to either transfer a share or an even # of shares by Direct Registration Service or you’d have to request a Share Certificate for the share(s) and use it to set up the DRIP. Once the DRIP is setup you can send in funds periodically or set up Direct Debit.
See my post here:
https://www.myownadvisor.ca/try-this-average-retirement-plan-to-wealth-part-1/
https://www.myownadvisor.ca/try-this-average-retirement-plan-to-wealth-part-2-of-2/
Thanks a lot. I will take a further look.
@May: As the kids are minors the DRIP would have to setup in an Adults name ITF (In Trust For) Kids name. If your broker issued a Share Cert it must be in both names. Once they are 18 the DRIP shares can be transferred to their name and DRIP account. Until then the dividends received would be claimed as income for the Adults (which would not amount to much).
My wife and I actually did this for some of our nieces and nephews. They are now shareholders of Canadian banks and life insurance companies and have been for many years.
There are great benefits of full DRIPs vs. synthetic DRIPs. I have an entire page dedicated to that here!
https://www.myownadvisor.ca/drips/
That makes zero sense. All other factors attached to those assets/liabilities are recorded at market value.
As stated many a time, people do really weird and arbitrary things with their personal net worth calculations, for what reasons I really have no idea.
FWIW, I think to do a decent net worth calculation you have to take into account taxation and market values. Otherwise, it could be higher or lower because of either.
In the very, very early days of the blog I thought about posting continual net worth updates. I quickly realized a) I don’t want to advertise that on my site for many reasons and b) it’s not as simple as some people think it is although the premise is easy to understand and c) you can ballpark it very easily.
Net worth calculations are fine but I FAR prefer cash flow calculations 🙂
We don’t care or ever look at net worth, so why would we bother adjusting the value of our assets up or down. Maybe if we were looking for a loan but just to say we are worth x$$? I’d rather know how much we actually paid or invested to get where we are.
re: why would we bother adjusting the value of our assets up or down.
Do you calculate, for tax purposes, your dividend payments — an asset — on the very first distribution received or on their current value?
@SST: Dividends are recorded when received at face value. No allowance is entered for tax. When we’ve completed our Income Tax the amount owed is recorded as an expense for the year. We don’t adjust our investments for the tax paid.
I would much rather focus on the income generated from my assets, to actually live, vs. what they may or may not be worth. That’s far more tangible for me. Hence my dividend income updates.
“to do a decent net worth calculation you have to take into account taxation”
Good point. In the back of my mind I know that that any income from the RRSPs will be subjected to tax but I don’t run a formal calculation on the spread sheet.
Same…I know generally what my RRSP is worth, house, etc. but I can’t be bothered in the accuracy of it all – hence my time is better served on other stuff!
Yes.
100% agree on accurate net worth calc (taxes and present market value) and on preferring to focus on cash flow (all sources).
Cannew uses an accounting software so I assume he is running family finance like running a business. I don’t know that much about accounting, but I assume with a business, you record gain/loss only when it’s realized? If so, you really only record one time with cost, and one time with realized gain/loss.
Oh, and happy Canada Day to all .
It is interesting to see how different folks calculate their financial picture differently. I have not considered the value of the houses in working out a financial net worth. I know they have value, but I consider our personal house as shelter not an investment. The house on the other farm property was intended to be a place for my sister to live. As such, I do not consider that in my financial net worth picture but the farm property does generate income. My daughter’s house is now mine and is rented out so it should be included (I do include the rental income in calculating income) but I just haven’t gotten around to adjusting the spreadsheet. I have never, nor would I, use a pension commuted value in my net worth. It can vary a lot based on interest rates. Having said that, I did consider vested income from our DB plans in calculations for retirement planning.
So when I get to my bottom line, I really only look at the net worth of invested funds and the income it currently generates (dividends, distributions and interest).
Oh, Canada…Happy 36th Birthday!
re: CPP/OAS
Reflect on the “problem” of how to squeeze the most “free” money out of a system. If this is you (and it’s all of us), then you are truly a 1%er and should be reviling in how easy your life is.
re: Eggen/net worth
Still baffles me as to why PF bloggers love to include their primary residence in their NW calcs, and oft at discounted valuation. There is zero logic behind this. Maybe it’s a Canadian thing.
As one commentator stated, “You wouldn’t use the purchase price of your ETF in the calculation of your net worth rather than the present day value, therefore, why treat your home value differently?”, which was answered with: “Our real estate market in Lethbridge is pretty soft and so I felt most comfortable keeping it pegged to purchase price. Keep in mind I boosted the value once we did our basement renovation and now I add 2% per year. It’s all a bit of a crapshoot anyway because it’s only worth what someone will pay in any given moment in time.” Huh?!
An asset is an asset. You can’t arbitrarily price one asset on how you feel and another asset on actual market valuation. It’s absurd. Not only that, but why boost that same asset by yet another arbitrary value (2% per year) based on perceived “value added”? On one hand he is not valuing his asset at market price yet he’s saying the market values a renovation at 2% per year…again, huh?!
As well, as the blogger states, “It’s all a bit of a crapshoot anyway because it’s only worth what someone will pay in any given moment in time.” The same can be applied to stocks and every other asset, so why not apply the same ruling to all his assets? Completely bizarre and, quite frankly, a worthless exercise utilized only to boost the ego, and I would guess, the readership.
Couple finds of interest:
We need to steer lower-income Canadians toward capital markets
https://www.theglobeandmail.com/business/commentary/article-we-need-to-steer-lower-income-canadians-toward-capital-markets/
— It’s a nice idea, with nothing but positive benefits, but realistically, the suggested “solutions” are quite hollow. How does a society engrain “strong financial discipline” in lower-income individuals when almost all participants in higher-income levels have weak financial discipline? How long will it take to develop an education system that will teach “without exception, students across Canada…financial literacy, saving and budgeting”? The authors have good intents but a strong disconnect on how lower-income (aka poor) individuals & families actually live.
Daddy bonus? UBC study finds dads make more than their childless peers
https://globalnews.ca/news/4278178/daddy-bonus/
The most telling find: Men of colour were left out because of an existing pay gap between them and white men. Not to mention those actually producing the child — the mother — are most on the receiving end of negative financial consequences. Once again, the surest path to wealth is to be a white male.
re: 77% of the world’s maple syrup is made in Quebec.
77% of the world’s maple syrup is now made with new American tariffs.
Guess another reason to buy local and invest foreign.
Oh, Canada!
Absolutely, an asset is an asset. All well…people will report how they want to report. I have full confidence though when it comes to Robb’s numbers, if he really, really wanted to, he could report on the taxation side of things as well – but doesn’t – to keep such updates easier for most readers to understand…
re: 77% of the world’s maple syrup is made in Quebec.
A great reason I need to invest more abroad with tariffs now into effect!
All the best this Canada Day!
Happy Canada Day out there to all MyOwnAdvisor readers!
Mark I just took some time to reread your previous thread links. Some thoughtful and interesting posts.
Heading out to enjoy the sun!
I will be out today….need to drink more water vs. beer for a change. Have a look at Ottawa weather today! Happy Canada Day back!
Mark & Wife: Enjoy Canada Day weekend!!
Same to you 🙂