Personal Finance Quotes

All of the banks have a brokerage arm-RBC Direct Investing, Scotia iTRADE, BMO InvestorLine and so on. There are a number of non-bank-owned firms with good offerings as well: Questrade, Qtrade and Virtual Brokers, to name a few. The Globe and Mail does a comprehensive review of all the major online brokerage every year, and this is worth searching for online. Most online brokerages waive administrative fees if your account balance (or the sum of all your accounts) is higher than a certain amount (e.g. $25,000). Commission-free trading is an excellent feature. Questrade has long offered free purchases of all ETFs, though you still pay their standard commission when you sell. Qtrade and Scotia iTRADE have a limited menu of ETFs that trade commission-free. National Bank Direct offers commission-free trades on ETFs as long as you purchase at least 100 shares at a time. [2021] - Dan Bortolotti

If you were in the same tax bracket for your whole life, the TFSA and RRSP would be essentially the same. Generally, use a TFSA if you're in a low tax bracket now but expect to earn more in the future. On the other hand, if you're a high-income earner, you'll get a significant benefit from the RRSP's tax deduction. Money withdrawn from TFSAs can be re-contributed the following calendar year with no penalty, whereas money withdrawn from an RRSP is not only taxable, the contribution room is lost forever. This means TFSAs are a great option if you're a young person saving for a medium-term goal, like a down payment on a home, while RRSPs should be earmarked for long-term retirement savings only. [2021] - Dan Bortolotti

There are three general strategies for rebalancing: 1) By the calendar - e.g. once a year; 2) By thresholds - rebalance only when an asset class is off by an absolute 5% or a relative 2.5% (for asset classes with smaller targets like 10% allocation to emerging markets); 3) With cash flow - whenever you add new money or make withdrawals. If you're in the drawdown stage and no longer adding money to the portfolio, you can also rebalance with cash outflows. For example, if you're taking income from a RRIF in retirement, you'll be required to make prescribed withdrawals from the account each year. You can use this opportunity to rebalance the portfolio at the same time. [2021] - Dan Bortolotti

Assets in a TFSA grow tax-free indefinitely, and no tax is payable when you eventually make withdrawals. It makes good sense to keep assets with the highest growth potential in a TFSA to take full advantage of this tax shelter: in other words, fill up your TFSA with stocks and keep low-growth assets, such as bonds and GICs, in other account types. [2021] - Dan Bortolotti

Studies comparing DCA (dollar-cost averaging) and lump-sum investing over various historical periods are quite consistent in their findings: investing all at once tends to come out ahead about two-thirds of the time, which makes sense when you consider DCA only delivers higher returns if stock prices trend downward over the period, and we know stocks go up more often than they fall. [2021] - Dan Bortolotti

If you're fortunate enough to have a seven-figure portfolio, there will be no shortage of salespeople ready to flatter you by offering access to exclusive opportunities available only to "accredited investors." These include hedge funds, private equity, peer-to-peer lending, real estate partnerships and on and on. It's possible that some of these opportunities will go on to deliver outsized returns without undue risk, but you'll likely have to accept high expense, illiquidity and a lack of transparency. You're not sacrificing anything by taking a pass and just sticking to index ETFs. And you're not missing out on anything except disappointment. [2021] - Dan Bortolotti

With unsecured LOCs, the maximum credit limit you can hope for is usually in the tens of thousands of dollars. With secured LOCs, credit limits can easily reach the hundreds of thousands of dollars, depending on the value of your collateral, because the lender can take possession of your collateral if you don’t pay back what you owe. Having collateral usually allows you to access higher credit limits, lower interest rates, and more flexible repayment terms. Secured LOCs also often allow you to make interest-only payments. A personal LOC is an example of an unsecured LOC. Home-equity lines of credit, or HELOCs, are the best-known type of secured LOC. [2021] - Erica Alini

LOCs usually come with variable interest rates that can go up or down with the general level of interest rates in the economy. The bank can increase your interest rate at its discretion, something that 85 percent of HELOC holders do not realize, according to a recent FCAC survey. Lenders can also lower your credit limit or ask that you repay your balance at any time, although they have to give you advance notice of any changes to your credit agreement. [2021] - Erica Alini

If a year’s worth of rent adds up to less than 5 percent of the market value of a similar home, renting is an attractive option. Vice versa, if rent works out to more than 5 percent, buying may make more sense financially. The 5 percent rule assumes you’re going to be a pretty aggressive investor — someone comfortable putting a good share of their savings into stocks — to keep up with the long-term wealth growth a homeowner might see. And if you have a generous pension plan at work where your employer matches your contributions, that’s a vote in favour of renting and being able to make bigger monthly deposits to that group retirement plan. [2021] - Erica Alini

Thanks to the tax treaty between Canada and the U.S., Uncle Sam will refrain from taxing U.S. dividend income received inside an RRSP (or RRIF, for that matter). But that doesn’t extend to TFSAs. You’ll be dinged with a 15 percent tax deducted at source for dividends paid on U.S. stocks held in a TFSA. You don’t have to worry about interest income or capital gains from U.S. stocks, though. The tax treaty guarantees those are only taxable in Canada, which means they’re tax-free in a TFSA. [2021] - Erica Alini

Making a mortgage payment is more or less the same as putting money into your RRSP. In both cases, you're building up the value of an asset and improving your financial security later in life. The combination of mortgage payments (or rent) and retirement savings plus extraordinary, short-term, necessary expenses (like daycare) should equal 30% of your gross pay until you get into your mid-50s. After that, you should be using something like PERC (perc.ecm.lifeworks.com) to provide ongoing guidance as to how much you should be saving. [2021] - Frederick Vettese

The average real return for US stocks over the two hundred year period ending in 2001 was 6.7% a year. For Canadian stocks, the average real return from 1924 to 2019 has been 6.6% (the lowest real return on Canadian stocks over any 30-year period since 1924 was 3.6% a year and that happened from 1965 to 1994). Stocks have done well pretty much everywhere, at least in developed countries (with the possible exception of Japan). From 1924 to 2019, the average compound return on bonds in real terms has been 3.1%. It's a near-certainty that bonds will not produce anywhere close to a 3% real return over the next 30 years. [2021] - Frederick Vettese

My recommendation is a little more heavily weighted toward equities than the average target date fund (TDF). It's based on the fact that interest rates are so low right now that the prospects of a decent return on bonds are very slim. If bond yields make a strong upward move in the coming years, then it should make sense to increase your weighting in bonds, but only after that upward move has happened. [2021] - Frederick Vettese

Many investment firms and insurance companies offer something known as target data funds, or TDFs for short. These funds start with a heavy weighting in equities and then slowly increase the weighting in bonds over a period of many years. For instance, a TDF based on retirement in 2055 might have an 85-15 asset mix today. As you get closer to 2055, that mix will slowly change to something like 50-50. The main disadvantage is that TDFs tend to be more expensive than if you try to manage the asset mix yourself using low-cost ETFs. The other disadvantage is that you might think the asset mix in a particular TDF is too conservative. [2021] - Frederick Vettese

If I was in a high-income bracket and had maxed out on my contributions to RRSPs and TFSAs, but I still wanted to invest more, real estate might be the way to do it. It's more tax-effective than some types of investment. Also, it would be a good way to take advantage of low interest rates. [2021] - Frederick Vettese

A reserve mortgage is a way to borrow against the equity in your home without having to pay it back, at least not in your lifetime. The institutional lender would give you a lump sum, or better still, a series of payments over a period like 10 or 15 years. The interest they charge for a reserve mortgage is a little higher than the interest you would normally pay on a first mortgage or a home equity loan. If you ever decide to move, you would have to repay the loan immediately. For that reason, you probably shouldn't think about getting a reveres mortgage until you're 75 or so. If you were 75 and needed income, a reverse mortgage is recommended. [2021] - Frederick Vettese

We're getting older as a population, which means fewer borrowers and more savers. That's why interest rates are so low and why they're going to stay low. On the other hand, whatever is causing the low interest rates may also cause company earnings to grow more slowly in the future. As a result, the dividends on those stocks might grow more slowly too. If so, stocks may be overvalued after all. I'm inclined to go with a real return on equities of 3.5-4% over the next 30 to 40 years. [2021] - Frederick Vettese

Ideally, your marginal tax rate at the time you contribute to an RRSP should be higher than it will be when you start drawing an income from those savings. To measure the impact with precision, you would need sophisticated tax-optimization software, the type that is being developed by a firm called mygoals. Tax efficiency is the main reason for splitting contributions between an RRSP and a TFSA. Another reason is that you never know when you may have to dig a little deeper for some emergency spending in retirement. If you withdraw a large lump sum from your RRSP, it could catapult you into a higher-income tax bracket. You can avoid that by withdrawing the necessary funds from a TFSA instead. [2021] - Frederick Vettese

You should contribute the maximum optional contributions (say 4% of pay) matched by the employer. By contributing the full 4% optional contribution, you are effectively getting a 4% raise. Better still, the company's 4% matching contribution isn't taxed in your hands. At least not until you retire and start drawing an income from your savings. Another way to look at it is that your 4% contribution earns an instant 100% return. [2021] - Frederick Vettese

How much to save for retirement? If I absolutely had to provide a one-size-fits-all flat percentage of pay, I would make it 12% with the caveat that you might have to change that percentage as you get closer to retirement. If I could express it differently, I would suggest saving 5% of pay in your 30s, 15% in your 40s and 25% in your 50s. This alternative represents a rough approximation of the Rule of 30. [2021] - Frederick Vettese