This is a guest post by Dave, who is also looking to retire no later than 45, but unlike Tim has no kids and doesn’t want any. Dave is from Ontario and is working towards his CGA certification.
…Or any kind of investing that would require me to take on debt. I have read many articles and books on real estate investing and utilizing the Smith Maneuver to increase investing potential. Personally, I just don’t find it very appealing. I have no interest in taking on debt as part of an investment, no matter what the possible upside of the investment may entail.
I have spent most of my adult life paying off or keeping myself from getting into debt. I am currently using almost 75% of each of my paycheques in an attempt to rid of my mortgage as quickly as possible. Perhaps my mind is too closed off in taking on “good” debt in order to profit, but the idea of taking on substantial personal debt in an attempt to increase wealth just goes against everything I have spent the last decade or so doing.
One factor that may impact my perception is my investing window – my mortgage (if my current cash-flow remains unchanged) will be paid off in a period of five and half years (I currently have three and a half left). I am hoping to retire at age 45, which will mean I will have ten years to save and invest:
- At retirement, if I invested in real estate, I would still have an enormous mortgage on my personal balance sheet. Also, much of my retirement savings would be locked up on one asset, which to me is not really ideal.
- In the same manner, if I chose the Smith Maneuver (at current dividend yields) I can’t see being all that much further ahead than my current plan of paying off my mortgage in as short of period as possible and then investing afterward.
In the end though, it comes down to my comfort level – I would much rather make what could be a risky stock investment with my own money, knowing that I could lose 100% than be on the hook with a bank’s money. I am not comfortable with debt and probably never will be, the upside potential of leveraging investments just doesn’t seem to balance with the downside. At some point I will invest in a REIT to get exposure to real estate, I just can’t see myself being a landlord.
I’m wondering if anyone out there is doing the Smith Maneuver? Am I looking at this the wrong way – is this a goldmine that I’m missing out on due to my aversion to debt? What about real estate – are you making money renting a house (or something bigger) for cashflow?