Posted by Tim Stobbs on May 29, 2013
As I mentioned before my wife and I were planning on selling off and closing our investment accounts to move that cash over to a TFSA. As part of that we started looking at our stock holdings and were trying to determine when should we do this. As some of our positions may result in loses if we sold. A prime example of this was Manitoba Telecom (MBT).
The company had been picked out by my wife a while back since at the time it had a high yield and not too bad of a balance sheet. Yet we also discussed the idea that it was perhaps too small of a regional player and perhaps we should move into a more national one (Rogers or Bell for example). Yet when we started this talk we would have lost a bit of my wife’s initial investment, not huge perhaps a few hundred dollars.
Then MBT announced they sold their Allstream division, which while this was good and boosted the share price (from about $32 a share to $34 a share), the stock really went up after this article was published over at the Financial Post: Who is the Most logical buyer for MBT? That sent the share price up another $2 share to around $36. So my wife’s position when from a lose to a little profit in a week…partly due to just rumour. Ah, I love the irrationality of the stock market at times.
So thank you rumour mill…while yes we could potential do better on a buy out (if that occurs), the reality is it is never a good idea to get too greedy. We got my wife’s investment back out which was the main objective (plus of course that nice stream of dividends over the last few years).
Have you ever had some dumb luck on the irrational nature of the stock market? What’s your best gain?
Posted by Dave on May 28, 2013
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.
I really don’t like debt. If all goes well, my wife and I should have our mortgage paid off next year. While I understand the merits of leverage and can see how home equity loans would boost savings and increase cash flow every month, it’s really just not for me. I can also see investing in higher-returning stocks instead of paying off a mortgage which is costing a much lower interest rate.
My wife and I are attacking our mortgage debt in order to reduce the amount of money we need monthly to live off of. The mortgage is, by far, our largest monthly expense. Once we are rid of that debt, our monthly fixed expenses will drop to around half of what they are now. To us, the increased cash coming in per month will allow us to build our investments over the next 10 years or so to the point that the cash-flow from the investments will replace our required income.
Next year, I will be 34 and my wife will be 31. Given the amount of time we have available to invest before our goal of being financially independent by the time we’re 45, there is more than an outside chance that we won’t have enough money saved to retire. I would prefer to be working towards one financial goal and building towards it.
We are planning to use some of the equity in our home to invest in retirement, just much later in the game. We aren’t really anchored to the city we live in at all, and are hoping to move somewhere much cheaper and take the equity and gains to top up our retirement fund. If we’re able to move somewhere that costs 50% less, the leftover cash from our house could make up around 20% of our retirement fund.
The way my wife and I look at our finances is that we would rather be closer to financial freedom and have less debt hanging over us, even if it’s “covered” by investment returns. For the amount of time it will have taken us to pay off our house, the opportunity cost from not investing isn’t really a big deal (the interest rate spread between the interest rate we’re paying on our mortgage and what we could have earned over the 5-year period) – especially when you look at the risk-adjusted rate.
For our peace of mind, and our method of achieving financial independence being debt free is very important. What are your thoughts on debt? Are you comfortable buying stocks on credit? Do you wish you could get more cheap credit to buy stocks?
Posted by Tim Stobbs on May 9, 2013
Dear Minister of Finance,
While I deeply appreciate you bringing innovation to the entirely boring landscape of Canadian investing with the introduction of the Tax Free Savings Accounts (TFSA), I have to say you screwed up with the name.
By using the word ‘savings’ in the title of these accounts you have firmly linked them forever to basic savings accounts. This has resulted with the majority of Canadian’s only investing in a high interest savings accounts which save them almost no tax. For example, $5000 at 1.5% interest only produces $75 a year in interest. At a 40% marginal tax rate, that person has only saved $30 in tax over the ENTIRE year or $2.5o/month. It’s so tragic of a waste of a tax shelter it makes me almost weep.
While most people would assume this would be a sorry accident I have to almost wonder if the name was intentional in order to ‘save’ the reduction in tax revenue to the government of Canada. While this is a cynical thought, I admit, I have to believe instead that you were trying to do the right thing and this is but a tragic mistake. So before it is too late, might I request you rename the accounts: Tax Free Investing Accounts(TFIA). Save the people for their own simple conclusions and make this innovation of yours truly great.
After all, won’t it be wonderful to educate the public simply with an example that if you own a dividend paying stock in their TFIA they can have stream of tax free cash for as long as they own it. Then even when they sell they would then pay no capital gains tax. So that others may have the joy of knowing they have saved nearly $1500 in tax on a $7500 investment like me.
Thank you for your time and consideration to this modest proposal.