Have We Reached Peak Housing Demand? How To Manage Real Estate Risk

Have We Reached Peak Housing Demand? How To Manage Real Estate Risk

Demographic trends can be extremely interesting.  Demographic trends can influence a lot of things, they can impact voting and public policy, they can impact consumer trends, they can impact the consumption of goods and services.

The interesting thing about demographic trends is that they’re (somewhat) predictable. The way our population looks today will directly translate to how it looks in the future. Factors like immigration and advances in health care can change these trends slightly, but in general, the way people age is fairly predictable.

What is interesting about demographics is that as people age they do things differently, their behavior changes, their lifestyle changes, they consume different things.

Over the last 60+ years there have been two huge demographic waves, the first was the “baby boomers” and the second was their “echo”. These two groups are very noticeable when looking at population by age group. Demographic charts clearly show two huge population waves with troughs in-between.

Now, I’d like to preface this post with the fact that I hate predictions and forecasts. In my opinion, a good financial plan shouldn’t rely on predictions or forecasts to be successful. A good financial plan will prepare for various future events and still have a high chance of success. It’s important to anticipate possible risks and how they may impact a financial plan.

Typically, when we talk about risk we talk about investment risk and inflation rate risk. A good plan will still be successful even with changing investment returns and changing inflation rates. But what about real estate values? What about housing?

For two groups of people, the variability in real estate values should be a big concern when doing a financial plan. One group is real estate investors, people with rental properties that make up a large % of their assets. The second group is future downsizers, people who have made downsizing to a smaller home a key part of their future financial plan.

For these two groups of people it’s important to understand that real estate growth rates can vary and this creates risk. Simply assuming inflation, or inflation + xx%, is not a great strategy.

In this post we’ll look at how demographics may impact future housing demand and why a good financial plan should be prepared for different rates of real estate appreciation.

What Are OAS Clawbacks? How Can You Avoid Them?

What Are OAS Clawbacks? How Can You Avoid Them?

What are OAS clawbacks? How can you avoid them? How impactful are OAS clawbacks in retirement?

The typical retiree will receive an OAS benefit of $7,362 per year (in 2020) and over the course of a 30-year retirement would receive payments of $220,860 (in today’s dollars). That is a significant amount of retirement income!

OAS clawbacks can reduce this income all the way to zero. OAS clawbacks are 15% of net income, so they can have a big influence on a retirement plan. Experiencing full OAS clawbacks would mean that a retiree needs to make up this income on their own through extra investment assets. This may require hundreds of thousands in extra investment assets.

Avoiding OAS clawbacks is an important part of retirement planning. We’d like to avoid these clawbacks if possible. Through various strategies we can reduce or eliminate these clawbacks in retirement. This can be very beneficial to a retiree.

There are a few strategies that can help retirees avoid OAS clawbacks. Which strategy makes sense will depend on the retirees sources of income and their financial assets. In this post we’ve got 7 strategies to consider if you want to avoid OAS clawbacks in retirement.

But first, what is an OAS clawback?

Why The All-In-One ETF Might Be The Best Way To Grow Your Money

Why The All-In-One ETF Might Be The Best Way To Grow Your Money

The average investment portfolio in Canada consists of high-fee mutual funds but over the last few years we’ve seen the introduction of multiple new ways to invest. These new ways to invest are typically low-cost, highly diversified, and easy to manage. They’re a welcome change to the typical high-fee mutual fund portfolio that many Canadians use to invest.

The average mutual fund portfolio in Canada has investment fees of around 2.5% per year. On a $100,000 portfolio that’s $2,500 per year in fees. On a $500,000 portfolio that’s $12,500 per year in fees. And on a $1,000,000 portfolio that’s $25,000 per year in fees! That’s quite the drag on investment returns.

These are astronomical figures, especially when investors aren’t receiving the level of planning and advice that should be expected with these types of fees.

These fees are also not very easy to find, they’re typically hidden on the statement, or they’re split between advisor fees and investment management fees, so it’s very difficult to see how much you’re actually being charged. When looking at the typical investment statement it’s very hard for the average mutual fund investor to see that they’re paying such high fees each year.

One of the reasons these high-fee portfolios are so prevalent is because until recently, the main alternative to a high cost mutual fund portfolio was to do it yourself (DIY). This required setting up a self-directed brokerage account and it also meant buying and selling individual securities or perhaps ETFs. This can be very daunting for a long-time mutual fund investor.

But recently things have started to change. In the last 3-5 years we’ve seen multiple new ways to invest. These new ways to invest are easy, convenient, highly diversified, and low-cost. They’re typically built on an “index investing” philosophy. They’re not trying to “beat the market” but instead match the market return and dramatically lower fees. These new ways to invest include robo-advisors and the new “all-in-one” ETF.

Investing of course isn’t all about fees. There are many things to consider when creating an investment portfolio. But in my opinion the “all-in-one” ETF provides an amazing balance of all these factors and they may be the best way to grow your money.

Let’s take a look at some of the factors you should consider when creating an investment portfolio and, in my opinion, why the “all-in-one” ETF provides the best overall balance for the typical investor.

When To Have Multiple Beneficiaries On A TFSA

When To Have Multiple Beneficiaries On A TFSA

A TFSA is often the last account that we want to draw on in retirement. There are some great tax advantages to the TFSA because it allows contributions to keep growing tax free even in late retirement. New contribution room is accumulated each year and the account also regains the contribution room the following year after withdrawals have been made.

Because the TFSA is often the last to get drawn down in retirement this means that the TFSA will most likely make up a large portion of any future estate.

How large can a TFSA get? It’s reasonable to expect that with new contributions and investment growth we’ll see many TFSAs in the $1M to $2M range in the future!

The potential size of TFSAs in the future makes it important to understand how TFSAs can be passed on after death. There are a few options to consider and one option is to have multiple beneficiaries on a TFSA.

But is having multiple beneficiaries on a TFSA the right option for your estate plan? In this post we’ll look at why you may want to name multiple beneficiaries on your TFSA and some of the other options you may want to consider.

How Are Dividends Taxed? How Can They Lower Taxes In Retirement?

How Are Dividends Taxed? How Can They Lower Taxes In Retirement?

Dividends from Canadian corporations receive some special tax treatment that can make them an attractive investment in non-registered accounts. This special treatment means that they can help lower your average tax rate, especially in retirement.

But this special tax treatment makes it a bit confusing to understand how dividends are taxed. To calculate tax on Canadian dividends there are things like “gross ups” and dividend tax credits to consider.

Despite the extra confusion caused by this special tax treatment it can be very attractive to invest in Canadian companies. For most people there is a significant tax advantage when receiving Canadian dividends. For example, in Ontario, a retiree in the lowest tax bracket will experience a negative tax rate on eligible dividends!

The way these eligible dividends are taxed can help offset other income from CPP, OAS, pensions and RRSP withdrawals. With a bit of tax planning this advantage could add thousands in after-tax income for a retiree.

In this post we’ll look at how dividends are taxed, the difference between eligible and non-eligible dividends, and we’ll look at an example of how eligible dividends can help lower taxes in retirement (all the way to zero!).

Lastly, we’ll also look at how the dividend gross up can also trigger OAS clawbacks for high income retirees. A surprising negative of the way dividends are taxed (although it’s still an attractive form of income).

A Fool Proof Way To Manage Investment Volatility

A Fool Proof Way To Manage Investment Volatility

With investments values moving up and down 5% to 10% per day this investment volatility can feel like a roller coaster both financially and emotionally. If you’ve been watching your investment portfolio day-to-day you may be feeling a bit nauseated by now.

Thankfully there is a fool proof way to manage this investment volatility, just don’t look.

Not looking at your investment portfolio is simpler said then done of course, but it’s the best way to manage investment volatility.

It’s been proven that we put more weight on negative experiences than positive experiences. We feel the impact of negatives more than we feel positives.

Even when they’re the same size, a loss feels worse than a gain. Losing $50 feels worse than gaining $50.

So with markets jumping up and down 5-10% per day this can lead to some VERY negative emotions. The positives just don’t out weight the negatives and we end up feeling worse and worse with each rise and fall.

But not looking at your investment portfolio can be surprisingly hard to do. So what can the average investor do to help themselves feel better during a market correction? What strategies can they use to avoid looking at their investment portfolio? What routines can they implement?

This post looks at a few different ways to help you manage the emotional impact of investment volatility.

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