Key Points From This Episode: 03:40 - An explanation of the Smith Maneuver and its usefulness to Canadians. 07:15 - A step by step walk-through of the implementation of the Smith Maneuver. 10:18 - The possibility of refinancing a credit line for lower mortgage rates. 13:04 - How to think about maintaining more leverage with mortgage payments. 16:48 - The risks of debt, minimizing withdrawal amounts and reversing the maneuver. 18:35 - Robinson and his father's investor experiences around the 2008 market crash. 20:24 - Why leveraging smart debt is so much better than gambling on a startup! 22:04 - The regulatory risk that is present when performing a Smith Maneuver. 24:47 - Risks that accompany not applying these strategies that Robinson is espousing. 27:23 - The influence of your tax rate on the efficacy of the Smith Maneuver. 29:15 - The diligence that is needed in the implementation of the Smith Maneuver. 33:39 - How the Smith Maneuver can address poverty issues that plague Canada. 34:51 - Running through the input process and rewards on the Smithman Calculator! 38:41 - Net-worth improvements and cash-flow dams from re-borrowing. 41:26 - How Robinson defines success in his mission to help Canadians.
Great interview! I've been holding off implementing this but having recently read the book and mocked up many scenarios on the calculator I am now in the process of setting up my SM checking account. I feel a great entry point is now and am going to pull the trigger. Here's to the future!
Instead of putting your readvanceable funds in the HELOC into dividend stocks (or real estate), could a person put those funds directly into a Whole Life (participating divedend paying) policy to pay the premium and build cash value? Does CRA regard dividend Paying Whole Life differently then typical income earning investments (stocks, real estate, business)? Thanks
Great interview! What happens to your credit score if the line of credit is used at maximum - your credit score will dip? I still don't understand how you can use the regular mortgage payments to service the line of credit. Also, can it be use in a situation where HELOC is on a rental property instead of your residence?
Ben not sure if you can answer this or maybe point me to a source but I have a question that I want to clarify about the tax deductible portion. After withdrawing the equity from the LOC and transferring the funds to a Non-Registered investment account, I understand if investing into index funds there will be some Return of Capital (ROC). How I understand it, this ROC is not accounted for in the ACB sent out on the T3. So every year you must look up the funds distributions for the tax year, multiply the ROC amount by the volume of funds held and subtract this amount from the issued ACB. You then divide the new ACB by the issued ACB and multiply it by the interest charged from the LOC and that's the amount you can deduct? I'm sorry if this is an incredibly confusing question, but this is the only hang-up I have for the SM as I want to invest in mostly low cost index funds and would rather have a plan come 2020 tax time instead of scrambling for an answer that I may or may not find.
World it makes sense to put the rental income ( in my case basement rental) into the RRSP instead of prepaying the mortgage principal. Then at tax refund time, prepay and borrow the money for investment?
It seems to be a tax efficient maneuver that could be incorporated into the lifecycle Investing stretegy, proposed by Ian Ayres and Barry Nalebuff. However, it would not have worked for an investor in late 1989 with real estate in Japan and stock investments in Nikkei. Also, from what I've seen in the past 30 days, most people would have difficulty with the volatility of a leveraged portfolio.
The behavior is the biggest hesitation that I have with this. I don't really buy the Japan example. The Japanese stock market returned 1.75% (in CAD terms) per year on average from December 1989 through December 2019 (ouch) while Canadian inflation was 1.96% per year on average over the same time period. That seems pretty awful, but Japanese value stocks returned 7.58% per year on average and Japanese small cap value stocks returned 5.70% per year on average over the same time period. The Japan story is an argument for diversification - diversification within countries (market, value, small value) and across countries.
If you can sleep at night for a decade like this one where SCV trailed the market then ya this is great. Not to mention the 60% unlevered drawdown in 2008/2009.
Key Points From This Episode:
03:40 - An explanation of the Smith Maneuver and its usefulness to Canadians.
07:15 - A step by step walk-through of the implementation of the Smith Maneuver.
10:18 - The possibility of refinancing a credit line for lower mortgage rates.
13:04 - How to think about maintaining more leverage with mortgage payments.
16:48 - The risks of debt, minimizing withdrawal amounts and reversing the maneuver.
18:35 - Robinson and his father's investor experiences around the 2008 market crash.
20:24 - Why leveraging smart debt is so much better than gambling on a startup!
22:04 - The regulatory risk that is present when performing a Smith Maneuver.
24:47 - Risks that accompany not applying these strategies that Robinson is espousing.
27:23 - The influence of your tax rate on the efficacy of the Smith Maneuver.
29:15 - The diligence that is needed in the implementation of the Smith Maneuver.
33:39 - How the Smith Maneuver can address poverty issues that plague Canada.
34:51 - Running through the input process and rewards on the Smithman Calculator!
38:41 - Net-worth improvements and cash-flow dams from re-borrowing.
41:26 - How Robinson defines success in his mission to help Canadians.
Great interview! I've been holding off implementing this but having recently read the book and mocked up many scenarios on the calculator I am now in the process of setting up my SM checking account. I feel a great entry point is now and am going to pull the trigger. Here's to the future!
How'd it fair for you?
Instead of putting your readvanceable funds in the HELOC into dividend stocks (or real estate), could a person put those funds directly into a Whole Life (participating divedend paying) policy to pay the premium and build cash value? Does CRA regard dividend Paying Whole Life differently then typical income earning investments (stocks, real estate, business)? Thanks
Great interview! What happens to your credit score if the line of credit is used at maximum - your credit score will dip? I still don't understand how you can use the regular mortgage payments to service the line of credit. Also, can it be use in a situation where HELOC is on a rental property instead of your residence?
This is a tip on another level, even for you Ben. Please keep creating content. You are doing wonderful things for Canada's finances
If your debt level stays the same over many years, then an equity investor actually benefits from inflation - in this case.
Ben not sure if you can answer this or maybe point me to a source but I have a question that I want to clarify about the tax deductible portion.
After withdrawing the equity from the LOC and transferring the funds to a Non-Registered investment account, I understand if investing into index funds there will be some Return of Capital (ROC). How I understand it, this ROC is not accounted for in the ACB sent out on the T3. So every year you must look up the funds distributions for the tax year, multiply the ROC amount by the volume of funds held and subtract this amount from the issued ACB. You then divide the new ACB by the issued ACB and multiply it by the interest charged from the LOC and that's the amount you can deduct?
I'm sorry if this is an incredibly confusing question, but this is the only hang-up I have for the SM as I want to invest in mostly low cost index funds and would rather have a plan come 2020 tax time instead of scrambling for an answer that I may or may not find.
World it makes sense to put the rental income ( in my case basement rental) into the RRSP instead of prepaying the mortgage principal. Then at tax refund time, prepay and borrow the money for investment?
Hi, using this strategy, would it be more wise to invest in dividend stocks or ETF's for capital gains? (Given a 40% tax bracket)
I was all excited about a new video today. But just remembered it's only Wednesday
It seems to be a tax efficient maneuver that could be incorporated into the lifecycle Investing stretegy, proposed by Ian Ayres and Barry Nalebuff.
However, it would not have worked for an investor in late 1989 with real estate in Japan and stock investments in Nikkei.
Also, from what I've seen in the past 30 days, most people would have difficulty with the volatility of a leveraged portfolio.
The behavior is the biggest hesitation that I have with this.
I don't really buy the Japan example. The Japanese stock market returned 1.75% (in CAD terms) per year on average from December 1989 through December 2019 (ouch) while Canadian inflation was 1.96% per year on average over the same time period. That seems pretty awful, but Japanese value stocks returned 7.58% per year on average and Japanese small cap value stocks returned 5.70% per year on average over the same time period. The Japan story is an argument for diversification - diversification within countries (market, value, small value) and across countries.
Is the interest deductible even if the money borrowed is invested in a TFSA?
no must be in a non reg
How about this portfolio?
2x leveraged with 50% US SCV, 25% Intl SCV, 25% EM SCV with some money put aside to cover the interest during bear markets
If you can sleep at night for a decade like this one where SCV trailed the market then ya this is great. Not to mention the 60% unlevered drawdown in 2008/2009.