Quotations by Larry Bates

The Wealth Formula: Your Future Wealth = (Amount + Time + Rate) - (Fees + Tax + Inflation) [2018] - Larry Bates

TFSAs will generally produce a better ultimate result versus an RRSP if your marginal tax rate at withdrawal is higher than your marginal tax rate when you contribute. TFSAs are almost always a better choice for lower-income investors (below $40,000 in annual income). RRSPs can produce better results for higher-income earners who expect their marginal tax rate at the time of withdrawal to be lower than at the time of contribution. Remember, a dollar in your RRSP is worth less than a dollar in your TFSA. To help 'equalize' the real after-tax value of an RRSP contribution with the value of a TFSA contribution, contribute your tax refund to your RRSP as well. Alternatively, put your tax refund toward your TFSA. [2018] - Larry Bates

Interest earned on bank deposits, GICs, bonds, and other 'fixed income' investments is taxable when earned, at your full marginal tax rate. The same goes for dividends received from non-Canadian stocks. Generally speaking, Canadian stock dividends are taxed less severely than interest income. Dividends are taxed when earned, even if you reinvest those dividends. Capital gains are generally taxable at just half your normal rate. Any capital gains tax is payable only when the investment is actually sold. An investment can increase in market value at a compound rate over time, increasing your wealth along the way, but you trigger no tax until you actually sell. [2018] - Larry Bates

Most online discount brokers don't charge ongoing fees for investment accounts with balances above a given level-usually somewhere between $10,000 and $25,000. Accounts below this level may be hit with an 'administration' fee of $100 annually. Fortunately, there are a number of significant exceptions to this general rule that can allow small investors to avoid these fees. Some major online discount brokers don't charge ongoing administration fees for TFSA accounts of any size, while others will waive fees if you make monthly or quarterly deposits. [2018] - Larry Bates

Investing in a longer-term bond or GIC may produce a better ultimate result if interest rates remain at current low levels; whereas, if rates rise, a series of shorter-term bonds or GICs may ultimately prove more rewarding. GICs are typically issued with maturities of one to five years while bonds usually come with original terms of three to thirty years. [2018] - Larry Bates

For a given shift in interest rates or financial strength, changes in the market value of long-term bonds will be much greater than price changes of short-term bonds. For example, a 1% increase in interest rates would cause the market price of a 3-year $10,000 bond to decline by around 3% or $300; whereas a $10,000 30-year bond would likely drop in price by around 20% or $2,000. (Note that bond market price changes don't much matter if you hold a bond to maturity.) [2018] - Larry Bates

High-quality government bonds issued by the federal government and the provinces are an option if you have at least $25,000 or so to invest. (Note that bonds issued by Canadian provinces offer yields higher than federal government bonds.) If you choose to buy individual bonds directly, I recommend sticking with less volatile, shorter maturity bonds (5 years and under) so you get the opportunity to acquire new, higher coupon bonds sooner if interest rates move up. [2018] - Larry Bates

What if, as a result of coming into a chunk of cash from an inheritance, home downsizing, sale of a business, a retirement package, or some other windfall, you have a large amount to invest in stocks? You may risk buying high at the top of the market. As an alternative to making single, large stock market actions, consider immediately investing only a portion of the amount you have earmarked for stocks, say one-quarter or one-third of the total, and commit to a short-term Clockwork Investing program for the balance, placing equal portions in the stock market at pre-determined dates over the next several months or couple of years. This technique, known as 'dollar cost averaging,' makes for a smoother ride when placing large amounts in the stock market. [2018] - Larry Bates

The 'Rule of 20' (developed by the Canadian office of Russell Investments) is a simplified method that gives you a very rough and rather conservative estimate of the size of nest egg you might require. First, estimate the amount by which your annual retirement costs will exceed your assured source of income like CPP, OAS, employer pensions, annuities, any significant sources of cash such as an inheritance or home downsizing, etc. (your 'Retirement Gap'). Multiplying your Retirement Gap by 20 gives you rough approximation of your required nest egg. [2018] - Larry Bates

Investing 100% of your savings in paying down a mortgage can be a winning strategy, especially for those who do not want any stock market risk. Applying all long-term savings to mortgage paydown means giving up the potential that stock market returns will exceed your mortgage 'investment' returns (your mortgage rate) over time. Given that mortgage rates are so low, it won't take much for the stock market to outperform. So, some combination of mortgage repayment and tax-sheltered stock investments (in TFSA and/or RRSP) probably makes sense for most Canadians. [2018] - Larry Bates

As long as you switch from one tax-sheltered account of the same type (as in RRSP to RRSP, and TFSA to TFSA) there will be no tax consequences. You just carry on. If you switch out of a regular, non-sheltered account and sell assets (like mutual funds) to reinvest in new assets (like index ETFs) there may be tax consequences. [2018] - Larry Bates

Place your orders to buy or sell stocks and ETFs during regular open hours of the exchange on which they trade. Both Toronto Stock Exchange and major US exchanges (such as New York Stock Exchange) are typically open from 9:30am to 4:30pm Eastern Time. [2018] - Larry Bates

Steer clear of preferred shares and mortgage investments. [2018] - Larry Bates