Personal Finance Quotes

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

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

According to the Spectrum Group, only 10% of households in the United States or Canada with wealth of at least $1 million allow advisors to call the shots and make the move whereas 30% don't use any advisors at all. The remaining 60% may or may not consult an advisor on an as-needed basis and then make their own moves. Recent wealth surveys show that affluent investors achieved and built on their wealth with ownership investments, such as their own small businesses, real estate, and stocks. [2018] - Tony Martin

For people to be considered wealthy, they should meet the following two criteria: 1. They should have enough money to never have to work again, if that's their choice. 2. They should have investments, a pension, or a trust fund that can provide them with twice the level of their country's median household income over a lifetime. [2017] - Andrew Hallam

The 4 Percent Rule: If John builds an investment portfolio of $2.5 million, then he could feasibly sell 4 percent of that portfolio each year, equating to roughly $100,000 annually, and never run out of money. If his investments are able to continue growing by 6 to 7 percent a year, he could likely afford, over time, to sell slightly more of his investment portfolio each year to cover the rising costs of living. [2017] - Andrew Hallam

To ensure the best chances of success, owning an interest in all of the world's stock markets is a good idea. [2017] - Andrew Hallam

Over an investment lifetime, it's a virtual certainty that a portfolio of index funds will beat a portfolio of actively managed mutual funds, after all expenses. But over a one-, three-, or even a five-year period, there's always a chance that a person's actively managed funds will outperform the indexes. [2017] - Andrew Hallam

Investing a lump sum, as soon as you have it, usually beats dollar-cost averaging. In other words it's usually best to invest as soon as you have the money. [2017] - Andrew Hallam

The average investor ends up with a comparatively puny portfolio compared with the disciplined investor who puts in the same amount of money every month into index funds. By adding equal dollar sums to their index each month, the investors would have bought a great number of units when the markets were low and fewer units when the market rose. This allowed them to pay a below-average price over time [2017] - Andrew Hallam

During the 20-year period between 1994 and 2013 (5,037 trading days), US stocks averaged a compound annual return of 9.22 percent. But investors who missed the best five trading days would have averaged just 7 percent per year. If they missed the best 20 days, their average return would have been just 3.02 percent per year. If they missed the best 40 trading days, the investor would have lost money. [2017] - Andrew Hallam

If your account has a bond index, a domestic stock index, and an international stock index, you'll have a good chance of success. A rule of thumb is that you should have a bond allocation that's roughly equivalent to your age. Some experts suggest that it should be your age minus 10, or if you want a riskier portfolio, your age minus 20. Common sense should be used here. A 50-year old government employee expecting a guaranteed pension when he retires can afford to invest less than 50 percent of his portfolio in bonds. [2017] - Andrew Hallam

In any given year, the stock market can go crazy, rising or dropping by 30 percent or more. Dispassionate, intelligent investors can rebalance their portfolios if they're too far from the stock/bond allocation they set for themselves. If the stock market falls heavily in a given month, the investor will find that his portfolio now has a lower percentage in stocks. He should add to his stock indexes. If the stock market rose considerably during another month, he should add to his bond index. [2017] - Andrew Hallam

Usually investors don't need to address their stock/bond allocation more than once a year. But when the stock markets go completely nuts--dropping by 20 percent or more--it's a good idea to take advantage of it if you can. [2017] - Andrew Hallam