Personal Finance Quotes

The answer to the question of whether to contribute to our RRSP or pay down a mortgage does not have to be either/or. While the math shows a considerable interest savings by applying money to your mortgage principal, the growth of an RRSP contribution is also impressive. So here's a sensible compromise. Make the maximum RRSP contribution you can afford from your cash flow and then use the proceeds from your tax refund or the savings in taxes you achieved by filling a Form T1213 to pay down your mortgage. [2013] - Gail Vaz-Oxlade

According to the 4% Rule, if you have a $200,000 portfolio and were retiring today, you could safely withdraw (200,000 x 4% = ) $8,000 in year one. You could then increase that amount every year with inflation and there's a 90% probability that you won't outlive your money over a 25-year retirement. [2013] - Gail Vaz-Oxlade

The only savings vehicle that has absolutely no tax liability is a TFSA. Your government pension--OAS or CPP--will be taxed. So, too, will your company pension plan. When you take money out of your RRSP or your RRIF, you will have to pay tax on that money. And even your unregistered assets will incur a tax liability on the return they earn or on their sale if you make a profit. [2013] - Gail Vaz-Oxlade

In Canada, the first $2,000 of eligible pension income comes into your hands tax-free, which can save you anywhere from about $400 to about $700 depending on where you live. Qualifying pension income does NOT include CPP, OAS, or GIS payments. Make sure you take advantage of the pension income tax credit to get that $2,000 in tax-free income once you're 65 by creating pension income. Buy an annuity that gives you $2,000 of interest income annually or use funds in your RRSP to buy an RRIF and make sure you pull at least $2,000 of annual pension income. When you buy a GIC (technically a GIO) through a life insurance company, the interest earned is considered eligible pension income. [2013] - Gail Vaz-Oxlade

If you convert to a RRIF, you have to manage your own portfolio of investments. If you're sick and tired of thinking about money and all you want is a regular stream of income you don't have to worry about, then you may want to buy an annuity. The really big thing to know about an annuity is that the payout is based on where interest rates are where you purchase the annuity. During periods of high interest rates an annuity can really make your hard-earned money sing since you're locking in that high rate for the life of the plan. When rates are low, not so much. [2013] - Gail Vaz-Oxlade

Because I am not a fan of reverse mortgages, I'm going to suggest you investigate other options before you take this step. If you think you need to use the equity in your home to provide an income, do the math on selling your home and either downsizing or renting so that you free up some of your capital. If you are determined to use a reverse mortgage, make sure you understand the covenants, or legal promises, you are making. Are you promising to keep the property in good repair? What'll happen if you don't? And how will the lender monitor the condition of your property? [2013] - Gail Vaz-Oxlade

Having so many credit cards can be very damaging to your credit and you should keep it to five, max. Keep you credit card limit high but always keep the amount you owe low because your credit will be negatively impacted with balances that are close to your limit. [2013] - Julie Broad

Most variable annuities are way overpriced, carry nasty penalties for early withdrawal, and prove to be lousy investments. The same is true for many life insurance products other than simple term life. As a rule, it's best to keep your investment products apart from your insurance products. And never buy an annuity unless you are absolutely sure you know what you are buying. [2013] - Russell Wild

Modern Portfolio Theory says that the volatility/risk of a portfolio may differ dramatically from the volatility/risk of the portfolio's components. In other words, you can have two assets with both high standard deviations and high potential returns, but when combined they give you a portfolio with modest standard deviation but the same high potential return. The key to whipping up such pleasant combinations is to find two or more holdings that do not move in synch: One tends to go up while the other goes down (although both holding, in the long run, will see an upward trajectory). The lower the correlation, the better. [2013] - Russell Wild

For older people especially, and almost definitely for those with no heirs, an annuity - either fixed or variable - can make enormous sense. With an annuity, you give up your principal, and in return you enjoy a yield typically far greater than you would likely get with any other fixed-income option. Many horrible annuities are out there. Most of the really bad ones are variable annuities. If you are interested in an annuity, contact the different insurance companies. It's a good idea to compare rates of return and product offerings. For more information on annuities, visit the Canadian Life and Health Insurance Association website at www.clhia.ca. [2013] - Russell Wild

The 20x Rule: You need at least 20 times (or better yet, 25 times) whatever amount you expect to withdraw each year from your portfolio, assuming you want that portfolio to have a good chance of surviving at least 20-25 years. That is, if you need $30,000 a year - in addition to Canada Pension Plan and Old Age Security payments and any other income - to live on, you should ideally have $600,000 in your portfolio when you retire, assuming you retire in your mid-60s. The rationale behind the 20x Rule is this: It allows you to withdraw 5% from your portfolio the first year, and then adjust that amount upward each year to keep up with inflation. [2013] - Russell Wild

Never pay more than one-half of 1% to make a trade for rebalancing purposes. If a trade of $8,000 will cost you $10, you are forking out only 0.125% to make the trade... so, by all means, make the trade. If, however, to get your portfolio in perfect balance, you were faced with making a $1,000 trade that would cost you $10 (1% of the amount you're trading), we don't think we'd opt to spend the $10. Another way to approach rebalancing is to seek to address any allocations that are off by more than 5 or 10%, and don't sweat anything that's off by less. If you are living off your savings, you may wan to rebalance every 6 months instead of 12. [2013] - Russell Wild

Tactical Asset Allocation: If, all things being equal, you determine that you should have a portfolio of 60% stocks, and if the adjusted P/E falls to the low teens, consider adding 2-3% points to your stock allocation, and that's all. If the market P/E falls to 10, then maybe, provided you can stomach the volatility, consider adding yet another percentage point or two, or even three, to your "neutral" allocation. If the adjusted P/E rises to 30 or so, you may want to lighten up on stocks by a few points. Please, keep to these parameters. Tilting more than a few percentage points - particularly on the up side (more stocks than before) - increases your risks beyond the value of any potential gain. [2013] - Russell Wild

For a retired or soon-to-be-retired client, we might suggest a 60/40 (stocks/bonds) portfolio only if that portfolio is very, very well-diversified with different kinds of stocks and bonds, and the client has at least two years of living expenses in cash and near-cash (short-term GICs, high-quality and very short-term bonds). But in most cases, we'd prefer to see a 50/50 portfolio. [2013] - Russell Wild

Save 10 to 15 percent of your pre-tax income. [2011] - David Chilton

If you need life insurance, your best move is to buy a term policy until you've taken full advantage of TFSAs and RRSPs and until you've paid off your consumer debts and mortgage. If you find yourself in the enviable position of having accomplished all of that, some cash-value policies may be worth exploring. Even then, though, make sure you watch your costs--they can turn a theoretically good idea into a bad one in practice. [2011] - David Chilton

Many retirees don't have work-related pensions and it makes sense that they should "pensionize" some of their savings by creating a guaranteed monthly income, i.e. annuities. Deal only with the top-rated companies--annuities are no good if the insurance company dies before you do! Also, even though I think annuities are underutilized, don't go overboard here. Annuities are appropriate for a percentage, not all, of retirement portfolios. [2011] - David Chilton

Preventing catastrophic, that is, irrecoverable losses is the only reason to carry insurance. Effectively, this means carrying as high a deductible as possible while at the same time having enough funds, which you can invest, to cover losses up to the deductible. Most of us don't insure our clothes or tools. For a financially independent person, this will extend much further since almost everything can be replaced many times over. [2010] - Jacob Lund Fisker

The worst time to make a major purchase is when you are feeling down. [2010] - Tom Rath

Some bankers include your credit potential in their TDS (total debt service) calculations. This means that if you have a credit card or PLC (personal line of credit) with a significant unused balance, a banker may calculate what the payment would be if you maxed the credit card or PLC, thus reducing your ability to obtain a mortgage. If your banker insists on doing this, go somewhere else because other lenders may not be required to underwrite that way. [2009] - Don R. Campbell