LATEST NEWS Professional Services
March 17, 2005
The turbocharged RRSP
As a Certified Financial Planner, I am asked a common question facing many Canadians wanting to increase their wealth. Do I pay off my mortgage, invest in my RRSP, or invest outside my RRSP?
Lately I have witnessed a rising popularity of the Reverse Mortgage. It seems that following a strategy of only paying off a mortgage and not taking advantage of tax assisted investments such as RRSPs and leveraged investments causes one to become house rich and cash poor.
An alternative strategy is to make your debt tax-deductible and use your assets as a springboard for acquiring additional investments.
This is what the rich do. They follow Rule #2 of The Turbocharged RRSP Strategy which is to “use other people’s money” or investment leverage.
For those who are unfamiliar with this strategy, investment leverage is simply borrowing money to invest. While it may seem counter intuitive to introduce interest-payments into your investment strategy, leverage can work for two reasons.
1. Compounding — With a traditional investment strategy such as dollar-cost-averaging, a small contribution is made regularly, for example every month. Assuming a 10-year investment horizon, only the first contribution grows for the full 10 years. The contribution you make one year from now only has nine years to grow, and so on. With leverage, the full amount of your investment has the entire ten years to grow.
2. Interest Deductibility — Interest payments made on a leverage loan are generally taxdeductible. This lowers your cost of borrowing and reduces the return you need to achieve for leverage to make sense.
Together, the power of compounding and interest deductibility can help a leveraged portfolio outperform a traditional portfolio.
As with any financial planning strategy, rules must be followed.
To make investment leverage successful you must focus on the long term, have your investments professionally allocated and rebalanced.
And most importantly, use the services of a competent professional with the required qualifications.
John Niekraszewicz, B.Math, FCSI, CFP, is a certified financial planner and president of JVK Life & Wealth Advisory Group.
For a reprint of this article in newsletter format, call 1-800-767-5933 or email@example.com
|MOST POPULAR STORIES|
- OPG $1 billion proposal to bury nuclear waste up for comment
- Proposed Ambassador Bridge twinning draws Windsor mayor’s ire
- New ETFO headquarters a benchmark design
- Ontario prompt payment bill to get second reading today
- Construction on pedestrian tunnel to Billy Bishop Airport continues to make progress
- 20 Most Popular Stories
|TODAY’S TOP CONSTRUCTION PROJECTS|
These projects have been selected from 443 projects with a total value of $1,866,277,015 that Reed Construction Data Building Reports reported on Tuesday.
$353,800,000 North York ON Prebid
$90,000,000 Niagara Falls ON Prebid
$68,000,000 Oakville ON Prebid
- VIDEO: Economic Update May 21, 2013
- Future tradespeople put to the test
- Ontario raiding season closes with a thud
- Bird flags challenges in Canadian construction
- Ontario commits to Hwy. 427 expansion
- GO Transit to build new maintenance facility in East Gwillimbury
- Ancient First Nations site damaged during work by BC Hydro
- Federal NDP leader speaks to police 'to help' with Quebec corruption probe
- Construction Site Arson
- Historic church renovation reaches new heights
- Hiring of foreign workers for hospital project outrages union
- Festival of Architecture hits Halifax
- Acetylene torch explosion causes significant damage
- Winnipeg Southwest Transitway wins award
- Vendor performance is key measurement
- NDP leader spoke to police about corruption
- Big contract down under for ATCO Structures
- RFQ issued for Kamloops hospital project
|ALEX’S ECONOMICS BLOG|
Reed Construction Data Canada’s Chief Economist Alex Carrick discusses current developments in the North American economic environment with emphasis on the construction industry.
- An Overview of Prices and Sales in the Diverging U.S. and Canadian Housing Markets (April 25, 2013)
- Canada’s Precarious Dependence on the Commodity Price Super-Cycle (April 22, 2013)
- Twenty major upcoming residential and transportation terminal construction projects - April 2013 (April 15, 2013)