How am I doing?

Asset allocation, risk, diversification and rebalancing. Pros/cons of hiring a financial advisor. Seeking advice on your portfolio?
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kombat
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How am I doing?

Post by kombat »

Hey, guys. I was just wondering if someone would like to comment on my situation, tell me if I'm on the right track, or if I should make any changes/corrections.

My wife and I are in our early 30's. We have a house worth $400,000. We had the mortgage paid down to $250,000 and were paying $4,000/month on it, but last year (under the advice of Home Equity Investment Rewards (HEIR)) we refinanced the mortgage to free up some equity and invest in a land banking program out west. Our mortgage is presently $350,000 and we're only paying $2,500/month on it. The other $1,500 is being invested. This means we now have 29 years left on our mortgage (instead of 7), but we're investing much more.

Investment wise, we have:
  • $50,000 combined in RRSP's with Clarica Financial, in various mutual funds. RRSP's are not even close to maxxed out presently, we both have about $55,000 in contribution room.
    $80,000 invested in land banking out west, in Edmonton.
    $50,000 in home equity.
This gives us a rough net worth of about $180,000. We expect to earn about 10% on the RRSP's, and are investing a further $23,000/year. The $80,000 land banking venture should return roughly $160,000 in 4 more years.

My wife and I both work, and we have no kids (nor plans for any). We both max out our CPP contributions every year, but neither of us will have any corporate pensions. I've estimated that we'll need $4 million to retire, but my plan has us achieving roughly $3 million by age 55 (our goal to retire).

So I guess my questions are:

- General comments? Stuff along the lines of, "land banking is a great/terrible idea" or "get your RRSP money out of mutual funds and into index funds."
- If we both max out CPP contributions our whole lives, can we expect to both receive the maximum when we retire?
- Will $3 million be enough to live off of (considering we won't be able to draw CPP until age 60) if we retire at 55?
- If we want to retire at 55, should we not be putting money in an RRSP, because it'll be difficult to access without penalties with our early retirement plan?
- Any advice for where we should be investing that $23,000/year? Real estate, rental units, index funds, more land banking?
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Shakespeare
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Post by Shakespeare »

We expect to earn about 10% on the RRSP's
I don't believe that is realistic.
Sic transit gloria mundi. Tuesday is usually worse. - Robert A. Heinlein, Starman Jones
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Post by kombat »

Shakespeare wrote:
We expect to earn about 10% on the RRSP's
I don't believe that is realistic.
That's a little unnerving! :) Can you elaborate? This is the number I've always seen thrown around in calculations, such as in "The Wealthy Barber" and other sources. Over a long-term investment plan, is this too ambitious? Should we be using more pessimistic numbers in our calculations? 8%?
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Post by Shakespeare »

This is the number I've always seen thrown around in calculations, such as in "The Wealthy Barber" and other sources.
That may be equity returns - if you are lucky. But before fees.

Most RRSPs wind up with a significant bond component for tax efficiency. If you assume 8% (more realistic) for equities and 4.5% for bonds, based on current rates and before fees, you get about 6% or so for a balanced portfolio.

You may do better. It is unwise to plan on it.
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Post by steves »

I see a fair number of financial plans in progress from users (financial planners). Most have been using 5 to 7% for some years now.
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Re: How am I doing?

Post by randomwalker »

kombat wrote: The $80,000 land banking venture should return roughly $160,000 in 4 more years.
Not familiar with the notion of "land banking" but 80k to 160k double your money in four years, about 19% a year compounding?
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Post by kombat »

Hmm, at 8%, I won't reach $3 million until 59. At 6%, it moves out to age 64.

No biggie, I suppose. But other than that, does the plan look solid? We're already taking advantage of leveraged investing, any other tips that would be beneficial for someone with 25 years to go?
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Re: How am I doing?

Post by kombat »

randomwalker wrote: Not familiar with the notion of "land banking" but 80k to 160k double your money in four years, about 19% a year compounding?
They quoted 15% to us, so I may be overstating that a bit. "Land banking" is when a bunch of investors all chip in and buy a big piece of farmland on the outskirts of a rapidly-growing city. The land is then re-zoned from "agricultural" to "residential" or "commercial," then planners are hired to draw up a plan for a community on the land. The plans are approved by the city (including fire hydrants, water mains, sewers, everything), then the land is shopped around to local developers. At this point, the land has already been re-zoned, and a plan has already been created and approved by the city. All the developer has to do is build it. So they buy the land, and we get (supposedly) a decent profit. That's the idea, anyway. I'll let you know how it works out. ;)
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Post by randomwalker »

Home Equity Investment Rewards here. Will need to look at first but sounds like "Smith Maneuver"

http://www.heir.ca/
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Post by Shakespeare »

They quoted 15% to us, so I may be overstating that a bit.
After all, real estate always goes up.... :roll:
Sic transit gloria mundi. Tuesday is usually worse. - Robert A. Heinlein, Starman Jones
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Post by BRIAN5000 »

Warren Buffets rule Number ONE is very important. DO NOT LOSE CAPITAL.

I am what Blonde calls a 90%.

It sounds like you have good savings habits and are carefully considering options keep doing this.

It seems to me avoiding a large loss is very important.

EG..

Make sure you understand this "land banking" investment. How big,long thick is the document you are supposed to have read and understood when you bought this?
Try to avoid divorce.
6-7% per year slow and steady is better then a large loss, a swing for the fence can be costly or if the planets align very rewarding
Last edited by BRIAN5000 on 17 Aug 2007 10:15, edited 1 time in total.
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Post by augustabound »

sounds interesting, but the returns do seem a bit high.
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Post by randomwalker »

randomwalker wrote:Home Equity Investment Rewards here. Will need to look at first but sounds like "Smith Maneuver"

http://www.heir.ca/
There is no mention of fees paid by investors to operate these structures. Reminds me a bit of the Freedom Investment Club of which there is a thread but I can seem to find

http://www.ficinvestors.com/

Begs the question as to who regulate these people who seem to go from hotel to hotel touting their investment ideas (perhaps schemes)
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Post by Donut »

Fortunately you are in your early 30s so you have lots of time to recover from your mistakes.

I see the land deal as very high risk, amateurs playing in a professional field. If the deal is really that good, then why do they need your money to make it happen. Oh! I know, they like you. Watch out for the other shoe to drop i.e. when you need to put up more money to reach the next stage of development and you either pony up or lose your position and your money. I could be all wrong but be careful out there. The world is full of sharks and many of them swim in the real estate pool.

I've never read David Chilton's book but I doubt he advised you to refinance your house to invest in the market or in real estate development. More likely he would tell you that your best investment is in your tax free house and to pay the mortgage off as early as possible. By the time you do that you will have had time to study the investment world and make better decisions.

By now, you realize I'm a conservative kind of guy. I didn't retire till I was 58. I too didn't have a pension and my wife only worked about 10 years of our married life but we have managed very well for the past 16 years of retirement.

Slow and steady wins the race.
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Post by kombat »

Re: Home Equity Investment Rewards

I think a little more information here would be enlightening. As another poster pointed out, it is similar to the Smith Maneuver, but from what I understand, the Smith Maneuver allows you to tax-deduct some of the loan interest. This plan does not do that. It simply takes equity out of the house and invests it in promising ventures.

A little over a year ago, my wife and I had our mortgage paid down to $250,000. We were on a bi-weekly mortgage with a great rate (4.75% locked in for 5) and had about 7 years left to go on our mortgage. Our biweekly payments were around $2000. We were contacted by HEIR. I'm normally extremely cynical with phone marketers, but this guy was promising to pay our mortgage off faster. I figured it wouldn't cost me anything to listen, and if there was even a remote chance of paying the house off sooner, then it was worth hearing him out. So we made an appointment for him to visit us and make his pitch.

They danced around the details a lot during the first meeting, but the basic idea was that by refinancing the mortgage out to 30 years, we could pay it off faster. Sounds silly, but the math actually works out. The thing is, we were accustomed to paying $2000/biweekly for our mortgage. If we re-did the mortgage out to 30 years, and took a monthly payment plan, then our payments would plummet. But if we continued allocating the same amount of money to paying off the house, and invested the leftover cash each month, and used it to make a lump-sum payment on the principal of the mortgage each year, it would actually pay off the mortgage a little faster.

I was skeptical, but I'm a computer programmer, so I ran the numbers myself and it actually looked solid. So we decided to give it a shot. However, instead of just making that changeup, we opted to take out some equity and invest it in the land banking venture they were peddling. This meant our mortgage wouldn't be paid off for 10 years (instead of 7), but at the end, we'd have $250,000 in investments (instead of $0). Sounded good to us. The investment they were proposing was real estate, which seemed quite stable in our opinion. We even received deeds from the province, proving that we do in fact own the land in question.

Now I was still very skeptical of these people. However, we are young, and I didn't foresee us losing on this deal (because it's land). At worst, I figured, it just wouldn't go up at all, and we'd get our money back after 5 years with no gains. At our age, we can afford the risk if it gets us the 15% returns they're promising. The company doing the land banking is called Syndication and Development.

We joined their club. This is not free. It cost $4,000. Breaking our mortgage with CIBC to go with a lender that offered a 30 year mortgage also cost us a penalty. We used their lawyer to draw up the paperwork. In the back of my mind, I was trying to add up all the kickbacks they'd be getting because of us. "Finder's Fee" from the bank and lawyer, kickback from Syndication and Development for bringing in new investors, plus our $4,000 membership fee... it made me a little sick, but still, I focused on the money we would hopefully be making.

Since we're members of their club, we're entitled to go to their monthly meetings. As randomwalker alluded to, they do indeed go from "hotel to hotel" for their monthly meetings. At first, I was hopeful that these meetings would educate us on strategies to maximize investment returns, organize our RRSP's better, prepare for retirement, or whatever. But it seemed all they ever talked about was "visualizing your dreams" and walking us through childish exercises where we write down a list of all the things we want to buy when we retire. Every now and then, they'd bring in a "guest speaker" (read: "infomercial") with another new investment opportunity for us. Eventually, we got sick of these fruitless meetings and stopped going. It seemed the talk was all "fluff" with little substance. Frankly, it felt like a waste of my time. I could learn more in 5 minutes of browsing these forums than I could at a 2 hour meeting.

Oh, and one other thing that left a bad taste in my mouth. I didn't pay any income taxes last year. They advocated a program ("Donations for Canada") whereby we make a charitable donation of about $11,000, and get donation receipts for around $40,000, or enough to offset all the income tax I was supposed to have paid last year. We did it, we filed it (through H&R Block, fully expecting to get audited and wanting professionals to back us up), and it worked. I got all my income tax back last year. But I'm sure I'm on a blacklist somewhere inside the government now, and they still might come back and audit me later.

In short, it's sketchy, but parts of it seem legit. The people leave a bad taste in my mouth, but I can't find any fault with the land banking program we're participating in. Every element of it appears to check out. The company (Syndication and Development) is real, and operates worldwide. We have deeds for the land at home, so we do in fact own the land. Others report having done it before and making big profits. Our property is scheduled to complete the program in 4 more years (although they boast almost always finishing early), so we'll see. I'm hopeful, but skeptical.
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Post by BRIAN5000 »

I haven't even finished reading your last post and all I can say, and in know way am I saying I know anything is...OH MY GOD.
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Post by Nemo2 »

they do indeed go from "hotel to hotel" for their monthly meetings.
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Post by bootsie »

This must be some kind of joke...
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Post by steves »

I'm thinking we've been trolled. :?
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Post by LurkyDismal »

what are the early exit penalties?
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Post by randomwalker »

kombat wrote:Re: Home Equity Investment Rewards

I think a little more information here would be enlightening. As another poster pointed out, it is similar to the Smith Maneuver, but from what I understand, the Smith Maneuver allows you to tax-deduct some of the loan interest. This plan does not do that. It simply takes equity out of the house and invests it in promising ventures.
What kind of an "investment" does one make with borrowed money that does not see a tax deduction for the interest?
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Post by FinEcon »

At least you are young and have the goals part down but IMO you ought to read every last thread on this forum.

IMO three quick patches to your situation worth considering:
1) Clarica/SunLife mutual funds....they're a gyp plain and simple. Go somewhere else like TD e-funds.

2) This land banking thing is risky, way risky IMO. Land banking is so far outside the circle of competence of the average retail investor it's not even funny. Some are probably fully legit but many outfits have drawn securities regulators attention. Next time these land banking salespeople ask you to attend a meeting tell them you are bringing your brother-in-law lawyer along because he's interested in investing. On the spot, you will know by the look on their faces how legit they are. Personally I would put that money into something straightforward and easy to understand with low transaction costs.

3) Did I mention read everything you can on this forum. No small feat but a good place to start is the 'Getting Started ....' forum.

4) Read, read, and read but read critically and take a moment to reflect .....it will increase your inner skeptic which is the most important tool in the investors toolbox IMO as investors are often within earshot of (always) overconfident and overoptimistic, though mostly well meaning, businesspeople.

5) No more joining financial 'clubs' unless its one found through a reputable individual or organization such as Canadian MoneySaver magazine. In fact, you might do well to consider a subscription to this magazine.

6) This tax thing? I know sweet FA about accounting but if I were you I would not do that again and I would fully expect to have that (ie a large tax liability) come back into your life at some future time. Keeping some cash on hand in a high interest savings account might not be a bad idea.
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Post by rails »

kombat wrote:Re: Home Equity Investment Rewards
They danced around the details a lot during the first meeting, but the basic idea was that by refinancing the mortgage out to 30 years, we could pay it off faster. Sounds silly, but the math actually works out.
There is an old saying....."The figures don't lie but liars figure" As you said this guy is a pro at dancing around details. Sorry to say it sounds more like a Carney act than a sound financial deal.
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Post by Yukon Maiden »

I am thinking this thread must be a joke. :? If not, you have sure been suckered big time. Land banking? Donation tax schemes? You have gone from doing okay, to being a big pending financial disaster.
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Post by kombat »

bootsie wrote:This must be some kind of joke.
steves wrote:I'm thinking we've been trolled.
I assure you, I'm completely serious. You guys aren't filling me with confidence! :( Like I said, the people behind it seem shady, but the investments themselves seem relatively low-risk. Am I missing something?
LurkyDismal wrote:what are the early exit penalties?
There aren't any. We've paid our membership to HEIR, so they're happy, we can walk away at any time. And if we want to back out of the land banking deal, we own the land, we have the deeds, so we're free to sell it whenever we want.
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