# How many of you have actually done a Smith maneuver (HELOC -> investments) - how has it worked out for you so far and what do you expect in the future



## NewbieInvestor88 (Feb 21, 2021)

I am sort of considering it, considering that we do not have that much debt and interest rates are super low right now. I just want to hear other people's experiences.


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## depassp (Mar 22, 2020)

I am doing it now. I made some poor investment choices (got too greedy for dividend yield) but otherwise I'm fairly happy. Just be careful and make sure you fully understand your complete financial situation. Be careful of your overall leverage. The leverage is a nice way to enhance overall returns (if you're comfortable with it) but the extra debt can become a burden and feel like an anchor around your neck.


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## ian (Jun 18, 2016)

My sister and BIL have been doing it for ten years. They are well ahead of the curve. But only for $200K -300K or so. So far it has paid for a new roof, several overseas vacations, and some dental work. They are in the mid/late 70's. Their investment advisor has done well for them.

Not highly leveraged. Their home is worth $1M plus. They have pensions and RIF's.

I see the numbers...I do their taxes for them.


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## MrMike (Sep 30, 2020)

Technically, I'm not doing it since i have $80K remaining in my HELOC (I am $200K+ invested with my heloc). We want to do some house renos so I can't go all in until those are done. BUT if you remove that technically....

I'm [kind of] doing the SM. In my taxable account, I withdraw the dividends, pay my mortgage, and withdraw that amount on my heloc and invest. Then come tax season 2022, I'll be able to write off that interest (and invest the returns). I'm OK being that leveraged in the market, especially with interest this low. Each month I'm able to make an extra mortgage payment of (on average) $800 - it's pretty sweet.

If you're just starting out, I can't imagine putting $300K or whatever in the market all at once. You'll want to start slowly and add a little bit at a time. I think I was pretty aggressive putting in $240K over a year period but to be fair, it's easier to put lots of money in when things were 30% off; I wouldn't be as aggressive if I started now.



depassp said:


> I am doing it now. I made some poor investment choices (got too greedy for dividend yield) but otherwise I'm fairly happy.


What happen? What did you put money in that you regret? What did you put money in that you don't regret?


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## My Own Advisor (Sep 24, 2012)

ian said:


> My sister and BIL have been doing it for ten years. They are well ahead of the curve. But only for $200K -300K or so. So far it has paid for a new roof, several overseas vacations, and some dental work. They are in the mid/late 70's. Their investment advisor has done well for them.
> 
> Not highly leveraged. Their home is worth $1M plus. They have pensions and RIF's.
> 
> I see the numbers...I do their taxes for them.


Great stuff Ian. Amazing some folks have so much cash still in their 70s. Estate plans? $1M + home + pensions + RIFs + CPP + OAS - they must be swimming in it 

I know a few folks that perform this stuff and echo the comments, need to be very comfortable with leverage. Personally, I'd rather just pay down my mortgage, max out TFSAs and RRSPs. That should be good "enough" in a few more years for me.


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## d00little (Jul 2, 2017)

Started in Q4 of 2018. I'm up about $50k on a HELOC balance that is now $150k. Started out with XAW+VCN, now it's all XEQT. I already had maxed out my RRSP and TFSA before beginning and thought the SM would be better than holding a large non-registered account. My HELOC is a Prime+0%.


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## ian (Jun 18, 2016)

My Own Advisor said:


> Great stuff Ian. Amazing some folks have so much cash still in their 70s. Estate plans? $1M + home + pensions + RIFs + CPP + OAS - they must be swimming in it
> 
> I know a few folks that perform this stuff and echo the comments, need to be very comfortable with leverage. Personally, I'd rather just pay down my mortgage, max out TFSAs and RRSPs. That should be good "enough" in a few more years for me.


A $1M home the Lower Mainland is a little meaningless. I believe the average price is above that. Not swimming in it....but getting by nicely.


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## My Own Advisor (Sep 24, 2012)

ian said:


> A $1M home the Lower Mainland is a little meaningless. I believe the average price is above that. Not swimming in it....but getting by nicely.


I dunno. 

I've talked to a few folks with $1M+ home and then another $1M+ in assets + OAS, CPP income streams and it will be more than they can spend due to age, health, etc. 

I think most Canadians would be blessed with that amount of financial assets. Sadly, some parts of Canada don't even have clean drinking water.


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## Kilbarry20 (Aug 19, 2020)

My Own Advisor said:


> I dunno.
> 
> I've talked to a few folks with $1M+ home and then another $1M+ in assets + OAS, CPP income streams and it will be more than they can spend due to age, health, etc.
> 
> I think most Canadians would be blessed with that amount of financial assets. Sadly, some parts of Canada don't even have clean drinking water.


I am thankfully in that position- but only recently in the past 1/2 decade. Given the tastes of my wife & I, we will trade in my paid off Accord in the New Year to obtain a new one on the 0% + 5 Year Monthly Plan. I seek out 90+ Wine Ratings, for less than $25. I buy and prepare my own vac packed Tenderloin- ONLY when it’s on Sale. $300/night for a Hotel room? Heart attack city.

Yes, I gamble. But in the Market, almost exclusively on conservative, Blue Chip, Dividend producing Equities. Yeah, there are those yearly Vegas trips- one upcoming, where I bring a max $2k.

You get the picture. I have been indoctrinated so long in being careful + some extremely valuable life lessons when I wasn’t and made extremely foolish investment decisions or gambling give aways, that my advancing age controls me. I invest now, only for my Grandchildren, funding their RESPS, a “trust” account, etc. , to ensure they have the life I never experienced.

And I give $ to charities I KNOW return almost 100 cents on the dollar to its target audience.


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## hfp75 (Mar 15, 2018)

You guys using the heloc or refinancing pulling out 100k (or whatever) and just getting a mortgage ? 

Its a loan for investing so technically then the interest is a deduction?


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## depassp (Mar 22, 2020)

MrMike said:


> What happen? What did you put money in that you regret?


I regret going so hard into Oil - TSX:VET. First purchase May 2019 at $30/sh when dividend yield was ~9%. A few months later - August 2019 - it drops to $20/sh (yielding 14%) and I think - OK great! It's on sale and I'm here for the long haul. Double down.

Then comes Februrary 2020 and COVID. Dividend is suspended and I'm left holding the bag. It's recovering somewhat and recently tickled $15. The board announced plans to reinstate dividend in Spring 2022 so there's still hope.

My HELOC balance is currently only 40% used and my cashflow can manage the interest payment just fine so it's not a problem.



MrMike said:


> What did you put money in that you don't regret?


I also bought TSX:CM which has done well. If I could rewind 2 years I would have just bought a dividend ETF like XDV or VDY.



hfp75 said:


> You guys using the heloc or refinancing pulling out 100k (or whatever) and just getting a mortgage ?
> 
> Its a loan for investing so technically then the interest is a deduction?


You need to keep separate accounting. My HELOC is completely dedicated to investment transactions so the interest is 100% deductible. If you refinance, only the portion of the mortgage balance that you're using for investments will be interest deductible. That's an accounting nightmare. Keep things clean and simple.


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## MrMike (Sep 30, 2020)

depassp said:


> I regret going so hard into Oil - TSX:VET.


Ya, their price has been going downhill since 2014. I agree, I wouldn't have borrowed money to put in there - too risky. When I first started using my HELOC, I chose blue-chip, companies only and those that exceeded the interest I was paying. Enbridge, Bell, Telus, Bank of Nova Scotia and Bank of Montreal, riocan, etc...



depassp said:


> I also bought TSX:CM which has done well. If I could rewind 2 years I would have just bought a dividend ETF like XDV or VDY.


haha Ya, can't go wrong with the canadian banks. I eventually bought them all. In my taxable account, VDY is one of my core ETFs - when using borrowed money, even thought I'm using my work pay to pay the interest, it's safer to have the yield exceed the bank interest amount... just in case anything happened like I lost my job. then you could use the dividends to pay the interest.



hfp75 said:


> You guys using the heloc or refinancing pulling out 100k (or whatever) and just getting a mortgage ?
> 
> Its a loan for investing so technically then the interest is a deduction?


I changed my mortgage/heloc into a readvancable mortgage where it's really just 1 product - your heloc. the fixed portion is technically your mortgage and every time you make your regular mortgage payment, the revolving portion of your heloc goes up. So every 2 weeks, for me, I get more available credit in my heloc.

You can only deduct the interest when investing in a taxable situation. For me, I started using my HELOC to max out my TFSA so the interest on that amount, I can't deduct. But now I have a portion of my heloc in a taxable account so THAT amount in there, I can write the interest off. This tax season will be my first time - will be interest to see how much I pay (from dividends) and how much I save (deducted interest).


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