# Saving via 100% equities



## none (Jan 15, 2013)

Does anyone save using 100% equities rather than GIC / HISA / etc?

I wouldn't mind buying a house if rent/price ratios enter a more rational place or possibly buying a car. I don't really care though so I generally have 95% of my net worth in an 80/20 equity/bond potato (I also have a DB pension). 

Does anyone else do this? I figure if your time horizon is very flexible then what's the difference?


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## Nordic (Dec 17, 2014)

none said:


> Does anyone save using 100% equities rather than GIC / HISA / etc?
> 
> I wouldn't mind buying a house if rent/price ratios enter a more rational place or possibly buying a car. I don't really care though so I generally have 95% of my net worth in an 80/20 equity/bond potato (I also have a DB pension).
> 
> Does anyone else do this? I figure if your time horizon is very flexible then what's the difference?


I have my parents' entire combined RRSP in equities; almost all of it is in fixed-rate preferreds yielding an average of 5.6%. Very little volatility (about 1/4 correlation to the TSX Composite), and 3x the income they'd get from GICs. 

For my own investment accounts, I'm 100% equities as well, with about 40% being fixed-rate preferreds.


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## 1980z28 (Mar 4, 2010)

100 % equities


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## AltaRed (Jun 8, 2009)

none said:


> Does anyone else do this? I figure if your time horizon is very flexible then what's the difference?


The key phrase is 'being very flexible'. If you looking to use the capital to buy a house or a car, then if you had a situation like 2008, you'd have to wait 3-4 years to recover your capital.


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## andrewf (Mar 1, 2010)

Don't worry, you can always get a cash back mortgage....

(only half kidding)


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## LBCfan (Jan 13, 2011)

Our family portfolio is about 90/10 equities/cash. We do have a bit of RE (dwelling, farmland) and a RRIF managed by my DC pension provider (Sk PEPP). Overall, we are about:
- 20% RE (50% produces income, 50% is consumption - our house)
- 10% FI (in the RRIF)
- 5% cash
- 65% equities (including those in the RRIF)


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## Dmoney (Apr 28, 2011)

I keep about $5,000 in a savings account, the rest goes into my investment account every couple of months when ~$10,000 or so accumulates
My investment portfolio is essentially 100% equity. I think I've got an old monthly income ETF that might have some fixed income component, but it represents a couple % of my total portfolio.



andrewf said:


> Don't worry, you can always get a cash back mortgage....
> 
> (only half kidding)


andrewf, no joke the banks will bend over backwards to lend good credit clients as much as they can. Will fudge whatever numbers they need to fudge.


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## Pluto (Sep 12, 2013)

none said:


> Does anyone save using 100% equities rather than GIC / HISA / etc?
> 
> I wouldn't mind buying a house if rent/price ratios enter a more rational place or possibly buying a car. I don't really care though so I generally have 95% of my net worth in an 80/20 equity/bond potato (I also have a DB pension).
> 
> Does anyone else do this? I figure if your time horizon is very flexible then what's the difference?


1. You should use all your financial resources to buy a house with a rental suite (and stay there at least 5 years). According to average price graphs in your city it looks like prices are about to break out to new all time highs, so don't waste your time waiting for a price correction. After 5 years you will likely have the equity and income to borrow for another investment of your choice - buy an asset that produces income so you can write of the loan interest. 
2. If you are not going to buy a house that provides you living space and rental income, 100% equities is the way to go. This is second best because your are giving up the leverage, and eventual tax free capital gain available in the first option. You are also giving up banks loving you: banks love people who own RE, and love to loan to people with RE. They don't understand people who rent and buy stocks, so your borrowing power is limited. In either case, ditch the bonds. Why do you want to have 20% earning a measly 2.7% with little chance of any capital gain? The essence of saving is buy assets that tend to go up over time and that produce income. Use the income to buy more assets that tend to go up over time. 
3. What do you want a car for? You sound conflicted. Cars depreciate. Save by buying equity in a car? Bus getting you down? Rent a car for a weekend once in a while to get out of town.


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## Jaberwock (Aug 22, 2012)

I am invested 100% in equities, 95% of which are dividend paying equities and about 10% are preferred shares.

Some financial advisors classify fixed rate preferred shares as fixed income.

The risk you take with fixed rate preferred shares is that if interest rates go up, the value of the shares will drop. I would look at some of the rate re-settables that have been issued recently, which have guaranteed minimum reset rates. Also some of the variable rate preferreds are selling well below par value, and have decent yields based on the current share price, and potential for some gain if interest rates rise.


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## none (Jan 15, 2013)

Pluto said:


> 1. You should use all your financial resources to buy a house with a rental suite (and stay there at least 5 years). According to average price graphs in your city it looks like prices are about to break out to new all time highs, so don't waste your time waiting for a price correction. After 5 years you will likely have the equity and income to borrow for another investment of your choice - buy an asset that produces income so you can write of the loan interest.
> 2. If you are not going to buy a house that provides you living space and rental income, 100% equities is the way to go. This is second best because your are giving up the leverage, and eventual tax free capital gain available in the first option. You are also giving up banks loving you: banks love people who own RE, and love to loan to people with RE. They don't understand people who rent and buy stocks, so your borrowing power is limited. In either case, ditch the bonds. Why do you want to have 20% earning a measly 2.7% with little chance of any capital gain? The essence of saving is buy assets that tend to go up over time and that produce income. Use the income to buy more assets that tend to go up over time.
> 3. What do you want a car for? You sound conflicted. Cars depreciate. Save by buying equity in a car? Bus getting you down? Rent a car for a weekend once in a while to get out of town.



1. I'm a housing bear. I believe that although there is a high inverse correlation between house prices and interest rates I also believe there's a causal mechanism between the two (low interest -> high RE prices). I don't really think there will be a housing correction until interest rates go up a fair bit and 5-year fixed reset and enough to break the Canadian belief that house prices always go up. The latter is a tough one. It'll take a lot of people losing money to overshadow the stories of all the boomers make multiple generations of housing gains in 10 years. It's all about risk though, I'm a single dad so I simply can't dump all of my net worth into a house even if there is a 5% chance of a 20%+ housing correction. I don't think 5% is unreasonable and therefore I'm out for a while. Investing in anything is all about taking on the right level of risk for your life situation. Unfortunately for me that means real estate is out for the time being. Also, the only landlording I'm interested in is owning REITs.
2. The bond component is just to help with psychology and reduce the massive swings. 50% of successful investing is controlling behaviour and the bonds help with that. Actually, I find using e-series very helpful with that. Anyway, I think I'm right not 18% or so bonds so not a huge drag on my portfolio really.
3. The car thing is just another 'victim of societal expectations' I do exactly as you say. I bike everywhere (to work etc) and love it. I belong to a car share and rent cars with abandon. I probably won't buy a car (at least while I'm single) because whenever I start the math it just kills me and really doesn't make sense for my life style. Classic case of wants way out stripping needs.

I just read a lot here about people getting advice to 'put all of their cash in HSA or GICs if they want to use the money in less then 5-10 years. I think James4beach is the worst on that one. Really I've never understood the fear of people being under their initial principle after a certain time period. That's what accepting risk is all about. Sure, if you NEED the money at time x then go the HSA but if your plans are flexible (and most life choices about buying stuff should be) then have at 'er I figure. Anyway, just wanted to see if other people had similar thinking.


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## andrewf (Mar 1, 2010)

Sounds like you may only ever own one car, then. I would be shocked if we didn't have autonomous cars within 10 years making uber-like service cost far less than car ownership.


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## AltaRed (Jun 8, 2009)

andrewf said:


> Sounds like you may only ever own one car, then. I would be shocked if we didn't have autonomous cars within 10 years making uber-like service cost far less than car ownership.


I think this is the way it is going too, at least in the bigger cities. The options will be very limited in smaller centres and rural areas. 

My spouse's son and gf (now in their mid-30s) live in Vancouver and they have not had a car for X years. They use a car sharing service when they need too, or Uber, at substantial cost savings over ownership. Autonomous cars in the big cities are a foregone conclusion I think.


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## Pluto (Sep 12, 2013)

none said:


> 1. I'm a housing bear. I believe that although there is a high inverse correlation between house prices and interest rates I also believe there's a causal mechanism between the two (low interest -> high RE prices). I don't really think there will be a housing correction until interest rates go up a fair bit and 5-year fixed reset and enough to break the Canadian belief that house prices always go up. The latter is a tough one. It'll take a lot of people losing money to overshadow the stories of all the boomers make multiple generations of housing gains in 10 years. It's all about risk though, I'm a single dad so I simply can't dump all of my net worth into a house even if there is a 5% chance of a 20%+ housing correction. I don't think 5% is unreasonable and therefore I'm out for a while. Investing in anything is all about taking on the right level of risk for your life situation. Unfortunately for me that means real estate is out for the time being. Also, the only landlording I'm interested in is owning REITs.
> 2. The bond component is just to help with psychology and reduce the massive swings. 50% of successful investing is controlling behaviour and the bonds help with that. Actually, I find using e-series very helpful with that. Anyway, I think I'm right not 18% or so bonds so not a huge drag on my portfolio really.
> 
> 
> I just read a lot here about people getting advice to 'put all of their cash in HSA or GICs if they want to use the money in less then 5-10 years. I think James4beach is the worst on that one. Really I've never understood the fear of people being under their initial principle after a certain time period. That's what accepting risk is all about. Sure, if you NEED the money at time x then go the HSA but if your plans are flexible (and most life choices about buying stuff should be) then have at 'er I figure. Anyway, just wanted to see if other people had similar thinking.


You are trying to time the housing market. I didn't know you were a market timer. In your city a 20% correction is virtually impossible. There was a 26% correction in the '82-85 era but that took mortgage rates of 20% to do that. I doubt you will see rates anywhere near that in your lifetime. I suppose a very large earthquake with a follow up tsunami might do it. Otherwise, I think you are waiting for Godot. there just was a correction in Victoria that bottomed in 2013. In 2010 the average high was about 63000. It dropped to 598,000 in 2013. But presently the average is 749,000. And even in the so called financial crisis of '09, prices were just flat. No correction to speak of, and by 2010 prices bolted upward to new highs. Unless you can add significant amounts to your equities on a regular basis, I think you will get left behind. In less than 5 years the average in your city will be about a million. 

I think you are missing the boat. And then you hamper yourself with bonds where after inflation and taxes you are losing. Be an owner, not a loaner. Only financial institutions make decent money by loaning.


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## none (Jan 15, 2013)

Not timing the market but using risk as a guide. I'm reasonably happy where I am and live well below my means so unless housing increasing well beyond my mortgage rate I would end up losing in net worth. Like I said in the original post of price/rent ratios get to high teens I'd consider it but right now with it in the mid - 20's the risk is more than I'm willing to take on.


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## lonewolf (Jun 12, 2012)

savings = owning stocks = how do you got the Elephant out of Safeway

you take the S out of Safe & the F out of way

Answer


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## DavidW (May 27, 2016)

Almost 100% equities has always been my way of saving money, except for paying off the house. If I just tried to save cash I would spend it. When I quit drinking I had a fair bit more money each month and I started buying equities. I wasn't paying any attention to dividends at the time I just needed a more interesting way to save money and wanted to play the oil and gas, and gold stocks.

The house I bought also has a rental unit and that has helped a great deal over the years, and when I paid it off in under 10 years I borrowed against it to buy dividend equities. Money borrowed to invest in interest, income, or dividend paying investments has tax benefits - outside of a tax sheltered account. Except for one year I have always done my own taxes, my dad taught me how to track the ACB on the stocks, and I usually learn something each year doing them myself. The tax programs they have now make things much easier and can handle just about any issued tax slip I think. I'm not sure at what point I would recommend an accountant as everyone is different but if you can do you own ACB tracking for stocks it will help a great deal regardless of one's decision to use an accountant or not. I did once buy a corporate real estate bond and that company went bankrupt. At the time there were two companies offering an 8% corporate bond and well I picked the wrong one, even though it was being offered for RRSPs I am glad I chose to keep it outside the RRSP as I was able to claim the loss. 

My TFSA kind of got depleted during 2015. So besides the rental unit which I still have, I am about 99% dividend equities right now with about 90% in an umbrella margin account and 10% in a cash account. With the oil industry still in a shambles I'm not working yet but getting by and now have enough cashflow to cover my current bills. I would like to work though as I do have a lot of reliance on the rent and the margin account. I did have a much higher percentage in the cash account but moved those equities to the margin account during the downturn and was able to keep the selling to a minimum. Next downturn I'll likely have to sell so hopefully it is a few years away but those equities are saving me right now.


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## LBCfan (Jan 13, 2011)

Interesting: quit drinking and invest in equities. There have been several times in the past where I wanted to do the inverse.


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## DavidW (May 27, 2016)

DavidW said:


> Almost 100% equities has always been my way of saving money, except for paying off the house. If I just tried to save cash I would spend it. When I quit drinking I had a fair bit more money each month and I started buying equities. I wasn't paying any attention to dividends at the time I just needed a more interesting way to save money and wanted to play the oil and gas, and gold stocks.
> 
> The house I bought also has a rental unit and that has helped a great deal over the years, and when I paid it off in under 10 years I borrowed against it to buy dividend equities. Money borrowed to invest in interest, income, or dividend paying investments has tax benefits - outside of a tax sheltered account. Except for one year I have always done my own taxes, my dad taught me how to track the ACB on the stocks, and I usually learn something each year doing them myself. The tax programs they have now make things much easier and can handle just about any issued tax slip I think. I'm not sure at what point I would recommend an accountant as everyone is different but if you can do you own ACB tracking for stocks it will help a great deal regardless of one's decision to use an accountant or not. I did once buy a corporate real estate bond and that company went bankrupt. At the time there were two companies offering an 8% corporate bond and well I picked the wrong one, even though it was being offered for RRSPs I am glad I chose to keep it outside the RRSP as I was able to claim the loss.
> 
> My TFSA kind of got depleted during 2015. So besides the rental unit which I still have, I am about 99% dividend equities right now with about 90% in an umbrella margin account and 10% in a cash account. With the oil industry still in a shambles I'm not working yet but getting by and now have enough cashflow to cover my current bills. I would like to work though as I do have a lot of reliance on the rent and the margin account. I did have a much higher percentage in the cash account but moved those equities to the margin account during the downturn and was able to keep the selling to a minimum. Next downturn I'll likely have to sell so hopefully it is a few years away but those equities are saving me right now.


With regards to moving the shares to the margin account, I did it via a Journal transaction as you are not allowed to buy and sell the same stock using different accounts. You need to phone your broker to do this. In the umbrella margin account I buy equities on one side where the margin debt is, and when I buy interlisted equities I move at least half but not all of the shares to the US dollar side where I do not keep any margin debt. There I can sell the shares to buy US stocks or collect the dividends, since there is no margin debt there I can also transfer the dividends out to the cash account if I have enough margin room. There is risk but it is working right now.

I keep a spreadsheet on the side to 'plan' my dividends, both to receive so much a month on each side of the account to cover living expenses on one side and to cover the margin interest expenses on the other side. If you get the margin interest bigger the interest rate is less and you are able to buy better companies. I can't say which side is better to hold the margin interest, I chose the Canadian side. Having Canadian stocks on the US side the Canadian dividends do get reduced by the exchange rate and dividends from US stocks have a 15% withholding tax, when you transfer the US cash received out and then to a Canadian dollar account there is also a currency exchange fee but I am just thinking of this as a necessary cost.

I have stuck so far to Canadian and US companies, the US has interlisted companies from other countries also and I am unsure how those would be effected by taxes. So far my broker handles the withholding taxes for the US companies and those US dividends are recognized on the tax slips and I have been able to continue to do my own taxes.


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## DavidW (May 27, 2016)

LBCfan said:


> Interesting: quit drinking and invest in equities. There have been several times in the past where I wanted to do the inverse.


I needed to quit drinking, my teens and 20s were not helped by it and I needed to correct how things were going.


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## DavidW (May 27, 2016)

DavidW said:


> With regards to moving the shares to the margin account, I did it via a Journal transaction as you are not allowed to buy and sell the same stock using different accounts. You need to phone your broker to do this. In the umbrella margin account I buy equities on one side where the margin debt is, and when I buy interlisted equities I move at least half but not all of the shares to the US dollar side where I do not keep any margin debt. There I can sell the shares to buy US stocks or collect the dividends, since there is no margin debt there I can also transfer the dividends out to the cash account if I have enough margin room. There is risk but it is working right now.
> 
> I keep a spreadsheet on the side to 'plan' my dividends, both to receive so much a month on each side of the account to cover living expenses on one side and to cover the margin interest expenses on the other side. If you get the margin interest bigger the interest rate is less and you are able to buy better companies. I can't say which side is better to hold the margin interest, I chose the Canadian side. Having Canadian stocks on the US side the Canadian dividends do get reduced by the exchange rate and dividends from US stocks have a 15% withholding tax, when you transfer the US cash received out and then to a Canadian dollar account there is also a currency exchange fee but I am just thinking of this as a necessary cost.
> 
> I have stuck so far to Canadian and US companies, the US has interlisted companies from other countries also and I am unsure how those would be effected by taxes. So far my broker handles the withholding taxes for the US companies and those US dividends are recognized on the tax slips and I have been able to continue to do my own taxes.


I should add one thing regarding this Journaling of shares to the US side and having equities in a US account for those who are not familiar with it. The average cost base of your equities is always done in Canadian dollars, and people should also be aware of the Superficial Loss rule which can be a pain with US holdings due to changes in the currency exchange rate. I have sold a US stock which was a loss in US dollars terms but because of exchange rate differences between buying and selling had to claim a capital gain for taxes. There is a thread on the Investing board re some broker rule changes, which prompted me to join this site, where it was debated on how the Jounaling of the shares should actually be done as there have been some issues. I am confident the brokers will fix this as it is in the interest of everybody to get it clarified.

If you do go read the thread, please read it to the very end. In simplified terms, quantum entanglement is 'a measurement made at a point in time'.


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## Pluto (Sep 12, 2013)

none said:


> Not timing the market but using risk as a guide. I'm reasonably happy where I am and live well below my means so unless housing increasing well beyond my mortgage rate I would end up losing in net worth. Like I said in the original post of price/rent ratios get to high teens I'd consider it but right now with it in the mid - 20's the risk is more than I'm willing to take on.


Price/rent ratio: I have never found that the ratio to be helpful in telling me when to buy. The ratio has always been too high, but I buy anyway. And prices invariably are much higher in 5-6 years regardless of rent. Rents hover at what the market will bear, and prices do their own thing, which in your city is usually flat to bolting upward.


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## My Own Advisor (Sep 24, 2012)

Interesting question....

I invest with 100% equities but I do not save and keep money saved outside of GIC / HISA / etc.

For example, when we saved for our down payment to buy our first home, that was >$40k in cash. Our >$10k emergency fund is in cash.

I'm saving for a new(er) car, that's in cash.

Long-term investing, 100% equities, and no cash. Short-term savings is all cash. I do this because a) it's simple and b) short-term money available to me is very liquid.


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## humble_pie (Jun 7, 2009)

DavidW said:


> I am confident the brokers will fix this [false re-setting of cost bases] as it is in the interest of everybody to get it clarified.
> 
> If you do go read the thread, please read it to the very end. In simplified terms, quantum entanglement is 'a measurement made at a point in time'.



hello DavidW,

the brokers cannot fix this problem because they do not have the historic data with which to fix it. Nor will they ever be able to affford to import & utilize the historic data, it is too massive.

moreover, as a newcomer poster here on a complex & sensitive issue, you appear to be in completely over your head. You are misleading forum readers. Won't you please sit by on this issue & try to learn what it's all about. Would greatly appreciate.

,


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## DavidW (May 27, 2016)

My Own Advisor said:


> Interesting question....
> 
> I invest with 100% equities but I do not save and keep money saved outside of GIC / HISA / etc.
> 
> ...


I thought I would mention how 'my plan' relates to your thoughts. I do have a chequing and savings account with the credit union which I use to have my paychecks deposited to when I am working. I'm not sure why I don't do this at the bank where my HELOC and brokerage account are, maybe just something something along the lines of, 'Don't put all of your eggs in one basket.".

I borrowed the down payment for my house from my dad who charged me 8% simple interest. Whenever I borrowed money from him it was always at 8%, and I did so for the house downpayment and a truck purchase. I bought the house, the truck and started my 'stock savings' within a 2 year period so for a while I was making house, truck and mortgage payments. Those first 5 years I was in the markets I did not have much money in equities, I finally got a decent sized 'win' with Antrim Energy and took that money to Canaccord and used a financial advisor to help me 'do' some of these private placements I kept seeing these resource companies doing. You are supposed to be an accredited investor to do these - I lied on the $1million dollar in assets question, but I felt like a millionaire at the time and it was a good feeling knowing the money was going directly to the companies. This was during the resource boom and worked well for a few years. Some of the private placements are non-brokered so you don't need an advisor for those. I believe their is 'a window' where a company can have up to 100 non-accredited investors in a private placement, I'm not sure about that though and maybe that was just on the IPO's.

I basically have no cash savings now as my plan is to try to generate recurring 'revenue' via dividends and live within cashflow. The spreadsheet I use to plan my dividends also has sheets in the workbook for my budget where I measure my cashflow progress, a balance sheet like the companies do, and some 'simulation' sheets where I see how things would look if I added this or that equity - one simulation sheet goes to the budget/cashflow sheet also. I currently have a truck loan and I still smoke, if I can get rid of those I would have some decent disposable income. The 10% of equities that are now in the cash account could pay that truck loan instead of going to the margin account during a downturn, for now I am trying to make truck payments and keep the equities.

I have been keeping my margin room thin the last few months during this recent upturn adding equities as I can - actually when I was moving equities to the margin account during the downturn I was accumulating new equities also when they hit the account. When I have needed to sell due to no margin room I have been doing it on the US side where there is no margin debt as it 1) provides cash to use to live on and 2) gives me US dollars in the account to act as a 'currency hedge' when the Canadian dollar goes down. It is not a great long term plan as you still have to look after the margin debt on the other side. I currently have less equity value than margin debt on the Canadian side but the cashflow still covers margin interest. Hopefully interest rates don't go up quickly. Using the equities on both sides there is enough equity to cover the margin debt, and both sides contribute to margin room thus the name umbrella margin account.


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## Eder (Feb 16, 2011)

Since there was some discussion here about buying / renting I thought I would post this link to a calculator I sent to my kids...I don't know if I got it from here or not but it seems very useful to analyze a house purchase dispassionately. 

http://www.getsmarteraboutmoney.ca/...ator/buy-or-rent-calculator.aspx#.V0xXbL68R3x


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## DavidW (May 27, 2016)

humble_pie said:


> hello DavidW,
> 
> the brokers cannot fix this problem because they do not have the historic data with which to fix it. Nor will they ever be able to affford to import & utilize the historic data, it is too massive.
> 
> ...


They don't NEED the historical data, they only NEED the current value of the equities to calculate margin. The brokers trying to tie the gains and losses on a position to available margin is a method of them trying to create bigger selloff swings in the market. It is stealing in my opinion, and people need to stop being blind to it. Only the investor can be responsible for the ACB reported to CRA, the investor is the one who signs the tax return even when you get an accountant to do it.


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## AltaRed (Jun 8, 2009)

DavidW said:


> They don't NEED the historical data, they only NEED the current value of the equities to calculate margin. The brokers trying to tie the gains and losses on a position to available margin is a method of them trying to create bigger selloff swings in the market. It is stealing in my opinion, and people need to stop being blind to it. Only the investor can be responsible for the ACB reported to CRA, the investor is the one who signs the tax return even when you get an accountant to do it.


What is your obsession with margin? That subject is irrelevant to this thread and it is irrelevant to the thead discussing ACB issues with brokers. IOW, derailing threads is not helpful.


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## none (Jan 15, 2013)

Pluto said:


> Price/rent ratio: I have never found that the ratio to be helpful in telling me when to buy. The ratio has always been too high, but I buy anyway. And prices invariably are much higher in 5-6 years regardless of rent. Rents hover at what the market will bear, and prices do their own thing, which in your city is usually flat to bolting upward.


That's one projection that I don't really foresee but I will say that it's entirely possible.

Regardless, I don't get paid enough nor have sufficient savings to buy a house where I want in Victoria just yet. That's why I need 5-7 years to save.


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## none (Jan 15, 2013)

My Own Advisor said:


> Interesting question....
> 
> I invest with 100% equities but I do not save and keep money saved outside of GIC / HISA / etc.
> 
> ...


Cash by definition is the most liquid thing there is (is actually the definition of liquidity) but any well traded stock is close to as equally liquid so i don't really understand what you mean by (b).

You are a perfect example. If you're saving for a car right now you use a deterministic projection that you will have $xx in 3 years (or whatever). Instead if you invested the money in 100% equities for example it would simply change to you would have $xx +/- **% in 3 years. Like I said before if you HAD to have the car in 3 years that's one thing but if you could wait potentially 4 or 5 (or make up the financial difference if things go sideways (which you definitely could)) then I don't see why the investing approach to saving is necessarily a bad idea.


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## DavidW (May 27, 2016)

AltaRed said:


> What is your obsession with margin? That subject is irrelevant to this thread and it is irrelevant to the thead discussing ACB issues with brokers. IOW, derailing threads is not helpful.


The thread is about saving via equities and I am talking about how I am doing that. Discouraging equity investors from being mindful of their ACB is not helpful to them in my opinion. I directed the debate on brokers calculating it away from this thread, humble_pie brought it back to this thread. I don't have an issue with members from different areas of the financial universe being present here and presenting their opinions but this website seems very heavy on financial sales pitches right now and a little light on investors. I am not a billionaire with real influence but I have been trading equities for 17 years and am just sharing what I am doing, and voicing my opinion in opposition where I think I need it needs to voiced.


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## andrewf (Mar 1, 2010)

Pluto said:


> Price/rent ratio: I have never found that the ratio to be helpful in telling me when to buy. The ratio has always been too high, but I buy anyway. And prices invariably are much higher in 5-6 years regardless of rent. Rents hover at what the market will bear, and prices do their own thing, which in your city is usually flat to bolting upward.


But price/rent can only get so crazy. Eventually you end up in Japanese property bubble territory. And so, if rents only rise in line with incomes, and prices can only get so high relative to rents, the long run home price is roughly the rate of income growth.


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## Pluto (Sep 12, 2013)

andrewf said:


> the long run home price is roughly the rate of income growth.


True, on average, prices are a function of incomes. But there are above average areas that require an above average income to own a detached house. And in those areas the price to rent ratio tends to be quite high on an on going basis. Victoria will never have a rent to price ratio similar to, say, Edmonton or Winnipeg.


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## My Own Advisor (Sep 24, 2012)

andrewf said:


> But price/rent can only get so crazy. Eventually you end up in Japanese property bubble territory. And so, if rents only rise in line with incomes, and prices can only get so high relative to rents, the long run home price is roughly the rate of income growth.


As long as we have lots of foreign investment for RE, (i.e., Vancouver, Toronto, a few other cities), I don't see a bubble forming.


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## none (Jan 15, 2013)

My Own Advisor said:


> As long as we have lots of foreign investment for RE, (i.e., Vancouver, Toronto, a few other cities), I don't see a bubble forming.



How much is lots though? I think it only takes a little to trump up the market (4% by west coast standards) but the thing is foreign also bail a lot faster too which makes a crash more likely if things get a bit shaky (I think at least).


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## TomB19 (Sep 24, 2015)

Pluto said:


> 1. You should use all your financial resources to buy a house with a rental suite (and stay there at least 5 years). According to average price graphs in your city it looks like prices are about to break out to new all time highs, so don't waste your time waiting for a price correction. After 5 years you will likely have the equity and income to borrow for another investment of your choice - buy an asset that produces income so you can write of the loan interest.
> 2. If you are not going to buy a house that provides you living space and rental income, 100% equities is the way to go. This is second best because your are giving up the leverage, and eventual tax free capital gain available in the first option. You are also giving up banks loving you: banks love people who own RE, and love to loan to people with RE. They don't understand people who rent and buy stocks, so your borrowing power is limited. In either case, ditch the bonds. Why do you want to have 20% earning a measly 2.7% with little chance of any capital gain? The essence of saving is buy assets that tend to go up over time and that produce income. Use the income to buy more assets that tend to go up over time.
> 3. What do you want a car for? You sound conflicted. Cars depreciate. Save by buying equity in a car? Bus getting you down? Rent a car for a weekend once in a while to get out of town.


Golden advice.

If none is a young person, he should buy a house with a rental suite, move into the suite, and rent the primary portion of the house. If he takes the rent he currently pays and adds it to the rent he gets from a tenant, he should comfortably retire the mortgage in less than 10 years.

I'm staggered by people who cite the possibility of housing price slump as justification for getting into the stock market. ... because we all know stocks never go down. lmao!

Let's see... number of RE crashes in the history of my city is zero... stock market crashes have occurred more than once per decade.

RE could crash, no doubt, but the people who have been predicting a crash every year since I started paying attention (a couple of decades) is high and they have been wrong every year but they continue to sing the same song.


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## My Own Advisor (Sep 24, 2012)

none said:


> How much is lots though? I think it only takes a little to trump up the market (4% by west coast standards) but the thing is foreign also bail a lot faster too which makes a crash more likely if things get a bit shaky (I think at least).


This is true, foreign investment can flow in and just as fast, it can flow out.

I personally never thought I'd see a shack-of-a-home in Vancouver worth more than $1M. Crazy. I suppose what RE is worth is whatever the highest bidder is willing to pay. Doesn't matter if there is no logic or not 

Example:
http://thekavanaghgroup.com/mylistings.html/details-54343858


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## james4beach (Nov 15, 2012)

none said:


> I just read a lot here about people getting advice to 'put all of their cash in HSA or GICs if they want to use the money in less then 5-10 years. I think James4beach is the worst on that one. Really I've never understood the fear of people being under their initial principle after a certain time period.


It's because in a short time horizon, you face a relatively high probability of being forced to pull out your funds at a loss. All I'm doing is echoing the standard advice in investments... nothing novel about what I'm saying. The probability of realizing a loss declines significantly with the duration of investment.

Financial planners all agree on this too. It's why retirees and near retirees are advised to keep a healthy amount of cash/GICs for their short and intermediate term needs. When you need the money just a couple years in the future, common wisdom is that you don't expose it fully to the stock market.

*Some food for thought:*

For those of you who think 100% equities is good, a simple question: if 100% is good, then wouldn't 150% be better? You fully-invested folks say that you're confident the market will go higher and you're comfortable with declines, since you don't believe you will ever have to realize those losses. Based on this logic, you should always be operating with leverage (for example constantly buying XIU calls or using broker margin) - right?

If you are comfortable with 100% equity exposure, that means you are not bothered by losses or think you'll never have them. And if losses are really a non-issue then leveraging up would be a no brainer.


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## none (Jan 15, 2013)

James - you kind of jumped the shark on that one (again).


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## AltaRed (Jun 8, 2009)

FWIW, I agree (somewhat ) with j4b. If you need the money in 2-3 years, or even 3-5 years, one takes significant risk with equities. If one is flexible on timing and therfore by definition it is no longer really a 'need', then by all means go all in.

FWIW2, when I was an ex-pat for 3.5 years back in the early 2000's (not knowing it was going to be 3 or 4 or 5), I kept my 'house money' in a HISA. No loss of sleep worrying about it.


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## Pluto (Sep 12, 2013)

james4beach said:


> *Some food for thought:*
> 
> For those of you who think 100% equities is good, a simple question: if 100% is good, then wouldn't 150% be better? You fully-invested folks say that you're confident the market will go higher and you're comfortable with declines, since you don't believe you will ever have to realize those losses. Based on this logic, you should always be operating with leverage (for example constantly buying XIU calls or using broker margin) - right?
> 
> If you are comfortable with 100% equity exposure, that means you are not bothered by losses or think you'll never have them. And if losses are really a non-issue then leveraging up would be a no brainer.


Risk isn't really in volatility. Risk is increased by buying a low quality business. If you buy high quality well managed companies at a good price, volatility should not concern you much. 

100% is good for long term saving. And there are occasions when 150% is warranted, usually near the beginning of a new bull market when valuations are stellar.

Borrowing to buy stocks is not a bad idea. If borrowing to buy a house is OK, why not borrow to buy stocks? Supposing one borrowed and bought a tsx index fund in '08 or '09. They'd do fine, and they would be years ahead in their savings program. By 2014 they could probably sell about 1/2 of their units to completely pay off the loan. And the 1/2 they have left would have cost them 5 years of monthly payments, a mere fraction of their value.


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## DavidW (May 27, 2016)

Diversify a portfolio among sectors and don't make any positions too large. Commissions are much better now compared to years past and are much more helpful to somebody just starting out. To have all positions below 5% of the portfolio you would need 20 stocks and that could take a number of years if you are young and just starting out. Percentages play a big part so don't worry so much about the number of shares in a position. I have about 45 companies right now so some I keep an eye on and others like the big banks and telecoms I don't check on that often. I try to focus on the portfolio and not what an individual position is doing. Not all of my positions are in positive territory, the ones that are not are still living up to the reasons I bought them for. Not all high yield stocks are bad but likely require a tempering of growth expectations, buy quality companies but don't be afraid to include a little higher yield. Is a stock that yields 8% for 10 years but doesn't rise in price a bad thing? It is just a thought as all of the stocks fluctuate somewhat but the higher yielding ones generally are paying out all of their earnings so long term growth will be tough. Having quality companies means you will have a quality portfolio.

Just about all of my selling when I sell is because of margin requirements. As I'm still trying to accumulate it means margin is always thin, which naturally means I have to be ready to sell, something, so when I make purchases and use up margin room I usually buy a couple different stocks. And then when I need to sell I prefer to only sell a portion. With regards to all the margin debt to buy equities, my thinking is I can't take it with me but the more I do pay down the more that will be left over when the account is cleared up.

Also I am very glad I have a cash account beside the margin account. Today is the end of the month and I got low on margin room so it is good to move next months bill payments out during the month. When I get out of aggressive accumulation mode I would like to be in a position with a decent sized margin availability, a healthy dose of cash in the US side of the account to help dampen volatility allowing some dividends to be removed for living. Ok maybe that is my desired retirement mode as I may want to do a little trading to work on the margin debt after I accumulate some living cash flow - and I may want to move some shares back to the cash account if margin allows - the plan can change some as I go but the main goal for me right now is some living cash flow and strengthening the reliability of that cash flow.


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## hboy43 (May 10, 2009)

james4beach said:


> For those of you who think 100% equities is good, a simple question: if 100% is good, then wouldn't 150% be better? You fully-invested folks say that you're confident the market will go higher and you're comfortable with declines, since you don't believe you will ever have to realize those losses. Based on this logic, you should always be operating with leverage (for example constantly buying XIU calls or using broker margin) - right?
> 
> If you are comfortable with 100% equity exposure, that means you are not bothered by losses or think you'll never have them. And if losses are really a non-issue then leveraging up would be a no brainer.


Right give or take a few percentage points. Currently at 26% leverage of net worth so low 30s if just applied to the stocks. Was certainly 50%+ back say early February after riding a year and a half of losses. I have been almost continually leveraged for about 20 years. I have not had a GIC or other fixed income investment other than cash float of usually under $8000 for over a quarter century.

I do have stunning losses some intervals. See my reported number for 2015 in the appropriate thread - I don't actually remember what was the number, something in the -30%s maybe. Or the lows of early 2009 when net worth hit a trough at about 1/5 of current NW. I also have stunning gains, like this year. The thing is, the math is simple and compelling: Stocks have averaged about 8%, I can borrow at 3%, so in the long run I win. Even if stock long run going forward is say 6%, I still win. Simple and compelling. No need for fancy stuff like options and gold, never touched either. Simple math and patience.

There is one other piece to this, really the most important piece. You need an abnormal brain that does not "fear a loss more than value a gain". This last piece of the puzzle is why you, dear reader, likely cannot do what I do, regardless of "simple and compelling", you are not wired for it, and will shoot yourself in the foot the next time the SHTF.

hboy43


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## lonewolf (Jun 12, 2012)

hboy43 said:


> . The thing is, the math is simple and compelling: Stocks have averaged about 8%, I can borrow at 3%, so in the long run I win. Even if stock long run going forward is say 6%, I still win. Simple and compelling. No need for fancy stuff like options and gold, never touched either. Simple math and patience.
> 
> There is one other piece to this, really the most important piece. You need an abnormal brain that does not "fear a loss more than value a gain". This last piece of the puzzle is why you, dear reader, likely cannot do what I do, regardless of "simple and compelling", you are not wired for it, and will shoot yourself in the foot the next time the SHTF.
> 
> hboy43


 Take the math a little further then Newton to that of cycles. An investment can not always out perform @ some point critical mass will be hit. Stocks have out performed for the last 100 years or so not since man has walked on earth. Different investments will cycle in & out of that which out performs.

The commercials the boys that hedge have a better track record then the speculators. If you never feared a loss why hedge ?


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## DavidW (May 27, 2016)

I am quite a bit more leveraged than 26% but that metric is not even a consideration in 'my plan'. When a down swing happens I'll have to sell, so on the US side will sell some and go to cash and maybe supplement that some on the Canadian side and sell a little to lower margin debt. The goal while doing that will be to maintain the Canadian side cash flow above the monthly margin interest and hang on to as much cash flow as I can on the US side. As long as the companies in the cash account stay as ongoing concerns and keep paying dividends they can fluctuate all they want. 

That is my way of thinking, in reality I still have a truck loan that I want to be able to liquidate with the stocks in the cash account so I can't ignore them. As for yearly return percentages I don't really pay attention to them other than getting the values I need for income taxes. I'm trying to focus on being able to cover my living expenses, and I'm marginal on that right now, and manage/pay down the margin and HELOC interest.

fwiw, my metrics I'm using, excluding rental unit, monthly, all units Canadian dollars:

Cash flow
Cash account: $217
Margin Account: $2007
TFSA: $14

Margin Interest Coverage ratio: 1.12 <-- would like to get this to at least 1.20 so I am saving 20%
If I moved all the Canadian equities to the Canadian side of the account Margin interest coverage ratio would be 2.20

If another October 2008 happens, and yes I remember it, it is likely most shares on the US side would go to cash as that was nasty, there wasn't really any sector to hide and I did panic and sell my resource stocks even though everything was in the cash account then and I had a good job. I also remember 2000 and I only had about $3000 then. I would then have to decide how to use that cash to buy old/new shares or move the cash to Canadian side and pay down margin debt. Rebuilt account would likely be less than whatever the peak was if a slide like 2008 happens again.

Some other metrics:
Biggest gain on a position: about $114,000 which was a $25,000 bet, original money shares at $0.015, averaged up at 5, 15, and 20 cents and sold in the mid 60 cent range, whole trade took about a year and a half on a gold stock
Biggest Loss on a position: about $80,000 chasing a very high yield catching a knife, think it was about 16%, oil and gas dividend stock. Still in my account, is a reminder to invest in good companies.

Trying not to swing for the fences like that any more. Right now my biggest positions are bank stocks, and I've spread out to about 45 stocks across sectors. And I do have a few stocks with a lower yield than my margin interest rate.


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## DavidW (May 27, 2016)

lonewolf said:


> Take the math a little further then Newton to that of cycles. An investment can not always out perform @ some point critical mass will be hit. Stocks have out performed for the last 100 years or so not since man has walked on earth. Different investments will cycle in & out of that which out performs.
> 
> The commercials the boys that hedge have a better track record then the speculators. If you never feared a loss why hedge ?


What exactly do hedge funds hedge? I know a poster on another forum that keeps asking that. You can leave that for people to think about.


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## james4beach (Nov 15, 2012)

hboy43 said:


> Right give or take a few percentage points. Currently at 26% leverage of net worth so low 30s if just applied to the stocks. Was certainly 50%+ back say early February after riding a year and a half of losses. I have been almost continually leveraged for about 20 years. I have not had a GIC or other fixed income investment other than cash float of usually under $8000 for over a quarter century.


Impressive! Yes I threw out 150% as a crude number just to start some discussion on this.

Very impressive that you've been continuously leveraged for 20 years.



> I do have stunning losses some intervals. See my reported number for 2015 in the appropriate thread - I don't actually remember what was the number, something in the -30%s maybe. Or the lows of early 2009 when net worth hit a trough at about 1/5 of current NW. I also have stunning gains, like this year. The thing is, the math is simple and compelling: Stocks have averaged about 8%, I can borrow at 3%, so in the long run I win. Even if stock long run going forward is say 6%, I still win. Simple and compelling. No need for fancy stuff like options and gold, never touched either. Simple math and patience.


Sounds right to me. I don't debate the math. It takes a resolve of steel and not being bothered by huge swings in your net worth.

It also takes some caution on the math to make sure you are not leveraged to the point that wipes you out during a sharp downturn, e.g. due to margin calls / insufficient liquidity / index call options expiring worthless and having no intrinsic value.

The only situation in which you lose, by the way, is if returns going forward are very low such as the case with say Japan or the UK. So a good outcome is _not_ a guarantee. Given this group of major stock markets over 20 years { Germany, Japan, Australia, UK, France, Canada, USA } for example, your leveraged strategy would have yielded success in 5/7 = 71% of those markets.

One should be aware of the odds and the pitfalls of excessive leverage, but if fully aware of those factors, yes why not leverage up?


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## hboy43 (May 10, 2009)

james4beach said:


> It also takes some caution on the math to make sure you are not leveraged to the point that wipes you out during a sharp downturn, e.g. due to margin calls / insufficient liquidity / index call options expiring worthless and having no intrinsic value.


Oh, I have had margin calls. This is why under "normal" conditions, my leverage target is about 25% of net worth. It means I can survive when things get really nasty. I'll still fall about 50%, but I live to fight another day.

However margin calls also coincide with something "interesting" going on in the market, that is it really is a ringing of the bell on opportunity. I have sold stocks at a loss under these conditions. Most people reflexively see this as a bad thing. Why is selling something at a say 20% or 50% loss to buy something down say 75% to 90% a bad thing? Long term, isn't that better on average than selling a 20% gainer to buy a 10% gainer? The former is a psychological no no for many, the latter seen as perfectly sensible. In 2008 I sold L, BCE, BMO, RY, and PCA (Petro Canada) at a loss between 15 and 34%. I also purchased MX at $8 (~+400% today vs a sell at -34% works, no?), GE at I don't even remember, but way under current $US30.

The pounding I occasionally take is also the time of the sowing of future gains.

hboy43


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## lonewolf (Jun 12, 2012)

DavidW said:


> What exactly do hedge funds hedge? I know a poster on another forum that keeps asking that. You can leave that for people to think about.


 Their fat, fat did I say fat paychecks, (for the managers)


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## getliquid (Mar 2, 2014)

Nordic said:


> I have my parents' entire combined RRSP in equities; almost all of it is in fixed-rate preferreds yielding an average of 5.6%. Very little volatility (about 1/4 correlation to the TSX Composite), and 3x the income they'd get from GICs.
> 
> For my own investment accounts, I'm 100% equities as well, with about 40% being fixed-rate preferreds.


do you buy individual preferred shares or etfs? Mainly banks? I would like to setup something similar and get out of bonds/gics altogether.

With my US cash I have PFF which seems is the best preferred etf so far.


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