# HELOC and SM financial planners



## amitdi (May 31, 2012)

Hi,
I am planning to do SM over next few months/years. I googled for financial planners doing SM and I didnt get much information. I guess the strategy hasnt sunk in the masses yet.

Maybe this is too many details too early, but I want to line up all my ducks before I start. The other day i told my wife that SM is like driving on a highway. You cant stop, you cant exit. Once you start you have to go all the way (especially if the markets sink after you start). My question to people already doing it

1) How much do you pay for the financial planner doing this?
2) How often do you have to meet the planner? Just one to set it up/ Annuallly/ Once a quarter ?
3) Do they do your taxes too?
4) If not, then do you need an accountant? Because theres all sorts of money flow and all. Or can any tax filer (the one at H&R) can do it..


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## Eclectic12 (Oct 20, 2010)

You could argue I'm doing leveraged investing instead of the SM but based your questions - I believe the info is relevant.

1) Nothing as the HELOC was setup when I arranged my mortgage and I do my own investing.

2) I usually check the markets/status once a month - more often if I think there is a buying opportunity.

3) I do my own taxes - it's all pretty much the same calculations. The main question what types of investments and why types of income do they pay. If the investment only pays dividends, then T5 tax form will list the yearly income that is taxable. The adjusted cost base for the investment (ACB) will have be re-caculated when buys and sells happen. When sells happen, there will be capital gains to report that tax year.

The secondary question is whether you've documented the needed info while it is readily available. The times I've had trouble is when I discovered late in the game, I needed info that previously had been easy to get but due to buyouts etc., it was not easy to get.

A good documentation & bookkeeping system that you will use consistently is important.

4) As long as you obey some rules and keep the investments simple - a spreadsheet or software program works great, IMO.

Example - I keep only the investment load on the HELOC. That way the statements document the costs for me and there is only on situation where the interest would not be tax deductible.

Here are some links, where the starting point was the CMF Taxation section.
http://www.milliondollarjourney.com/the-smith-manoeuvre-a-wealth-strategy-part-1.htm
http://www.milliondollarjourney.com/the-smith-manoeuvre-a-wealth-strategy-part-2.htm
http://www.milliondollarjourney.com/key-tax-considerations-on-an-investment-loan.htm
http://canadianfinanceblog.com/how-to-calculate-your-adjusted-cost-base-acb/

The links may seem intimidating - but if you take your time and work through them, it's relatively simple math - unless you go for an investment that pays Return of Capital (RoC).


Cheers

*P.S.*

The bigger question if you plan to choose investments on your own - how comfortable are you selecting investments?


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## amitdi (May 31, 2012)

Eclectic12 said:


> You could argue I'm doing leveraged investing instead of the SM but based your questions - I believe the info is relevant.
> 
> 1) Nothing as the HELOC was setup when I arranged my mortgage and I do my own investing.
> 
> ...



Eclectic,
You have not answered any of my questions 
But you have provided all the info that I needed. This was exactly I was looking for, as if you read my mind.

I am a DIY investor. I dont need a professional choosing and tracking investments. The bigger question that you stated about choosing investments is actually the easier part for me (I am not saying I am an expert or market timer or anything, but I have the investment knowledge and discipline).

My concern in the original post was more on segregating between dividends&income vs ROC vs ACB. Because things can get tricky when you are claiming deductions. Fraser Smith's book has "consult a financial planner" atleast at 50 different places.

I will go through the links, but what you answered in part 3 is good information. This is the 1st year I will have to file tax with investments. Till last year, I have filed taxes on my own but never had any investments (just came out of my student life last year). So I did not know that your T5 along with few calculations gives out what is ACB,ROC, etc. So if the same can be carried forward when I have a SM, then that solves the tax part.


Note: I also needed an CFP for giving me detailed analysis on RRSP vs HELOC payback. Thats a different topic altogether. I know there are long discussions at length on MDJ and other forums on this. But I think spending few bucks on getting the detailed analysis for my personal case would be worth it.


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## amitdi (May 31, 2012)

Quoting MDJ's point in one of the links:
The dividends must EXCEED the interest as per the finance dept but the CRA ignores this.

Do you follow this in your case? What if the interest rates rise to 6-7%? Where are we going to find cheap stocks with that kind of dividends? I think thats CRA's rule to not allow capital gains does not make sense. I remember Ed Rempel mentioning on one of the forums that their clients dont invest in strictly dividend companies, dont remember which forum it was.


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## Four Pillars (Apr 5, 2009)

You don't want a financial planner. Just do it all yourself.

ROC can be avoided by not buying securities that pay them out ie REITs. 

Here is my advice on leveraged investments which is a far better choice for you - going all in on an SM is not a good move for a first time borrower.

http://www.moneysmartsblog.com/smith-maneuver/

Just borrow an amount you are comfortable with.


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## Shayne (Apr 3, 2009)

> Note: I also needed an CFP for giving me detailed analysis on RRSP vs HELOC payback. Thats a different topic altogether. I know there are long discussions at length on MDJ and other forums on this. But I think spending few bucks on getting the detailed analysis for my personal case would be worth it.


You can do this yourself pretty easily. It gets difficult as you have to make assumptions on future rates of return, future interest rates and future tax brackets.


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