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Discussion Starter #1
Hi all,

Long time lurker on the forums, and some posts in the past that were attached to my old account.

Anyways, just thought I'd jot down my fiscal state for tracking, feedback and such.

Current State:

Income Me $80,000, company car and 10% bonus, RRSP company contribution of $4000/year (which I'm matching to get), 2 years with current company
Income Wife $76,000, LAPP Pension, 6 years seniority. Currently on mat leave, returns to work in August.
I'm 33, wife is 32.

Assets:

$100,000 in TDW with Private Investment Broker (1% per year management*)
$160,000 in RRSPS and TFSAs (All are maxed to 2017 tax year, one TFSA holds 30,000 in TD HISA for emergency, investments are all in couch potato Index ETFs)
$30,000 in RRSP at Work
$550,000 Primary Home
$370,000 Rental Property
$37,000 Vehicle 1 - 2016 SUV
6 years of LAPP investment for wife

*The Private Investment Broker is closely monitored, and for the last 5 years has matched or beaten (by 1-2%) the performance of my index ETFs (after MERs). So kind of just not putting all eggs in one basket, the Broker holds weird holdings such as unique bond certificates and trusts and stuff like that

Liabilities:

$420,000 Mortgage on Primary Home
$305,000 Mortgage on Rental Home
No car debt, credit card debt, etc.

So my first question to readers thumbing through these forums is what are general thoughts for where we stack up in life?
We're not high income considering we're in Alberta, but we try to be mindful of our spending and not live the high life.

We Just had our first baby who is now 8 months old. When we start considering the going back to work expenses it's starting to concern me a little. I guess this is the mid-life crunch? Or the early family crunch?

When wife goes back to work, these effects will occur:
- Parking for wife at work $220 / month
- Daycare 3 days a week $900 / month (other 2 days grandparents)

In some ways our bottom line is better when she was on mat leave then when she will return to work...

Anyways, that's about our state for now for first post. All comments/questions/thoughts welcome!
 

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No RESP? Better get on that.

My opinion is that you are servicing a lot of debt. A couple of percent increase could make the rental too tight to keep, as well as potentially depress prices. If you clear 750/month after interest now, that could drop to 250 or something making it hard to keep up with amortization. Just my opinion though.
 

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Discussion Starter #3
Sorry - left the RESP off

Have $5k in RESP and got this year's donation ready to go

The mortgages are on a 5 year locked in til 2021 at 2.69%, perhaps we might get smoked when they unlock...?

Rental is currently cash flowing $180 / month positive after house insurance, property tax and mortgage. Renter is locked in til summer of 2019 lease (good renter, no issues).
 

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Could be a rude awakening when mortgage terms come due. Could easily be 4 or even 5% at that point. Can you handle the payments?

It is water under the bridge at this point perhaps but I have no idea why you would have gotten into a rental property when you are carrying so much in a non-interest deductible mortgage on your PR. I would not remotely have gone down that path before the mortgage on the PR was essentially gone. The one bright spot is having enough capital investments (non-reg and TFSA) to potentially buy down the primary mortgage substantially (by at least $150-200k) in 2021. I would be sure to maintain that flexibility for that potential day of reckoning.
 

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... the Broker holds weird holdings such as unique bond certificates and trusts and stuff like that

i for one find this a tiny bit concerning, although the overall picture looks excellent & congratulations on the new addition to the family.

it seems to me that a party such as yourself would be looking to build up quality equity holdings over time, in order to balance the seesaw against the weight of the mortgages (as others have mentioned.)

i don't see any need for exotic investment products & i'm well aware that these can often pay hidden fees to their salespersons. The new CRM regulations have brought standard trailer fees into the light of day; but there still can be other financial incentives pledged to sales personnel that an investor will not readily see.

fortunately you have the greater part of your non-RE investments in self-directed registered accounts, in ETFs & similar holdings that are free from extra fees.

it's understandable that, especially with the new 8-month-old, you have no time on your hands & you are happy to delegate part of the portfolio management responsibiliy to someone else. But i'm wondering if you have had the time to study those "weird holdings" & whether all of them are as sound & as healthy as a young father would want for his family patrimoine.
 

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900/mo for 3 day per week child care seems expensive. Have you considered a day home? We love the smaller, personal care, and it's usually cheaper and more convenient. We pay 1300/mo for 4 days a week with a 1 and 3yr old (Edm).

What is the rental cash flowing after income taxes on it? Since principal is not deductible, rentals have the weird possibility of turning a cash flow positive pre tax amount to a cash flow negative after tax amount. Make sure you are putting somethign away for deferred maintenance (your cash flow would be net of this).

370K is a lot for a single rental. Common metrics say it should rent for at least 3K a month, but that's highly unlikely.

Other than that, you're doing good. The 'unusual/weird' investments at TDW is a little odd, as long as you're aware of the risks you are carrying for the extra returns as there should always be a tradeoff.

A 2016 model year SUV worth 37K now was probably a 50-55K model when brand new. That seems a little excessive for your finances.
 

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Daycare for infants is very high. It'll go down at age 2. So that'll help. For some families, they barely break even when mom goes back but they do it because at least you'll have that second job when the little one is in school full time.
 

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Discussion Starter #8 (Edited)
@Altared

The rental property is a bit of a story.

We never set out to buy a rental property - its the property that used to be our primary residence, that we ended up moving into something bigger and better.

At the time, market was depressed, and its a great property so we decided to turn it into a rental in the small probability we have need of it down the road (in laws move to town or an in law moves back to town from his sabbatical).

So we never set out to get a rental, it just turned into a rental...

As for the mortgage rate... yeah, I'm starting to get concerned about mortgage rates and the wife and I have decided to start taking some chunks out of it in the next few years. We opted to supercharge the savings over the last few years as the environment seemed to indicate rates would hold low. So we hope to hit it with whatever we would have invested into RRSPs over the next few years.

We normally can do 10-20k into RRSP / year, so hopefully this chunks the primary home mortgage a bit.


@humble_pie

'Weird' is a bad term... they are investments I understand, but not necessarily fully know enough to have chosen them myself. The investment broker is kind of another long story... So my mom saved some money for us from our involvement in a company in our university years. She gave this to her broker to invest on our behalf. When I took over the account I had 60K in Index and 60K with her, and thought "Let's see what she's got".

Her total management is 1% of funds and I can see that on my reports. There doesnt seem to be any fund of fund fees or such. And she's always matched or beat my index ETFs so I'm not really going to look the gift horse in the mouth.

Her holdings for now are:
ATL2492
CCL551
FID269
PGF320
TDB422
FAF5805
FID665
FID1284
TDB2725

I mean, I get what each one kind of does, but not enough to have said 'I should buy this or not'.

Remember the rest of my stuff is all just indexed.

She is also not getting any new money, so she has grown that 60-> 100K in the last 3-4 years.
 

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Discussion Starter #9
This is great discussion everyone, thanks so much!!!

@nobleea

The wife has this 'childhood' learning center from our neighbourhood in mind, and I don't really have it in me to make this a mountain to get into it over her about. It is like 1 block from our house, supposed to be really great, brand new facility, with great reviews. Also its walking distance from my aunt who can help with pickup/dropoff and my in laws who can also help with pickup/dropoff.

So I agree, it's not the most economical, but not one I'm really willing to go to bat over.

The rental- see long story above. It's not the ideal rental, but there was a few too many variables going on to straight out sell.

Would I buy it again today as a rental? Absolutely not. Did it make sense to hold it when we moved up houses? I think so. Could I be doing something else with the equity invested into it, probably. My brother is my accountant, a CPA who I consider to be quite good. Between him and I we worked out about an 8% return of investment, not counting any capital appreciation (and factoring 10% of rents for maintenance).

In 2-3 years when the first mortgage is done and all my family have kind of 'settled' we'll take alook at it then.

The SUV - well its a Toyota Highlander. We bought the 2016 model in Feb of 2017 to save money. Also from my research, the Highlander drops about 3k of value per year (as opposed to the mega 10k drop when rolling off the lot). It was the wife's upgrade from her little corolla to something a little more family friendly.

Definitely the fastest depreciating asset in the lineup. We bought it for about 42k in 2017 for a pretty good deal (XLE class which MSRPs for 55k). Her uncle owns a share of the toyota dealership so I have to think we did ok about there.
 

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Her total management is 1% of funds and I can see that on my reports. There doesnt seem to be any fund of fund fees or such. And she's always matched or beat my index ETFs so I'm not really going to look the gift horse in the mouth.

Her holdings for now are:
ATL2492
CCL551
FID269
PGF320
TDB422
FAF5805
FID665
FID1284
TDB2725

I mean, I get what each one kind of does, but not enough to have said 'I should buy this or not'.

Remember the rest of my stuff is all just indexed.

She is also not getting any new money, so she has grown that 60-> 100K in the last 3-4 years.
Your only saving grace here is the so called 'out performance' so far. But IMNSHO, it is ridiculous to have so many funds (1 or 2 would have done) and each of those funds has an MER above and beyond the advisor's 1%. I don't know the individual symbols and am not about to look up those MERs but you are paying a lot of hidden costs on those funds. I doubt very much 'out performance' can continue with such headwinds for the long term. In any event, don't let her swap out those holdings into any new DSC type funds.

P.S. My only comment on your so called 8% ROR on your rental property seems a long stretch to me. But not here to argue that.
 

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Your only saving grace here is the so called 'out performance' so far. But IMNSHO, it is ridiculous to have so many funds (1 or 2 would have done) and each of those funds has an MER above and beyond the advisor's 1%. I don't know the individual symbols and am not about to look up those MERs but you are paying a lot of hidden costs on those funds. I doubt very much 'out performance' can continue with such headwinds for the long term. In any event, don't let her swap out those holdings into any new DSC type funds.



yes, i thought those things too but didn't say anything for the reasons set forth below. However, now that the issue of fees being paid for financial advice has been raised, perhaps i could add that often we see a Newish investor in cmf forum who arrives with an advisor. Quite often the advisor sounds not unreasonable, although such advisor is obviously putting Newish into funds that benefit himself or herself as a salesperson.

some in the forum wlll then intervene to point out how Newish is being charged fees that are greater than he thinks.

often i go along with it, though, because often it's clear that Newish is receiving a certain value in return for the fees he is paying.

the smaller the capital involved, the more i will go along with it. For example, a very young investor with only $15,000 to invest is paying his advisor somewhere between $300 & $400 per annum, an amount that seems reasonable to me.

in this case, most of the listed mutual funds have MERs roughly in the neighbourhood of 1.50%. To this should be added the TERs, or trading costs for the underlying portfolios, since these are not included in MER calculations.

depending on the turnover of a particular fund, TERs can range from almost nothing to something like half-a-percent of the money involved. Let us say, for the sake of argument, that TERs for the mutual funds in this list average .20%.

add the 1% that our OP is paying directly to his advisor & one finds that this $100,000 portfolio is costing something like $2,700 in financial advisory fees each year (1.50% + .20% + 1%)

this is a normal, run-of-the-mill kind of investment management fee. Is it justified? on balance, in this case, i would say Yes, at least for the time being. It's justified because the OP is very busy establishing his young family & this advisor - who is apparently well-known to his family - is adding a degree of comfortable hand-holding. It's also justified because the results are equalling or even slightly bettering the indexing that the OP is doing on his own.

the only thing i question is that the advisor has failed to explain the true costs of the financial management fees the OP is paying. I would have thought the new CRM regulations require such explanation.



.
 

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Discussion Starter #12
You've all raised a great point!

I'm reaching out to my advisor for clear indication on how these fees work.

I'm not entirely new to the forum, I learned index funds from this forum 6 years ago or so and have been lurking around ever since. There is a possibility I'm paying for some churn and I don't know about it.

I'll report back what they say.
 

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Discussion Starter #13 (Edited)
Thanks for breaking out the math for me Humble (sincerely!)

Its probably worth noting that, if this is the case, then $2700 is what I'm paying in fees.

This is not the cost of this option, that would be reflected by taking this amount, and deducting from it the 0.4 or 0.5% from the index fee cost (which would normalize down to $2200 or so).
 

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With respect, you know the score, you know about etfs, and such.
So if you haven't, look up these funds. It's a dog's breakfast - us eq, cdn eq income & growth, monthly income, small cap, sci & tech, reit, cdn growth, us eq, low volatilty.

I like diversity as well as anyone else, but ask your advisor how this 'portfolio' is likely to compare to something like a diverse etf like VBAL or VGRO that will cost you about $250/yr. On $100k, that's an uptake of ~$2500/yr just in fees. Or even a 3-etf a couch potato.

Do they rebalance (churn) these MF's or are they static (I hope)? Does your advisor suggest that they can actively manage these funds? Are any of these MF's front-loaded?
 

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WADR, the difference of the current advisor option is circa 2.7% vs about 0.5% for index... or a difference of over 2% in fees. That said, there has been some value to you in that time given fund 'performance'. As Humble has said though, your advisor should be disclosing to you, all the fees you pay her, plus noting the funds themselves have management fees.

I am more concerned with the number of funds your advisor has you in. Not justified in my opinion for an account of that size and I wonder how they are structured. Front end load? Deferred Sales Charge? F series, A series, B series. With an advisor being paid 1% of AUM, the funds should all be F series (no trailer fee) and No Load (no sales charge). If that is not the case, you are being overcharged...double dipped.
 

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I'm reaching out to my advisor for clear indication on how these fees work ... There is a possibility I'm paying for some churn and I don't know about it.

i don't believe that you are paying for "churn," which is too-rapid turnover of holdings in a portfolio. The advisor here seems to have bought appropriate mutual funds for you (a few too many, as altaRed mentions, but that's another issue.)

all that is happening is that you are paying standard fees for mutual fund plus advisor management, along with many millions of other investors. I don't feel you are being overcharged (for example, in the pender capital small cap, madame advisor has chosen the lower MER model that permits her to charge a fee, without the aggregate of fees going beyond the normal 2-3%)

i can't help thinking of everything you have buzzing around on your dinner plate rightr now. Your infant. Helping your wife get ready for her return to work, which will be a huge adjustment for her & for all of you. Your own career. Even your tenant. It seems to me that, as long as the managed portfolio is equalling or besting your ETF indexes, & provided you are receiving some personalized service & help from this lady, then you have a very reasonable & workable situation for the time being.

things would be different with a larger amount of capital - the fees would be so much higher - plus an advisor who was offering unsuitable advice or worse. But this doesn't seem to be the case.

so far, so good, as they say.


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i can't help thinking of everything you have buzzing around on your dinner plate rightr now. Your infant. Helping your wife get ready for her return to work, which will be a huge adjustment for her & for all of you. Your own career. Even your tenant. It seems to me that, as long as the managed portfolio is equalling or besting your ETF indexes, & provided you are receiving some personalized service & help from this lady, then you have a very reasonable & workable situation for the time being.

things would be different with a larger amount of capital - the fees would be so much higher - plus an advisor who was offering unsuitable advice or worse. But this doesn't seem to be the case.

so far, so good, as they say.
I tend to agree this is not a burning issue currently. There is no serious underperformance so far. But a few notes in the margin for when it is appropriate to pursue further.
 

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Erome1: have you considered putting this on a spreadsheet and running some "what if" scenarios to see what happens to your net worth when there's volatility in your assets? I don't know the investment mix you're using but this might be worth trying. For example, what happens to your net worth if there's a 40% decline in equities? Real estate and equities would probably decline together.

You're leveraged overall, so a % move in your investments or real estate gets amplified.

One example of this is that a 30% decline in real estate would cause at least a 52% decline in your net worth. Probably more, once you consider your equity investments and exotic investments your broker has gotten you into. This is an important scenario to consider because a slowdown in Canadian real estate could be a significant risk to your household.

I don't know who makes your investment decisions in your household but you also have a duty to make sure that you wife is fully onboard with these risks and exposure your household has to declining equities & RE.
 

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A good exercise to do some 'what if' analysis for significant capital and RE valuation changes, but I suspect the OP already did that when keeping the original property as a rental property. Given the OP disclosed that spouse has a LAPP (Local Authorities Pension Plan), it means they are AB residents, likely in one of the 5-6 main cities. Housing has obviously been soft for about 4 years now for various reasons and there is considerably less risk of a step decline than would be the case in a number of other ex-Alberta locations.

As OP acknowledged, they will have to get some of that mortgage debt paid down before current 5 year terms are up.
 

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Discussion Starter #20
Hi all,

Thought I'd post an update and ask some questions - mostly are we on track?

Here's our updated snap:

Current State:

Income Me $86,000, company car and 10% bonus, RRSP company contribution of $4000/year (which I'm matching to get), 3 years with current company
Income Wife $81000,000, LAPP Pension, 6 years seniority.
I'm 34, wife is 33.

Assets (all values are approximates, not discussed to track returns but more of snapshot on life)

$100,000 in TDW with Private Investment Broker (Please don't focus on in reply - I reviewed this well last year after everyone's excellent comments and I'm quite content to leave this amount here!)
$130,000 in RRSPS and TFSAs (All are maxed to 2017 tax year, one TFSA holds 30,000 in TD HISA for emergency, investments are all in couch potato Index ETFs)
$140,000 in Wife's RRSP and TFSA (I must have missed this last year!)
$42,000 in RRSP at Work
$575,000 Primary Home
$380,000 Rental Property
$30,000 Vehicle 1 - 2016 SUV
$25,000 in company shares
7 years of LAPP investment for wife


Liabilities:

$410,000 Mortgage on Primary Home
$295,000 Mortgage on Rental Home
No car debt, credit card debt, etc.


So I've been tracking our 'Net Worth' as well as I can and it's doing decently - I would estimate we're at about $850k or so of Net Worth.

I'm starting to wonder about retirement. Online info says it largely depends on lifestyle etc. My parents have a nice lifestyle in retirement I want to emulate - they enjoy their grandkids and go on a cruise for 14-21 days a year. Aside from that they stay around at home, help with the grandkids, spoil them with McDonalds, etc. They income $120,000 between the two of them in retirement, but they also gift generously to their grandkids.

So first question - let's use the 70% of income and set that as my target - is this total income...? Like what my T101 says? If so, then we'll have to use $101,000 for me and $95,000 for my wife.

So target is ~$140,000 / year in retirement income.

Let's assume the principle and rental residences are paid off.

Is the estimate still like 20X or 25X that value is what we need saved up in fiscal assets? Cause that's like 2.8 million to 3.5 million!!!

I've no clue how we'll ever save up that much (considering we have only 1/10th of that saved up now!).

Someone who dabbles in retirement math, can you let me know if I'm on track, if my calculation is on track, or there is faulty logic somewhere?

Thanks!
 
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