Managed Money Reporter Newsletter — Issue 235, February 2007

Editors: Carl Spiess & Allan McGlade

Featured Articles

A Real (Estate) Fixer Upper…

By Carl Spiess, CFP, FMA, FCSI, MBA, Director

In past years, we have presented information about real estate prices and comparisons to fund investing and stated that we think longer term, that stock market investments perform better (see Issue 212).

In late January, Re/Max executive vice-president Michael Polzler presented a new set of industry statistics and proudly exclaimed: "Conventional wisdom used to be that real estate was a relatively safe, long-term investment that typically appreciates at a rate of five per cent annually. These statistics clearly tell a different tale."

They don't. Re/Max made a simple average calculation, without compounding returns to make it a fair comparison with the way that bonds, stocks, GICs or mutual fund returns are calculated.

Re/Max later issued a clarification: "Nationally, the compounded annual rate of return is 5.3%" over 25 years - which confirms our assertions over the years. More over, with inflation averaging 3% a year over the period, the real growth on real estate averages 2.3% a year, compared with 7.7% for the TSX after inflation.

The initial numbers looked impressive. A house grew from over $75,000 in 1981 to over $275,000 in 2006, leading the Globe and Mail to proclaim "Housing values more than double in 25 years: survey!" when in fact it had more than tripled in value, but still not impressive over 25 years. (I really am annoyed when publications are so bad at math!)

We have created a separate page with more charts which also show that if you invested in real estate 17 years ago during the 1990 real estate bubble, your returns are barely breaking even. The US housing market is even scarier. As with the other markets, timing is important.

We certainly believe in owning your own home, for security and for peace of mind. But please don’t think of it as an investment or growth vehicle. After your costs of home improvements, annual taxes, insurance and other expenses, which generally exceed 3% a year, the MERs on your mutual funds begin to look like a bargain, especially in light of the higher returns over 10, 15 and 25 year time horizons.

Now some would say in light of this, that you should clearly borrow against your home to invest in the markets. You could even make your mortgage tax deductible. We don’t necessarily share that view due to the increased leverage and risk. However, we do suggest that saving in the RRSP vs. paying down your mortgage is a great idea, and we would be pleased to look at the pros and cons of investing outside your RRSP if you want to look at higher growth vehicles like some of our real estate mutual funds.

More on real estate statistics

Tax Time is Coming

It won’t be long until all the RRSP receipts are mailed for the contributions made up until March 1, 2007. We estimate that receipts for individual contributions should be in the mail shortly, and payroll contribution RRSP receipts should be in the mail by March 7th. So please give Canada Post a few more days to get them to you. For a quick reminder of how much tax you saved, check out the chart (right).

If you have mutual funds outside your RRSP, you will also be getting tax information on some of those investments, and for other investments, (trusts, flow through shares etc.) more tax information is still pending.

Once again, a great source of information on the taxation of mutual fund dividends can be found at Mackenzie Financial. Their informative guide helps to explain how mutual fund dividends (outside an RRSP) are taxed, and many more topics.

Additionally, ScotiaMcLeod has a guide to tax reporting and tips which answers most questions clients have on investments beyond mutual funds.

More on taxation of investments

Special Quicken Tax 25% Discount Offer for Scotia Online Clients

Scotiabank has a special offer for clients this year. Scotia OnLine customers can receive 25% off QuickTaxWeb, an online income tax solution to complete and file their income tax return. This is a special offer negotiated to provide a convenient way for online customers to file their 2006 personal or T1 income tax returns using QuickTaxWeb. The offer is available until April 30, 2007 at a discounted price of $14.99. This is a 25% savings off the regular retail price of $19.99 for each return. The QuickTaxWeb offer can only be accessed within Scotia OnLine through a message in your Message Centre.

More on special QuickTax offer

Recommended Reading - Investment Portfolio Quarterly

The latest issue of ScotiaMcLeod's Investment Portfolio Quarterly is now online. Please read our analysts' views of the economy and markets going forward. With the Canadian dollar and oil both below their highs from last year, the markets are still surging forward and look to continue this favourable trend.

If you prefer to listen to this kind of information, check out Fred Ketchen’s podcast with Warren Jestin.

More on recommended reading (and listening)

RRSPs on TV!

In February, your Mutual Fund Reporter editor, Carl Spiess, was on TV several times on "Ask the RSP Expert" call in shows. You, however, don't need to wait for the call-in shows. Please call us anytime with your RRSP questions.

More on media appearances by your advisors

Scotiabank Among Top 50 Employers

In addition to being named one of the top 50 employers in 2006, Scotiabank has recently won the Catalyst award for being one of the top places for advancement of women in the workplace. It is rewarding to be part of a great organization that treats its employees and customers fairly. This translates into a positive relationship for everyone involved.

Mutual Fund Reporter Recommended Web site of the Month

We liked Mackenzie’s tax guide, but their Burn Rate campaign is a real eye opener. Different from most of the retirement planning tools we typically use for our serious analysis, this one uses a light hearted approach to the serious business of how to save for retirement:

  • Burn Rate from Mackenzie


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F.  416.863.7479

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