Meet Monica. She’s a busy single mom with a government job, a home in Toronto, a rental property, various investments, and two teenagers about to head to university.
When she came to me, she had been using the same accountant and two investment advisors for 15 years. After looking at her financials, it became abundantly clear that there was zero coordination between the three parties. There were no efforts being made to help Monica yield maximal returns. In fact, both advisors were selling similar high fee mutual funds, which resulted in Monica spending over $25,000 per year in investment management fees.
Unfortunately, this is the reality for many Canadians who are unaware that better options exist — options that can have a significant impact on their future. I wasted no time making some important changes to Monica’s financial plan using the following three strategies.
1. Minimize Investment Fees
As a fee-based financial advisor in Toronto, I charge my clients a tax-deductible 1% fee. For Monica, this resulted in a dramatic shift to forty (40%) of what she was paying her financial advisors, saving her $15,000 right off the bat in annual management fees. And, unlike mutual funds where the fees are embedded into the returns and not fully disclosed, my fee is transparent and tax-deductible, which saved Monica an additional $2,000 per year in income taxes.
2. Optimize Returns
We placed Monica’s investments into a diversified portfolio of Vanguard ETFs. In addition to lower fees, these index funds outperformed her existing mutual fund portfolio over any investment horizon. This resulted in a win-win-win situation for Monica’s investments: drastically lower fees, greater tax efficiency, and better overall performance.
3. Save On Interest & Taxes
Neither of Monica’s previous advisors or accountant had suggested she execute the Smith Maneuver — a strategy used to convert the interest paid on her mortgage into a tax-deductible investment loan. When the mortgage on her primary residence in Mississauga came up for renewal, Monica executed the Smith Maneuvre. That way, her mortgage could be considered an investment loan by the CRA. By writing off the interest on her loan, Monica was now on the path to saving over $7,500 in taxes each year moving forward. This was yet another significant milestone towards her financial security.
Monica’s story is all too common. Every day I see too many hard-working Canadians paying debilitating fees for underperforming mutual funds, not being set up for success when it comes to their mortgage, and generally paying too much income taxes.
When tallied together, Monica’s new plan resulted in annual, after-tax savings of over $25,000 per year.
Monica’s story illustrates just how powerful these combined strategies can be. The kicker is that the earlier they are implemented in your investment journey, the greater the rewards will be when factoring in the power of compounding interest over time.
For a free, no-obligation illustration of how these strategies can apply to your financial situation — and what the outcomes could look like — get in touch with Kevin Bell today. Your better future awaits.