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Does anyone know about this, how it works, what can go wrong and is it legal? Thanks

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Danny & Lara
Shady Glen-elev b
Phase 15A

Hi!
It is legal. I have lots of information on it as well, if you would like me to explain. PM me for more information, I'm not really going to try on a post, it's too difficult to convey by typing.

Jessica

I have read about it and it definitely catches my interest.
My question is how many people out there are actually doing this?
What are some of the factors to consider aside from investment risk in any portfolio?
Can anyone do this?

Cheers,
Gman

I am going to set a date with a "Smith Manoever" Seminar. Perhaps to be held at Deda.

Seeing as there seems to be some interest buzzing around how this works, I thought it might be a beneficial way for people to obtain more information on this...as I mentioned, I can't really explain this in a post, it is somewhat complicated for that type of explanation.

I am going to join up with one of my financial planners to do this informal session, I will post the date and time/location ASAP.

Jessica

Thank you.
I will be keeping my eyes peeled as I plan to attend as I'm sure will others.

Cheers,
Gman

I followed the link OneWiredMouse posted. The power point was very informative. However, the power point didn't mentioned anything about how much the bank would make extra? With a regular mortage the principle declines so each year the bank gets less and less from interest. With the principle of loan always the same the bank gets to charge interest of the full amount each year. No wonder they are so eager to help. So, where is the bank getting the extra money from? Perhaps some one can shed the light on this?

Kevin

I'm going to wait until the new year on this seminar, if that is OK with everyone...I don't think we are in Smith manoever spirit this time of the year, and with so many other commitments we are starting to have, it is hard to find a date......

Keep posted in the new year, as this is an initiative I am excited to offer in January.

Jessica

Signed up for a Smith Manoeuvre seminar next Tuesday in Oakville starting @ 7pm.

Will advise upon return.

Cheers,
Gman

Here is a post about the Smith Manoeuvre from Jonathan Chevreau of the Financial Post:

Today’s column on Fraser Smith’s “manoeuvre” on how to make your mortgage tax deductible has generated some feedback that the piece may be construed as an “endorsement” of the strategy.

That may be the unfortunate appearance, since the headline picked up on the throwaway line at the end that it may become a revolution. I think it might only because mortgage deductibility is such a big thing in the United States and it’s often been debated here.

However, as I note in a discussion about this in the forums flagged to the right, there’s nothing new under the sun and this strategy is only a variant of many schemes before it.

Even forgetting the investment loan part of it, it makes sense to pay off mortgage interest as quickly as possible. Some people may choose to do that first, THEN borrow to invest; more cautious people will pay off the mortgage and merely invest with the cash as they earn it (my personal preferred route). A variant is to sell off your non-registered portfolio (if any), use the proceeds to wipe out or reduce the mortgage, then repurchase the securities with a deductible investment loan.

I reported on the meeting yesterday because it's clear that mortgage brokers and financial planners are jumping on this and word-of-mouth by customers has taken on some kind of critical mass. The planners etc. too recognize it's nothing particularly new but they see that Smith has packaged up the concept in a way that gives them an apparent "unique selling proposition."

It’s true that I could have raised some of the caveats I issued four years ago when I first reviewed what was then a little-known self-published book.

You can quibble with the 10% stated return, as I did then. You can argue much of the effect comes from paying down the mortgage, as most Canadians already know.

The piece was in essence “reportage” of a live event in which 99% of the participants were keen about the technique. No caveats or critiques were delivered at the event, which may have been reflected in the resulting coverage.

Warts or not, a lot of people are doing this and brokers and planners see a big opportunity here. If this groundswell causes more banks to mimic First Line Mortgage’s Matrix mortgage, then that’s probably a good thing. If it causes the federal government to reassess its stance on mortgage deductibility, that too would be potentially a positive development. Maybe even revolutionary.

Would I personally use this technique? No, but that’s because I prefer to pay off the debt first, then invest in securities with cash already earned. But even if Canadians do a “half smith” and just pay down the mortgage, they’d save hundreds of thousands of dollars in interest payments. The leveraged investment loans are another thing entirely and a matter of personal preference. And as always, anyone contemplating such a strategy should check with their accountants and financial advisors.

Well you really have to think loooong term in equities and it also helps to not try to beat the market but just match it.

If someone had bought into the market at the worst possible time at it's peak in say mid 2000, then yes you wouldn't have gotten back to even a 'break even' point until say 2005. Or even not then if it was in a managed fund instead of an index and the MER kept on eating away at your money. But if your in the market for a long term period, say 10 years or more, I'd say market returns will usually beat the real estate returns. Real Estate can still be risky too, some people lost a lot in the early 90s when there was the last real estate crash. But if they were thinking long term, and were able to hold on for another 10 years, they'd still come out ahead, but not as good as they would have done if they were in a pure market equity index.

It's the people who get hammered during a crash and leave/bail out of one investment sector when it's at the bottom to go into another who typically suffer the most long term pain. They buy high, sell low, and then repeat that in a different sector thinking this time it will turn out differently.

That is most definitely good advice. Don't believe the pie-in-the-sky flavour-of-the-month investment ads that show you the high returns they made in the past years. Those past years have very little relevance to the future years.