Issue #12 - Selling and Renting: How I Will Invest My Nest Egg

Apr 05, 2024

Read time: 3 minutes

I hope everyone had a great Easter weekend. Ours was fabulous: family, family, family. Also a wonderful note from a reader:

"Eddy, I meant to email you saying that I got to the bottom of your last letter. I always look forward to when I get the notification of a new one. Having come from a completely financially illiterate and struggling immigrant family, it feels SO damn good knowing I’m setting up my daughter for success. So, thank you. Hugs to MJ and baby."

Notes like this keep me going - and to the reader specifically - you are awesome and keep doing what you're doing. 

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1. Personal Finance

The door dash piece was a hit. Two incoming comments from readers I thought interesting to share:

"Neighbors that we have across the road from us order food in for breakfast, lunch, and dinner everyday. They're in their 30s. Who teaches people that that's OK?"

I'm at a loss for words. Maybe someone should print off the last email and slide it under their door....

"DoorDash Gift Cards. Total farce. Better to give an amazon gift card, or better cold hard cash. Perhaps a cook book, too."

I agree.

 

2. Stock Markets

Q: Everyone knows you've sold your townhouse but they might not know that you're moving to a rental. After you pay off your mortgage and expenses, you will have a nest egg to invest. How will you deploy that capital? Equities, you've been saying there's never a bad time to buy equities? Fixed income? And why?

A: Great question. Starts with life goals and then 'what's the money for' and when. 

For Mj and me, the goal is to buy a home in 1~2 years. We are renting in the short term not because we are bearish on housing, but because we are moving closer to family and want to take our time and find the right 10+ year home.

Transaction fees and moving costs on real estate purchases are no joke, and I loathe the idea of buying a property only to have to move again soon.

So, the time requirements on the new cash nest egg are very important: the time is (relatively) short and not conducive to 100% equities, because security of down payment money within this time horizon is paramount.

I always tell people - in my course as well - that any known large expenses within 1-3 years - ie a down payment - should NOT be invested in pure equities.  Yes, equities long term are the highest returning asset class, but also come with ups and downs.

And I have enough "Equity" exposure via Real Estate (as GP, and LP), my S&P500 ETF (XSP) and Bitcoin (not equity, but equity style risk/reward in a sense). I won't make any major changes here except for Narland deals and adding monthly $1,000 to S&P500 and Bitcoin. 

My action items/priorities will be:

  1. maxing TFSA for MJ - will buy ticker $HISA which is the Evolve ETF for 'cash equivalent' security and 4.8% net yield.
  2. topping up my TFSA - ditto
  3. contributing to RESPs for Julia Sofia - 100% Equity S&P500

I will not be contributing to my RRSP.

The balance will be in my non-registered (taxable) account and will be exploring buying corporate bonds trading at discounts to get (a) security and (b) increase capital gain treatment as I have unused losses to use up.

If this sounds a bit complicated vs what I discuss in this newsletter about the "S&P500", it's because it is. And everyone's situation is different.

But once you take care of your short term needs, then long term goals based investing is key.

Our major goal: give Julia Sofia $3,000,000 in 40 years tax free - the easiest way to do that is stick to a $7,000/yr S&P500 strategy (outside of the 'rest' of our financial planning requirements).

This we are doing.

She's in the first inning of a 40 year ball game and things are looking good.    

 

3. Real Estate 

At the Vancouver Real Estate forum this week, Benjamin Tal, the CIBC Chief Economist, predicts 100bps of interest rate cuts by the end of 2024. He says the Bank of Canada should be cutting rates now, but doesn't expect them to start until July. Not sure if he'll be rightl. But the thousand or so eager participants in the conference centre certainly hope he's right.

We'll see how the hope trade goes. 

 

1 Quote

The greatest glory in living lies not in never falling, but in rising every time we fall.

-Nelson Mandela

 

A Question 

If you were to sell and rent, how would you consider investing in the short term? 

 

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Thank you

Eddie Gudewill, CFA

 

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