With a modest salary and diligent savings, Jean-Marie Brideau achieved what many Canadians felt was impossible. He could have retired without a home.
The 76-year-old Moncton resident has hundreds of thousands in savings and feels secure in the stable local rental market. He still works, but only because he wants to. He will also receive a pension when he retires, but he has saved enough for him to be fine without it.
If you’re looking for secrets, there aren’t any. Brideau was simply a disciplined saver, having consistently saved about 20% of his income since he was 21. Initially invested primarily in mutual funds, he now dabbles more in exchange-traded funds.
He amassed this wealth without a lavish income. His estimated salary is believed to hover around around $70,000 in today’s dollars. His financial life proves that there is a secure retirement path that can outperform real estate.
“It’s hard to say, but I feel like I came out first,” Brideau said.
Millennials and Gen Z may have expected higher interest rates to cause home prices to plummet, but that didn’t happen. House prices are relatively resilient against high interest rates, and ambitious immigration targets are putting pressure on housing supply. High interest rates have made it increasingly difficult for young people to own property without some form of financial assistance to cover the down payment.
Even Lisa Guo, an investment specialist at Vancouver-based Steadyhand Investment Fund, has come to the conclusion that she may not be able to buy a home on her own.
She recently changed her investment strategy in view of the possibility of not being able to purchase real estate. Guo says Canada’s idolatry of home ownership is frustrating people, especially those who can’t afford a down payment.
So how should you invest for retirement without a home?
Ben Reeves, chief investment officer at Wealthsimple, says people are often too preoccupied with what products to invest in.
Rather, the first thing new investors need to build is a discipline of saving. At the beginning of your investment journey, a consistent deposit will have a much greater long-term impact than the type of asset you start with.
Take the time to figure out how much you can save by renting instead of owning (think condo rent, insurance, maintenance costs, etc.) and try to save the difference each month. .
That’s a good guideline, Guo said, but investors shouldn’t necessarily feel bad if they don’t hit the target. Stocks have outperformed the housing market when you zoom out over the last few decades.
The next thing people have to do is get used to the idea of high-risk portfolios.
Reeves said people with a long-term investment horizon can afford to make risky but profitable investments and should take advantage of it.
“Typically, we provide our managed clients with a highly diversified exposure not only to the global equity markets, but also to different types of equities, including higher quality equities and higher risk equities. We are trying to do that,” Reeves said.
Those with more investment know-how can choose to invest on their own using platforms like Wealthsimple and Questrade, but Reeves says the average person outperforms low-fee managed portfolios. I have doubts about its ability to perform.
Investors, on the other hand, can consider hiring real advisors through brick-and-mortar stores or online companies like Wealthsimple. While this may involve increased costs, it provides valuable insight into financial goals and managing different economic climates.
In any case, decades-old investors should focus more on stocks than bonds, Mr. Guo said. At least 70 percent equities are considered a growth portfolio. For someone who also needs short-term savings, a separate account with his 60:40 split between stocks and bonds is appropriate if the money he plans to use for more than five years.
The type of account you use is also important. Generally, Canadians in the lowest tax brackets have the benefit of tax-free withdrawals and not much to gain, so they should initially put their investments into a tax-exempt savings account (TFSA). You will receive income tax benefits from your Registered Retirement Savings Plan (RRSP).
A new First Home Savings Account (FHSA) may also be a good account to use. Yes, this is for someone saving as a down payment, but if the funds in the account are unused, he can send money to RRSP without penalty or impact on her RRSP limit. With FHSA, even those who are not married can benefit from the idea of renting for life.
But Guo’s warning: FHSA must close within 15 years of opening. If he thinks he might buy a home one day, he could be making a mistake opening the FHSA too soon.
The reality is that if you want to invest in retirement as a renter, you’ll need to save hundreds of thousands, or even a million dollars or more. That means, at some point in your investment journey, you’ll have enough money for a home down payment.
Mr. Guo said getting a mortgage for the first time in his 40s and 50s could be risky. Stacking up everything you need to buy a home can put your life in jeopardy with higher mortgage payments and home maintenance costs. Ability to retire on time.
But she also says that decisions at that point in life shouldn’t be purely financial.
Some people don’t want to have a landlord and want to own a house because they want the security of starting a family or because they want to secure long-term housing costs. Some people hate the idea that housing will eat up their cash flow in the short term and want more flexibility in their lifestyle.
“Housing is certainly part of an investment portfolio, but it should not be the main reason for buying a home,” Guo said. She is still open to her idea of owning a home herself.
“Buying a home should be less of a financial decision and more about what’s important to you and your lifestyle.”
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