Congratulations! You’ve made the wise decision of buying a home. A home isn’t just a place to live, it can be a good long-term investment. Home-ownership offers many benefits: once your mortgage is paid off, your carrying costs will be a lot lower, you can earn income as a landlord from tenants and your home’s tax-sheltered (provided it’s your principal residence).

While a lot of people would like to be able to call themselves homeowners, what stops them is the down payment. Not to be confused with the deposit, the down payment is the money you have to pay upfront when buying a home. In Canada, you buy a home with a down payment as little as 5 percent for homes under $500K.

It’s becoming increasingly difficult for people to buy homes in expensive real estate markets. In Toronto and Vancouver, the price of a detached home is well over $1 million. While that may seem intimating, the good news is there are still affordable options out there like condos and townhouses to help you get your foot in the door and start building equity.

High-Ratio vs. Low-Ratio Mortgages

When saving toward a down payment, it’s important to know the different between a high- and low-ratio mortgage. A high-ratio mortgage is when you make less than a 20 percent down payment toward the purchase of a home. When your mortgage is high-ratio, you’ll be required to pay CHMC insurance, which protects your lender if you fail to repay your mortgage. Insurance premiums are between 1.6 percent and 3.6 percent of your mortgage. Your CHMC insurance is added on top of your mortgage and can add up to thousands in interest over the life of your mortgage.
If you’re able to make a 20 percent down payment, your mortgage is considered low-ratio. This can help you save a bundle on CHMC insurance, since you won’t have to pay any. I realize it’s probably not realistic to save a 20 percent down payment in Toronto, but if you can save at least a 10 percent down payment, you can save a lot on mortgage insurance.

RRSP Home Buyer’s Plan (HBP)

If you’re a first-time homebuyer, the best way to save toward your down payment is with the RRSP HBP. Using the HBP, you can borrow up to $25,000 – $50,000 with your spouse – from your RRSP toward your down payment. Not only is this money tax-free, repayment is flexible – it’s repaid over 15 years, starting in the second year.

TFSA
If you’re not a property virgin, the TFSA is the second best way to save toward your down payment. In 2016 you could contribute up to $5,500 tax-free to your TFSA. Similar to the RRSP, the TFSA can hold a variety of investment types like GICs, mutual funds and ETFs. Although you don’t receive a tax refund like the RRSP, your money grows tax-free within. (You also don’t have to pay tax when your money is withdrawn.)

At Smart Money Invest, we offer ETFs perfect for long-term savings goals like home ownership. These ETFs can be protected inside your RRSP or TFSA to help your money grow even faster. Before you know it, you’ll be able to call yourself a homeowner.

You’ve probably heard of the term “robo-advising,” but you truly understand its meaning? Robo-advising isn’t your typical arrangement with a financial advisor at the bank. Robo-advisors are virtual operations that operate on the World Wide Web. Through robo-advising you can build a customized investment portfolio with exchanged-traded funds (ETFs) at the fraction of the cost.

What is Robo-Advising?
The name “robo-advisor” is a bit misleading. When you imagine a robo-advisor, you probably picture a computer acting as your investment advisor. That may make some investors nervous putting their financial future in the hands of a robot. It should put you at ease to know that humans are working in the background to create portfolios.

Canadian pay some highest management fees of developed countries. With robo-advising it’s a lot less – you’ll only pay somewhere in the range of 0.6 to .85 percent towards management fees (this includes the costs of advice and ETFS fees). Robo-advising is a good all round solution for investors. Robo-advisors fall somewhere in the middle between DIY (do-it-yourself) investing and using the services of a financial advisor.

With how costly the MERs are on mutual funds, you’d think your portfolio would be automatically rebalanced. Unfortunately, that’s not the case in many instances. This is another area where robo-advising has a leg up on traditional mutual funds. Robo-advisors monitor your portfolio daily so you don’t have to. Your portfolio is automatically rebalanced so your investments aren’t at greater risk if your asset allocation gets out of whack.

With more than $15 billion (U.S.) in assets in the U.S., robo-advising has reshaped the investment landscape south of the border. In Canada, robo-advising is still in its infancy. Fintech (financial technology) firms are looking to capitalize on the momentum stateside and offer the same low-cost investing to Canadians.

Why Robo-Advising Isn’t Just for Millennials
Robo-advising has proven popular with millennials. This shouldn’t come as a surprise. If you ask the typical millennial what they couldn’t do without, their mobile phone is likely to be at the top of the list. The traditional business model of people visiting their bank to buy investments is falling by the wayside thanks in large part to robo-advising.

 

Although millennials may be known for their technological savviness, they’re not the only ones who are fans of robo-advising. Robo-advising is proving popular with middle-aged Canadians in their 40’s and 50’s who are frustrated with paying high fees and in return receiving little facetime with their financial advisor and instead left scratching their head with complicated financial statements. With the big banks getting into robo-advising, look for it to rise in popularity over the coming months and years, as more Canadians look to get better value for the thousands of dollars in investment fees they pay.

At Smart Money Invest, we offer you the best of both worlds. You get ridiculously low fees and a portfolio that automatically rebalances, so you can worry about the important things in life like spending time with loved ones and friends. Get started with robo-advising today and start reaping the benefits.

Should I invest in actively managed or passively managed funds?
This is one of the most important decisions you face as an investor. Low-cost investment options like index funds and exchange traded funds (ETFs) have helped passive investing grow in popularity over the years. On the other end of the investing spectrum are actively managed funds (aka mutual funds).

So which is the way to go? Let’s look at two key areas: performance and fees.

via GIPHY

“Show me the money!” – Jerry Maguire

Performance 

Investing comes down to performance. This infamous quote from the movie Jerry Maguire sums it up pretty well.
A good measure of how an actively managed fund is doing is the benchmark.

So, how do actively managed funds stack up against passively managed funds?
Over the short-run actively managed fund managers had a good year last year. Over half (55 percent) beat the benchmark in 2015, found a study by S&P Dow Jones Indices.
Not bad. But when we look over the long-term, the results skew heavily in favor of index investing.

The facts speak for themselves: the vast majority of fund managers underperform the index.
Less than one in four active fund managers beat the benchmark over the last 10 years, found the same study.

To understand why most fund managers underperform the benchmark, let’s run through a simple example together.
For the most part, the markets consist of the brightest investing minds. For an actively managed fund to outperform its peers, the fund manager has to consistently beat his peers. This is often easier said than done, especially over the long-run.

A fund manager may get lucky and beat the benchmark in the short-run, but over five or 10 years, this proves very challenging. The markets are constantly changing and evolving. For a fund manager to come out ahead over 10 years, he has to continually outperform the benchmark (we haven’t even gotten to fees!). This is a tall order, especially when actively managed funds have fees weighing them down.

Fees

The facts don’t lie: Canadians pay among the highest mutual fund fees in the world. On equity mutual funds, Canadians pay an average management expense ratio (MER) of 2.42 percent, found a study by Morningstar.

I don’t have a problem with paying fees when a mutual fund outperforms the benchmark, but the problem is most don’t. So, this begs the question, are you really getting good value for your fees? In many cases, the answer is, probably not.

via GIPHY

For an actively managed fund to beat the benchmark, it has to beat the return of the benchmark, plus fees. For example, if the MER for ABC mutual fund is 2.5 percent and the benchmark has a stellar year and achieves an 8.5 percent return, that means ABC mutual fund has to get at least a 11 percent return (8.5 percent + 2.5 percent in fees = 11 percent), just to match the benchmark. On top of that, the fund manager has to outperform the benchmark by 2.5 percent continually over the next 10 years and beyond to come out ahead. That’s no easy task!

CRM2 to be a Game Changer

Our relaxed attitude about fees could change with the introduction of the next phase of the Client Relationship Model - Phase 2 (CRM2). As of July 15, 2016, registered firms will need to provide an annual report showing fees in dollars. This will be a real eye-opener for investors. A 2.3 percent MER may not sound high, but when you find you you’re paying, say, $575, in fees a year based on a portfolio of $25,000 for a mutual fund that underperforms the benchmark, you might think twice about investing in actively managed funds.

At Smart Money Invest, we’re all about keeping investment fees to a minimum.

The less fees you come out of your portfolio, the more money that’s working for you. We offer personalized portfolios with ridiculously low fees. Our rate of 0.45% is among the lowest in the country. Check out Smart Money Invest website today and see what you’ve been missing out on.

 

After months of campaigning, the British decided their fate on Thursday, June 23, 2016. The Brexit vote was about whether the UK wanted to remain or leave the EU. The key issues were immigration and the UK keeping its independence. The polls put the Remain side ahead of the Leave side in the historic Brexit vote, but in the end it was the Leave side that prevailed. 51.9 percent voted to leave the EU, while only 48.1 percent voted to remain. The vote’s results has divided the nation, leading to thousands marching in the streets in protest.

 

 

Instability in the Markets

The results of the Brexit vote has led to much economic and political instability. If you’re planning a summer getaway, you might consider visiting the UK. In the aftermath of the Brexit vote, the British Pound fell to a 30 year low, making it cheaper for Canadians travelling to the UK. The Canadian Loonie also suffered, as investors bought up the U.S. greenback in droves. The Brexit results surprised investors, leading to markets plunging across the globe. Although markets have since shown signs of recovery, there’s still much uncertainty that lies in the months and years ahead. This has led to the UK’s credit rating being downgraded.

On the political front, British Prime Minister David Cameron announced his resignation. He will be stepping down in October. This has led to much speculation about who will be the next prime minister and lead the negotiations for the UK to leave the EU. David Cameron has said there’s no hurry for the UK to leave, but the EU has a different opinion. The UK could leave the EU as soon as two years. EU nations would like the UK to invoke Article 50 of the Treaty sooner rather than later to help bring stability back to the EU.

How Canadian Businesses are Affected

The Brexit vote is bad news for Canadian businesses operating in the UK. The UK is an English-speaking hub for Canadian businesses looking to get their foot in the door of the lucrative EU. Although it doesn’t have any immediate implications, if and when the UK leaves the EU, it could mean Canadian businesses will have a tougher time accessing free-trade. This has left many Canadian companies considering leaving the UK for another country in the EU. In the short-term, this will hurt the profits of Canadian companies and lead to more instability back home.

What Should I Do as an Investor?

As an investor, it’s easy to panic after the Brexit vote and sell your investment portfolio, putting it all in cash, but for most that’s not the solution. If you’re invested for the long-term for a goal like retirement, it’s best to stay the course. The market has its ups and downs (we’ll automatically rebalance your portfolio so it stays the course). It’s important to not lose sight of your long-term investment objectives. If anything, the tumble in markets is a buying opportunity for investors. This sale won’t last forever, so take advantage while you can.