Graham Westmacott CFA

Portfolio Manager

Susan Daley CFA

Associate Portfolio Manager
  • T519.880.0888
  • 1.877.517.0888
  • F519.880.9997
  • The Marsland Centre
  • 20 Erb St. W,
    Suite 506
  • Waterloo, Ontario N2L 1T2

What is a TFSA?

The Tax Free Savings Account (TFSA) is a gift that was given to us by the government in 2009. You can contribute after-tax dollars (i.e. your take-home pay after you’ve had taxes taken off by your employer) up to your contribution limit, which carries forward each year. Each year the government outlines the contribution room available to Canadian residents aged 18 or older for the year. I’ve included a calculator to help you calculate your current contribution limit, based on your age, residency, past contributions and past withdrawals. You can also look up your contribution limit at the beginning of each year on CRA’s MyAccount.

The benefit of the TFSA is that any investments you make within the account can earn a tax free return. If your $5,000 account grows to $10,000, you don’t have to pay any tax on that growth! Within the TFSA, you are allowed to invest in more than just a high interest account; you can purchase stocks, bonds, ETF’s and Mutual Funds to help your money grow faster. I think the government should have called it the Tax Free Investment Account instead.

For more information on the mechanics of the TFSA and if it is right for you, watch the video below:


If you have any questions about TFSA’s or saving and investing money, leave a comment below.

By: Susan Daley | 0 comments

Getting Real with Real Estate: Part I

Is real estate an investment asset and how does it compare with stocks and bonds?

Frequently we are asked to incorporate real estate as an investment asset when we develop retirement and estate strategies for clients. In this context, we are not just talking about the principal residence or cottage but income yielding properties. To include real estate as part of a portfolio of investable assets requires data on the expected return, the price volatility (or risk) and how real estate prices are correlated with other investments such as stocks and bonds. With this information, we can help the client decide a strategy for managing their real estate assets as part of their total wealth.

As we will see, this is more complex than may first appear because of two characteristics of real estate: illiquidity and leverage. Unlike stocks or bonds, real estate does not trade on an exchange with transactions taking weeks or months, a source of illiquidity. Investment in real estate is often financed by mortgages, a source of leverage. We will consider two separate ways of investing in real estate: direct ownership1 and real estate investment trusts (REITS).

Direct Ownership

Single or multi residence housing, office, industrial or retail properties are examples of investment real estate that can be purchased outright or partly financed with a mortgage on the property. The investment return comes from rental income and capital appreciation. Potential costs include financing, maintenance, capital improvements and management costs.

In the U.S., the National Council of Real Estate Investment Fiduciaries (NCREIF) constructs a property price index from data reported by its members every quarter. NCREIF returns, as reported, are adjusted to remove the impact of leverage. The main challenge is that reported NCREIF data is artificially smooth because of lagged appraisal values and infrequent reporting. Imagine how different stock ownership would appear if a stock exchange displayed prices only every quarter and those stocks prices were based on an average of surveys of stocks stretching over the past year. Under these circumstances, stocks prices would be perceived to move only slowly and appear a much less risky investment than in reality. To put the NCREIF data on an comparable footing to stocks and bonds the data must be “unsmoothed”. This unsmoothing process involves making assumptions about the lag in reported data and the underlying economic drivers. The impact can be dramatic: during the financial crisis, raw NCREIF returns reached a low of -8.3% in December 2008, whereas the unsmoothed return for the same period was -36.3%.

With unsmoothed data it is possible to compare real estate returns with returns from stocks and bonds. A 2014 study reviewing the Norwegian Government Pension Fund used a statistical method (regression analysis) to get the best fit of the unsmoothed real NCREIF data (from June 1978 to September 2013) to stocks and bonds:

R = -2.0 + 0.49s + 0.51b + error term

Where R is the annual real estate return, s is the annual stock return (S&P 500) and b is the annual bond return (U.S. long term corporates).

The explanatory power of this equation (as measured by the coefficient of determination) is limited to 24%, meaning that factors other than bond and equity returns make a significant contribution to real estate returns. This equation implies that, on average, real estate investments underperform an investment portfolio of 51% bonds and 49% stocks. Put another way, the investor needs sufficient skill, not possessed by other real estate investors, to overcome the 2% annual drag on returns to match the bond/stock investor. The error term is a measure of how far any specific real estate investment return may stray from this average.

Many real estate investors own one or two properties rather than a large, diverse, real estate portfolio. In just the same way that there is wide variability between individual Canadian stock returns and the S&P/TSX, it would be unwise to assume a specific real estate investment is going to yield the return predicted by the regression equation above, especially over short investment periods. Despite these limitations, the model is useful for helping clients manage their total wealth portfolio, including real estate.

An Inflation Hedge?

One of the claimed benefits of owning real estate is that is a good hedge against inflation. The research evidence for this is, perhaps surprisingly, inconclusive. Direct real estate ownership provides some inflation protection (a correlation with inflation of 0.2-0.3) in the long term (5 years) but not in the short term.

An alternative approach to understanding the returns and risks from real estate is from examining the performance of REITs and this will be discussed in Part II.

1 Unless indicated otherwise, much of the information in this blog is drawn from two sources: Asset Management: a systematic approach to factor investing, Andrew Ang (2014) and Expected Returns: An Investor’s Guide to Harvesting Market Rewards, Antti Ilmanen (2011).


By: Graham Westmacott | 1 comments

How Much Should I Save?

If you find yourself with no money left over to save at the end of each month, even after making attempts to set up a budget, this video is for you.

In 2016, there were a few notable stories of people saving aggressively to meet their goals. The first was Sean Cooper, who paid off his mortgage in 3 years by the age of 30! The second, Millennial Revolution, a couple in their 30’s retired off their investment portfolio after forgoing home ownership, and are now travelling around the world.

Now you don’t necessarily have to make the sacrifices that these individuals did to achieve their goals, but we can learn an important lesson from them: figure out why money is important to you, develop goals according to your why, and start saving towards them.

The video below outlines how I went about saving exponentially more money for my own goals.


Why is money important to you?

If you need help setting up a budget to help you save more and give you some guidelines on what percentage of your income you should be spending and saving, watch my video on budgeting here.

By: Susan Daley | 0 comments