Comments on: December 31st Smith Manoeuvre Update

By: For a Better Diversification in my Smith Manoeuvre Strategy - Finance - Fullmonte

Thu, 05 Mar 2009 17:44:37 +0000

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By: The Financial Blogger

The Financial Blogger — Sun, 01 Mar 2009 14:09:58 +0000

Swilt, I would say that the biggest risk is an emotional risk.

How would you feel after you have put 25K in your SM instead of paying down your mortgage and the investment only worth 15K?

This situation will happen (I was -27% for 2008 with my SM). However, over the long run, the market should give you 8 to 9% and your interest rate will be between 3 to 6%…. the spread is quite interesting

my best advice is that if you go with the Smith Manoeuvre, it is for AT LEAST 10 years (preferably 15 or 20).

Cheers,

TFB.

By: Swilt

Swilt — Sun, 01 Mar 2009 13:47:15 +0000

Thats a good question, like I said I am just gathering info right now, that likely would have come up should I be successful in trying to execute (after selling my wife). I should find the comment and link it here to get you two talking.

My issue with all the talk of the risks around the SM is that as I fill my RRSP, TFSA, RESP etc…..where does the money go, to the market. So if I have extra money lying around (or decide SM is a better place for it rather than TFSA, RESP etc.) and it goes into the market after paying down my mortgage and being borrowed then where is the risk increased.

I understand Interest rate fluctuation can bear some but then you come up with an exit strategy, law change by CRA (which from what I read is minimal due to the fact all of our business system is based on this so it would tear the fabric apart) or a drop in housing market…which if you are buying and holding should not be an issues either.

I will look for that post in the thousands of articles I have read, and get it here for you.

Cheers

By: The Financial Blogger

The Financial Blogger — Sun, 01 Mar 2009 00:59:05 +0000

Swilt,

This sounds like a great diversification. I have a question thought, if you do the basic Smith Manoeuvre (i.e. invest on a monthly basis instead of paying down your mortgage), how can you manage buying all those ETF’s on a monthly basis?

I suggest you look for index funds (see my latest post about my Smith Manoeuvre, I changed my investment strategy).

Cheers,

TFB.

By: Swilt

Swilt — Sat, 28 Feb 2009 22:48:02 +0000

Hi there, I thought I would share this with you as I have been researching all over the internet on the SM as I prepare to sell my wife on the idea.

You talked about diversification, so here is from a guy named Pitz on some of the forums I have been reading whom seems to really know his stuff.

This is what one of his family members does for the SM:

55% S&P/TSX60 Index
20% S&P500 Index
12.5% MSCI Pacific Index
12.5% MSCI Europe Index
5% MSCI Emerging Markets Index

The reasoning is, because she is a Canadian, she should logically have an overweight on Canadian stocks (esp. to take advantage of the dividend tax credit), and the rest of the foreign content is roughly in balance with worldwide asset allocations by market capitalization.

The portfolio is funded by:

55% of the borrowing is in Canadian dollars
25% in US dollars
6% in UK pounds
6% in Euros
6% in Yen
2% in Hong Kong Dollars

So basically, its an almost fully hedged globally diversified portfolio with an overweight on her home country, Canada.