April 7, 2007, 9:10 am

A Full Example of a Smith Manoeuvre (2nd part)

by: The Financial Blogger    Category: Smith Manoeuvre
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In the first part of this example, we outlined the technical aspects of the Smith Manoeuvre. We clearly demonstrated that a couple can accumulate more than $300,000 after 25 years. If they pay off their mortgage instead of using the Smith Manoeuvre, they will take the same time to clear their $190,000 debt. In the end, our young couple could benefit from a surplus of $110,000.


In addition to the investment growth, David and Tracy could get up to $30,841 in tax deduction for Canadian resident. They would get much more if they live in the USA !  


The Smith Manoeuvre doesn’t only have its good sides. In fact, the whole strategy is based on a low mortgage interest rate and a higher yield for the investment. What if the interest charged keeps going up? What if you go through a market crash? Are you ready to loose a big part of the equity in your house?


You need answers to those questions. The most important part, you must be able to live with those answers. By using a financial planner, you will decrease the risk within your portfolio. He will build a custom and well diversified portfolio according to your need and risk tolerance. You are better of making between 6 to 7% but having a more stable and less volatile portfolio.


The Smith Manoeuvre is a long term plan (preferably over 20 years) that requires professional help. A good accountant, a knowledgeable banker and an experienced financial planner will be a great help setting up this technique. If you are comfortable with the risk implicated in a leverage technique, you should definitely consider the Smith Manoeuvre.

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