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October 13, 2008, 6:00 am

My Smith Manoeuvre – September Udpate

by: The Financial Blogger    Category: Smith Manoeuvre

You may have noticed that I didn’t do a Smith Manoeuvre update during September. It was true that my investments were going down the toilet at that time but this is not the reason why I didn’t post about it. Since I was going down the toilet too, I stopped writing posts during the first 2 weeks in September due to my illness. I would say that this is probably the biggest advantage of working with 2 to 3 weeks posts in advance in my draft bin. I also decided to report my investment portfolio on a quarterly basis.



This will give me the opportunity to discuss about more things and not only write a few lines about how much I made or I lost during that month. I was quite surprised to find out my annualized return at the beginning of this month: a big fat – 40%.

I can’t say that I am smiling but I am not panicking as well. Huge fluctuations are yet to come for the next 6 months and there is actually no reason to open your investment statement since mid 2009! You simply have to make sure that you have a solid investment strategy and that you keep going.

One of the biggest advantages of the Smith Manoeuvre is that you benefit from the systematic investment strategy. By buying every month, you have the possibility to average down your costs and get more shares.

Because of huge market fluctuation, I decided to not change anything in my strategy for now. I am still buying $400 a month of National Bank Dividend Fund. Once the market settled, I will consider other options.

I was recently looking for preferred share issued by Canadian bank, they offer a 5 to 6% return and their value don’t fluctuate much since the main reason of acquiring such shares is the dividend. Since I pay below prime as a bank employee, this almost looks like an arbitrage option.

Hopefully my next update in January will be showing better numbers 😉

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August 5, 2008, 6:00 am

My Smith Manoeuvre July Update

by: The Financial Blogger    Category: Smith Manoeuvre

The month of July was probably one of the worst months on the stock market since the beginning of the year. My overall portfolio (including registered, non-registered assets along with my smith manoeuvre investments) were showing a +5% return since the beginning of the year. Lately, I am now down by 0.50%. You can deduct that my Smith Manoeuvre portfolio followed that trend to drop at a very small (MINUS!) 2.9% return since my very first contribution back in February 2007.


Even thought a part of my mortgage is tax deductible, the market fluctuations make the strategy useless on a short term basis. Some months I am making money and others, like now, I am losing money. I am telling you, investing is not for the soft hearted 😉

So in my Smith Manoeuvre account I have:

178.278 shares of National Bank Dividend Fund for $2879.19

116.444 shares of Sprott Canadian Equity Fund for $5065.31

Total portfolio worth $7,946.87 as of August 4th.

In my previous update, I said that I would purchase the Omega International Consensus fund. I feel ashamed to say that it’s not done yet. What is the reason? Simply lazyness. In fact, I just have to pick up the phone as changed my periodic investment strategy. The overall operation with the brokerage firm would take about 5 minutes. Too often, we let our financial sins take over our investment strategy.

Committing to your investment plan is tough but rewarding. This is why writing it down and have it on a piece of paper is relevant. Every trimester, you should look at your plan and determine if you are following it. It will also help you out seeing if you reach certain stage where modification in your portfolio is requested.

I am not talking about changing your investment strategy every time you get your investment statement and make stupid moves according to the market. I am talking about following the strategy you already designed for the next few years.

I think you should review your investment strategy on a yearly basis and make your decision according to your need and your financial situation; not according to what is going on the market!

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July 18, 2008, 6:00 am

The Smith Manoeuvre Affects Your Beacon Score

by: The Financial Blogger    Category: Credit Rating & Credit Bureau,Smith Manoeuvre

For any Canadians, having a tax deductible mortgage is a real dream. Well this dream is partially realisable through a leverage technique called the Smith Manoeuvre. However, setting up this investment strategy could hurt other part of your financial situation. Since you need to borrow while doing the SM, this will influence your credit score. The Smith Manoeuvre is not really the ultimate responsible of the modifications on your credit bureau. It is the financial product used to borrow money.


The purpose of setting up a SM is to get your mortgage tax deductible. In order to achieve the strategy, you need to leave your mortgage as high as possible and flip the non tax deductible debt (i.e. your original mortgage) to a line of credit account that will be used to invest (leverage principles). Therefore, you will need a Home Equity Line of Credit (HELOC).

About a year ago (maybe it’s two, I am not too sure about the time frame), Canadian financial institutions decided to report mortgages and HELOC to the credit bureau agencies such as Equifax or Transunion. It was previously a regular practice to not declare such information in order to protect your clients from competitors.

However, with the financial crimes increasing, banks had no choice but to report any credit activities in their branch. Therefore, we started to see mortgages and HELOC account our credit bureau. In regards to mortgages, there is not much impact on your credit score as long as you pay on time. On the other side, it is a different story for home based lines of credit.

Actually, making your required payment on time is not enough when it comes down to revolving credit (i.e. credit cards and lines of credit). The amount used compared to the amount granted is important also. Since your HELOC is probably your biggest revolving credit, its weight on your debt to available credit ratio is huge.

If you are using more than 80% of your revolving credit, you start to get seriously penalized. For example, I have my whole mortgage on a line of credit that is maxed out since I do the Smith Manoeuvre. I recently checked my Beacon Score and it dropped about 50 points since last time I checked. Nothing had changed in my situation beside the fact that my HELOC is now reported. Fortunately for me, I used to have a Beacon near 800 points. Therefore, it didn’t change much my financial situation.

I thought you may want to check your credit bureau before doing such strategy or even before transferring your mortgage into a HELOC if you had credit issues in the past. Home line of credits are the most flexible and useful type of mortgage. However, that will surely not help your credit score!

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July 7, 2008, 6:00 am

My Smith Manoeuvre – June Update

by: The Financial Blogger    Category: Smith Manoeuvre

Ouch! Another month went by but it was not as good as April and May! In fact, the last couple of days saw the Canadian market taking a slap in the face with some good drops. Since my whole Smith Manoeuvre portfolio is invested in Canadian Equities, I took the hit as everybody else. In fact, the Canadian market is getting more and more susceptible of entering in a bear market.


I don’t want to become one of those financial prophets who tell whoever wants to listen to them that the apocalypse is near. However, I must open my eyes and look at Canadian stocks the way it should be. The commodity stocks are dominating the market and are the only reason why the S&P/TSX was beating the American and other international markets since the beginning of 2008. We are at a stage where those sectors (oil, metals and other resources) are representing about 50% of the TSX. If anything goes bad on that side, needless to say that the whole market is going to plunge.

My portfolio is still showing positive returns with a 5.9% annualized rate since Feb 2007. I am quite far away than my 14% from last month! Sprott Canadian Equity is the part of my portfolio that took the biggest hit from a price of $50.03 to a price of $47.32 as of July 5th.

However, I am quite happy to realize that I have now $8,100 of my mortgage that is tax deductible! At the same time that I increase my liquid assets, I am paying fewer taxes. That is giving me more flexibility in my overall finance which is always good news.

In order to avoid getting cut with all my money invested in a bear market, I am opening up my horizon for next month. In fact, I divided my systematic investments in order to get $200 in the National Bank dividend bond and another $200 in the Omega International Consensus managed by Validea Capital. It won’t make a big different right away, but I don’t want to get rid of what I bought so far. I still think that the dividend fund and the Sprott Canadian Equity will do well in the long run.

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June 4, 2008, 6:00 am

My Smith Manoeuvre – May update

by: The Financial Blogger    Category: Smith Manoeuvre

Another great month on the market as my investment are getting higher and higher. It seems that moving a part of my portfolio into Sprott Equity Canadian fund was a great idea 😉 Hopefully I will continue to have my lucky touch when I select a more international fund! In the meantime, Sprott went public a few weeks ago and a journalist from the Globe and Mail was thinking that Eric Sprott was making so much money out of its companies (in hundreds of million of dollrs) that the fund was better bet than the stock!


So my annualized return rate is now 14.5% while I did paid between 3.5% and 2.75% (a big thanks to the Bank of Canada on this one!) in interest charges. In dollars, I am making a paper profit of $753 minus $189 in interest, so it makes $564. So my net annualized return is therefore 10.8%. Not too bad after a little bit more than a year.

So here are my positions so far:

National Bank Div. fund: 129.639 par at $17.17 for a total of $2225.90.

Sprott Cdn Equity fund: 116.444 par at $50.03 for a total of $5825.69.

I am still making my $400 a month investment even though interest rate went down big time since 2007. There is a part of me wanting to increase my leveraged strategy by at least $200 a month and there is another part saying that I have other debts coming due in less than 3 years and I should leave my Smith Manoeuvre the way it is.

When you are borrowing to invest, it is important to stick with your investment plan. If you start playing with your periodic investments or borrowed money, you might go off track at one point. The temptation is always great when you are actually making money. Everybody wants a piece of the market, right?

I recently read an interesting point of view on the smith manoeuvre strategy written by Frugal Trader at milliondollarourney.com. He is also making his mortgage tax deductible through the SM strategy but he decided to pick his own stocks. The interesting part is that he is using high paying dividend stock in order to cover for his interest charges on the leverage loan (a home equity line of credit – HELOC).

With this strategy, he doesn’t have to take any money from its pocket. Therefore, he is applying leverage at its best: using other people money to make money!

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