April 4, 2008, 11:00 am

My Smith Manoeuvre – March Update

by: The Financial Blogger    Category: Smith Manoeuvre
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I would not imagine I could say that with the way the markets are, but my Smith Manoeuvre goes pretty well! Market is swinging on the dance floor like a crazy clown but I am still over the edge. In fact, I am quite happy to notice that my statement is showing some green numbers! While I still can’t buy a brand new car with my investments, it keeps growing at a good rate.

In fact, my Smith Manoeuvre account was showing a total of $6,609 for an overall profit of $109. Since it’s been a full year in February, I decided to go a little bit further in my calculation in order to establish my real rate of returns with my systematic investments.

For simplicity and convenience, I always use what I have in my portfolio divided by what I invested. However, I know that this is not the real rate of return as I didn’t have 6,5K invested the whole year. I built this amount month after month.Another great thing about working as a financial planner is that you have access to all kind of tools built in Excel.

Therefore, I don’t need to bust my mind creating a system that will allow me to calculate my return on investments. I simply have to plug in the numbers!So the real number is 2.7%. I think it is pretty good considering the bad year we had. I believe that if I can continue this way in 2008, I will be more than ready to boom in 2009!

Now I am thinking about my next move in term of diversification. The major flaw in my investment strategy is that I am only invested in the Canadian market. I am now looking for an emerging market fund like a BRIC related fund so I can diversify my investments. If you know any good funds, let me know, that will help me out in my research.

I recently had to put all my stuff together in order to prepare my taxes. This is where I realize that having a separate account for my Smith Manoeuvre was a real charm. It took me 2 minutes to pull out the statement and calculate the amount of interest paid. I shove everything in an envelope and my accountant will take care of the rest!

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How do you calculate return on the Smith Manoeuvre (or are you using the return on the account as the return) Is it an after tax return? Would be interesting to compare your SM results from the results you would have without doing the SM. In essence, was it worth it?

My own investigation a few years ago into converting my mortgage into investment loans resulted in a conclusion that “It wasn’t worth it”. The amount of money involved in remortgaging the house to cover my investments did not make it very lucrative. As well, this is most conveniently done with a line of credit, which carries a much higher interest rate than you can typically get a mortgage for.

by: The Financial Blogger | April 5th, 2008 (6:25 am)


This is a gross return (before tax and interest pay on my SM). Leverage techniques don’t show their full potential in the first years as it is a long term strategy. I am obviously losing money this year but it is normal.

I started my mortgage as line of credit based on the prime rate so I didn’t have to convert it. If you can lock a mortgage tomorrow for less than 5.25% on the fix rate for five year, let me know about it 😉 Especially considering the fact that prime rate is expected to drop at least by another .25% by the end of the year.

It is proven mathematically that going with the variable rate over 25 years is a much better option than getting a fix rate each 5 years.

My mortgage is 5 yr locked at 4.75 (2.5 yrs left). I think you should always be able to get a variable mortgage at prime minus, but HELOC are usually at prime in my experience. Let me know how to negotiate sub prime HELOC if you can. We locked it in at the time because we thought it was near bottom … turns out it was.

by: The Financial Blogger | April 7th, 2008 (5:17 am)

I don’t want to bust your chops but 3 years ago, but I think that Prime was around 3.75%, right? You always have to pay a premium for a fix rate, even thought you had a really good one.
Negotiating a below prime HELOC is possible… if you are a millionaire ;-0 LOL!

by: Monte Dobson | March 8th, 2010 (11:01 pm)

Great article! I think the Smith Manoeuvre is an underutilized financial strategy to turn bad debt into good, and pay off your principal residence mortgage as fast as possible.

You requested input on funds, we have utilized various MIC’s (Mortgage Investment Corp) over the past number of years with excellent success. Yields typically range between 8-12% pauid either monthly, quarterly or you can re-invest the proceeds. Obviously for the Smith Mano it is beneficial to get paid quarterly.

So on a $100,000 investment, if your HELOC is at prime +1 (currently 3.25%), your monthly payments would be ~$270.80. Interest earned on a MIC at 9% would be $750 monthly, equating to a spread of $479.20/month to be applied directly to the principal balance of your mortgage.

Then of course the $3250/yr in LOC interest is tax deductible for even greater benefit.