Maximise your net worth
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Home Equity Diversification Plan ...

Home Equity Diversification Plan
This long term investment strategy uses the popular 'smith manouver' technique to make your Mortgage interest tax deductible. It uses the power of dollar cost averaging and leveraging to potentially amplify gains over the long term. This strategy is Long-Term and not for the risk adverse.

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  • Please insert your name, title from your business card and the name of the dealer on the slide. The dealer name under which you present yourself will differ, dependent upon whether you are licensed with Investors Group Financial Services Inc. (Mutual Fund Dealers Association - MFDA) or Investors Group Securities Inc. (Investment Dealers Association - IDA). If you are licensed through the MFDA , you must use this dealer name on the slide: Investors Group Financial Services Inc. (use in Canada outside Québec) Investors Group Financial Services Inc.,  Financial Services Firm (use inside Québec) If you are licensed through the IDA , you must use this dealer name on the slide: Investors Group Securities Inc. (use in Canada outside Québec) Investors Group Securities Inc.,  Firm in Financial Planning (use inside Québec) Note to Consultants: This presentation builds on, to a certain extent, the Home Equity Diversification brochure called “Home Equity Diversification –Wealth-building strategy” MP1243. You may want to consider giving this brochure to seminar participants after your presentation. You can order copies by contacting your Region Coordinator.
  • The Investors Group Home Equity Diversification Plan is a monthly borrowing-to-invest strategy that enables you to gradually unlock the equity in your home and redirect it for investment purposes. It offers the opportunity to build your wealth without impacting your monthly budget, taking advantage of dollar cost averaging and the potential for long-term investment growth.
  • Dollar cost averaging is one of the simplest and most effective investment strategies you can use. By investing on a monthly basis with Home Equity Diversification you can take advantage of market volatility and lower your average purchasing cost by buying more units in declining market conditions. In many situations, dollar cost averaging can help you earn larger profits than if you made one large lump-sum investment.
  • This diagram will help illustrate how Home Equity Diversification takes the equity in your home and uses it for investment purposes. While this may look complicated at first, once we have it setup, your monthly investments are automated. The first step is to convert your mortgage to one of our Solutions Banking ™ All-in-One home-equity line of credits that includes two sub-accounts, one for your mortgage balance and the other for your new investment loan. As you make your mortgage payment and reduce the balance owing, real estate equity becomes available which is then used as security to borrow on your investment loan enabling you to make regular investments into a non-registered portfolio of mutual funds. Based on the expectation that the investments purchased will produce some income, interest costs incurred on your All-in-One Investment loan could be fully tax deductible 1 . 1 Quebec residents should note that calculating Quebec provincial income tax, the deduction of investment expenses, including interest, is limited to the amount of taxable investment income reported in the taxation year from all sources.
  • This graph illustrates the possible growth in after-tax net worth if you invested regularly over a period of 25 years using this strategy versus just paying down your mortgage. As you can see, this simple, monthly investment process has the potential of generating an additional $75,000 of net worth. Of course, each situation is unique depending on your mortgage balance and the monthly plan we will create together.
  • It is important to ensure the funds are invested into a diversified portfolio that maximizes returns based on the amount of risk that you are comfortable with. This can be accomplished by diversifying by asset class, investment style, geography, market capitalization and by having a long-term investment horizon. We work together to make this happen and to make sure the benefits of Home Equity Diversification are maximized. After determining your risk profile, we will create a diversified portfolio specifically for you. As the chart illustrates, the more variability you are able to tolerate in the overall value of your investments, the greater return you can expect. It’s important that we find just the right balance to meet your needs.
  • Home Equity Diversification lets you decide how much risk you wish to take and is less aggressive than other leveraging strategies. However, it is important to keep in mind some potential risks still exist: Like all leveraging strategies, gains and losses are amplified so we need to work together to be sure you are comfortable with the risk. To minimize this risk, it is very important to stay invested over the long-term (10 years or more) in order to recover from market fluctuations. If you are converting from a fixed rate mortgage to an All-in-One home-equity line of credit with a variable rate, payments will change with movements in interest rates. Again, we will work with you to set payments designed to allow for these fluctuations that are less than your monthly principal payment on your mortgage to allow some cushion in the event of interest rate fluctuations.
  • There are many benefits to this approach. One of the most important is that you can invest regularly without affecting your standard of living as you do not have to commit extra cash to invest. In addition, the interest costs on the investment loan could help you save taxes and because you are investing on a regular basis, you are able to take advantage of dollar-cost averaging which helps nullify the effects of market fluctuations. Of course, your investments will be placed into a customized and diversified investment portfolio to fit your personal tolerance for variability. Last but certainly not least – you have the flexibility to stop or change your investment plan at any time should your personal situation change.
  • Does Home Equity Diversification fit your plan? Absolutely if: You plan to invest for at least 10 years. You have at least 20% equity in your home. You can tolerate variability in interest rates and portfolio values. I will work with you to determine whether or not this strategy fits your plan. I currently have some appointments available so I would encourage you to book yours today so that we can set you on a path to investment success.

Maximise your net worth Presentation Transcript

  • 1. Maximize your net worth
  • 2. 2This presentation Written and published by Investors Group as a general source of information only. It isnot intended as a solicitation to buy or sell specific investments, nor is it intended toprovide tax, legal or investment advice. Readers should seek advice on their specificcircumstances from an Investors Group Consultant. These strategies may involve loans for investing purposes and are based on theassumption that the interest costs are tax deductible for Federal income tax purposes.Borrowing to invest is a long-term investment strategy and may be more suitable forhigher income individuals, may not be appropriate in all circumstances, and is not foreveryone. Gains from positive fluctuations in the investment value will be magnified, butlosses from negative fluctuations will also be magnified. Banking products and services are distributed through Solutions BankingTM.Solutions Banking products and services are provided by National Bankof Canada. TMSolutions Banking is a trademark of Power Financial Corporation. Investors Groupand design are trademarks owned by IGM Financial Inc. and licensed to its subsidiarycorporations. National Bank of Canada is a licensed user of these trademarks.
  • 3. 3Home Equity Diversification Plan Graduated wealth-building strategy Unlocks real estate equity for investment growth No impact to monthly cash flow Creates opportunity to reduce taxes
  • 4. 4Regular Investing Provides Dollar Cost Averaging Takes advantage of short-term market fluctuations Invest small amounts on a regular schedule Typically lowers the average purchasing cost of an investment
  • 5. 5How it works…
  • 6. 6Potential increase in Net Worth On a 25 year, $150,000 mortgage this strategy could increaseyour after-tax net worth by more than $75,000**Assumptions - Assumes a simple annual interest rate of six per cent on the All-in-One sub-accounts and the alternative mortgage for the length of the strategy (note thatthe interest rate on an Investors Group Solutions Banking™ All-in-One Account is variable). The investment sub-account is used to purchase investments at the beginning ofeach month, starting in the second month. The annual tax deduction is applied to reduce the balance of the mortgage sub-account, which in turn increases the credit limit onthe investment sub-account. The full amount of credit room is used for each contribution. Tax savings are calculated based on a marginal tax rate of 43.41 per cent.Investment account balances are used after the 25th year to pay out the All-in-One sub-accounts and deferred tax liabilities. Returns are projected assuming 0.5% fromdividends, 0.5% from annual capital gains and 6.5% in deferred capital growth, for a total compounded return of 7.5 per cent. The value of the home at inception of theprojections is $200,000 with a growth rate of 2% per year. The outstanding mortgage balance is $150,000. The rates of return used in the example are used only toillustrate the effects of the compound growth rate and is not intended to reflect future values or returns on investment.
  • 7. 7Manage Risk Through a Diversified Portfolio Customized to meet specific needs Maximize return based on risk tolerance Off-sets market volatilityCONSERVATIVEMODERATECONSERVATIVEMODERATEAGGRESSIVERISKMODERATEAGGRESSIVERETURN
  • 8. 8Potential risks to leveraging Gains and losses are amplified Market fluctuations Variable interest rate fluctuations Liquidity and interest deductibility
  • 9. 9Potential benefits Build wealth without impacting monthly cash flows Tax-deductible interest Dollar-cost averaging Customized investment portfolio Flexibility
  • 10. 10This strategy could fit your plan if… You plan to invest for at least 10 years You have a minimum of 20% equity in your home You can tolerate variability in interest rates andportfolio valuesMake your appointment today“Home equity diversification” © Investors Group Inc. 2012 C3492 (02/2012-W)