Practical investment techniques and strategies to achieve wealth and financial freedom for the self directed investor.

By Charles H.  Mutrie

A successful self directed investor which has made gains during the year should strategically plan a safeguard against paying capital gains taxes. Understanding the mechanics of the capital gains tax itself is very important. Following is the way capital gains tax is calculated and what my policy is to keep the share that the tax man is supposed to get.

Capital gains is the difference between the book value and the market value at the time you have disposed of an asset. For example, if you paid $10.00 per share and you purchased 1000 shares the book value would be $10,000.00. If the share value increases to $15.00 per share and you sell your 1000 share position, the (market value) or sale price is $15,000.00. Using these values, your capital gain would be the increase in value between the $10,000.00 purchase price and the sale price of $15,000.00 which is $5,000.00.

The capital gain tax applies in the following manner, the first half of the gain ($2,500.00) is free of taxation and the capital gain tax is payable on the ($2,500.00) remaining half. The actual amount payable is figured according to your present income bracket for that calendar year.

Now this is how I save paying tax on the remaining $2,500.00. I immediately transfer the funds into my retirement savings plan (RSP) and defer the tax until retirement. Now I not only get to keep the full $5,000.00 but I have generated a tax deferral at tax time. I may have even generated a tax refund when filing my income tax return. Depending on how much time the funds remain in my RSP it may multiply over and over again.

There are many ways to defer paying capital gains taxes but this is just one of my strategies. Plan ahead and generate a larger RSP portfolio and pay less tax.

By Charles H. Mutrie

Did you ever wonder how you could remove funds from your Registered Retirement Plan (RSP) without having to pay tax? Following is a strategy that can be used to remove RSP funds and use them for further investing and defer the tax.

Lets say that you were to take an investment loan and you make monthly interest only payments. You could remove the required amount of funds from your RSP to make the loan payment and the interest paid toward the loan would offset the taxes payable dollar for dollar. This strategy could be used if you are getting closer to retirement years and it would help to meltdown your RSP holdings. In your younger years if you have a large RSP portfolio you could use the same strategy to significantly increase your non-registered holdings. This non-registered holding has a greater opportunity to compound as you have increased your portfolio by the principal amount of your investment loan.

Investment loans are an opportunity to significantly increase your portfolio over time but are not for everyone. It is advised to seek professional advice from your tax consultant prior to using this strategy to properly relate it to your tax situation.

Over time, one of the most important investment goals is to eventually turn registered funds into non-registered funds. This is just one of my strategies, I hope it may be a useful tool for you.

By Charles H. Mutrie

Today will be a short reminder about stop losses and profit taking.

I remember one day not too long ago I was up in a position by $4,000. It was a small original investment and it amounted to a 40% gain in a very short period of time. Needless to say the next day when the market opened, my position was down to my original investment. I hesitated with hopes of a larger gain and I missed an opportunity.

If I had done a bit of profit taking, I would have a larger portfolio today. The same works in reverse, set a limit for your losses. My rule is if my original investment position goes down by 15% I take half of it back out. If the balance continues to be a loosing position by another 15%, I cash out. These are my tolerance levels and I will ALWAYS follow it no matter what the circumstance. I will feel better about loosing a bit but not all.

It is very important today to preserve your capital. Make sure you set your stop losses prior to investing and then it will never be too late.

Always remember to take profits and stop your losses.

By Charles H. Mutrie

Every portfolio should have a portion specifically dedicated to fixed income. Consider laddering this portion of your funds into Guaranteed Investment Certificates (GIC’s). Following I will explain this strategy.

Lets say you have $10,000.00 to invest in the GIC. If you were to invest all the funds into one GIC you would have your funds locked in for a fixed 5 year term in order to get the best rate of return offered.

The laddering strategy is to divide the $10,000.00 into 5 portions of $2,000.00 each. Invest each of the $2,000.00 portions in a series of staggered GIC”S, 1 year, 2 year, 3 year, 4 year and 5 year terms. You would then have a GIC maturing every year and could re-consider where to invest the funds. If GIC”S are offering a high yield you may wish to re-invest it and you always have a maturing GIC available to be renewed at a 5 year term. The longer term generally offers a higher rate of return but if necessary you may consider an alternative depending on the marketplace.

Laddering is a systematic strategy to keep your funds available on the short term but investing for the long term.

Your questions are always welcome. Please go to http://www.AskChuckMutrie.com where you can submite your questions.

By Charles H. Mutrie

When you signed your new mortgage or renewed your existing mortgage, were you told mortgage insurance was optional? Is mortgage insurance a good investment or not? Well, here is the alternative you may inquire about before accepting the mortgage insurance at the bank.

As you pay your mortgage, the amount of outstanding principal declines with every payment you make. Take a closer look at the fixed payment you make for the mortgage insurance, you will find the payment does not decrease in conjunction with the outstanding mortgage balance. Upon a death the mortgage insurance pays only the amount of outstanding principal of the mortgage.

Consider taking a life insurance policy for an amount equal to the principal amount of your mortgage. Compare the payment of the life insurance policy to the payment of the mortgage insurance and see what the cost difference is. The life insurance will more than likely be the cheaper of the two. Upon a death the life insurance will pay the original amount on the insurance policy and there will be an excess because you have paid off a portion of the outstanding principal.

Don’t always feel obligated to accept the banks terms for mortgage insurance, explore your options and you could save in the long run.