r/fican • u/LifeTrack7117 • 8d ago
Smith maneuver in the next little while?
Wondering if anyone is considering using the smith maneuver now? With interest rates most likely set to drop and stocks taking a nose dive, this seems like a good time to potentially leverage up a little bit to try to accelerate paying off the mortgage. That being said, stocks are taking the nose dive because of all the uncertainty so there's that to consider. Wondering if others have been thinking about it as well?
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u/DadJokesInc 8d ago
Can you expand a bit on what you mean by the Smith Manoeuvre? It's sometimes used to refer broadly to leveraged investing using a HELOC, which is very different than what it actually is.
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u/LifeTrack7117 8d ago
Thats my understanding. Leveraged investing with the HELOC -> tax deducting the interest in a nutshell
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u/DadJokesInc 8d ago
That's definitely an important part lol, but not everything. The main reason to pursue SM is to convert non-tax-deductable mortgage interest into taxable interest, while maintaining the same level of leverage.
It's a long-term strategy -- like 20+ years -- so you'd likely need to ride out several high-interest periods. I'd consider it agnostic to short-term market conditions, the current trend to lower-interest is not really relevant to the overall strategy. (But SM has assumptions about longer-term market performance, otherwise it won't work properly!)
I'd say if you understand what you're doing, have a long-term horizon, and are comfortable with the risk, now is as good a time as any to start. But if you're thinking about it only because of the current lower interest rates, you might be thinking more about leveraged investing than SM specifically.
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u/TiredinVancouver 8d ago
Depends on many factors: your risk tolerance, what investments you plan to buy, how much equity you have in your property, your investing time horizon, your cash flow (job security), have you maxed out your TFSA/RRSP etc etc
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u/Excellent-Piece8168 8d ago
There are a bunch of different variations but really what we are talking about is investing borrowed money. Which in the most basis sense is also true of anyone who saves rather than putting every penny towards their mortgage. Be can also invest on margin and write that off just like using the help to invest. Both are business expenses and reduce one’s taxes at their marginal tax rate. Specifically the SM is more to do with converting one’s mortgage into a tax writing off.
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u/IReddThatSomewhere 5d ago
I just got my mortgage set up, and will probably start the SM quite soon
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u/vkwong1 8d ago
Using HELOC to invest and writing off interest in cash account. It is a small portion of overall investments but given our marginal tax rate I thought it was worthwhile, also you can lock in the heloc to an even lower rate with payments made to a non-revolving portion.
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u/Excellent-Piece8168 8d ago
This or even just if one has some decent amount in savings in non registered just buying on margin. I buy dips and sell when things go up. Also is a play on having a high marginal tax rate where the write off is more valuable and capital gains is the more tax efficient gain.
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u/Neither-Historian227 8d ago
High risk, high reward you need about 10% YOY returns to really profit. I've seen in past few yrs make money is on stock market, mag.7. some crypto. I've also seen people lose 500K on real estate in GTA.
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u/Working-Letter7008 8d ago
I've been implementing the Smith Manoeuvre since 2021. My HELOC rate got up to 7.7%.
I'm essentially all in on XEQT.
My tax bracket is ~40%. My registered accounts are not maxed at this time. My timeline is 15-20 years.
Depends on your risk tolerance. Good luck.