April 12, 2012 | RRSP vs home investment
This article (http://bit.ly/IzU6xr ) called “The Hidden Threat of Home Ownership” that hit the Globe this past week has to be the most riduculous thing I have read in a long time.
In it, the writer argues that homebuyers between 30 and 50 years old are contributing very little to their RRSPs these days and have instead contributed only to the value of their homes, thereby turning them into “slaves” who have ignored their retirement by failrf to invest their money wisely. The implication in the article: The only way to save for a retirement is by investing in RRSPs. The article does hit on some obvious problems. Home equity lines of credit are usually not the best way to take a loan, and some Canadian are overextended financially. To that I agree.
But for the rest, come on. I can tell you why I have not invested in RRSPs. They don’t make any money – at least not for a looong time. If I had to compare someone who invested in real estate vs. someone who invested in RRSPs in the past ten years in this city, there’s a very good chance that the real estate investment has been overwhelmingly more lucrative than the RRSP contribution, whether you’re using it for retirement or not. In fact, I would say there has been more investment in real estate since the financial crisis because people view it as safer than stocks and more profitable than GICs. It’s not perfect. There will not always be huge price appreciations. Things will slow down. There’s ups and downs, but over the long haul it has historically yielded profits.
Of course, where and how you invest in real estate does make a difference. If you invest in the right emerging neighbourhood, you could yield better results financially. Here’s a wiser article from the Toronto Star, in my humble opinion, that breaks down the price appreciation numbers in five Toronto neigbhourhoods that are considered “hot spots”.(http://bit.ly/J0LD2n )
Here we see how real estate has grown the money of buyers over time, how some neighbourhoods have moved from affordable outposts to cool in a matter of years. I wish my RRSPS would perform like these neighbourhoods have.