One late winter evening, two friends gathered over coffee in Toronto to talk about their finances.

Both of them are busy and well-educated professionals.

Both of them have paid off their debts a few years back, having been careful about their savings.

Yet one friend was tired, over-worked and lamented about the housing situation in Toronto. He is trying to start a family and there just doesn’t seem to be any room to grow roots in the city he loves. Though he invested well into the stock markets, it’s difficult to know when to sell, and the markets have made a sudden drop recently.

The second friend was more relaxed. He had invested in a small but affordable condo many years ago. He later added a second investment and collected cash flow. He diversified his investments well, built a portfolio unique to his situation, and was well on his way to financial independence.

“Never put all your eggs in one basket”, he said. He tried to explain the rationale for his portfolio, the breakdown would have been something like this:

This may be considered an unusual portfolio strategy by some investors. It’s targeted for young adults in Toronto and the GTA area. The relaxed friend pulled out a pen and napkin and explained why he has the “Perfect Portfolio”: Toronto Housing is Great Value

Toronto Housing is Great Value

Despite what many people feel, housing prices have always been fair in Toronto. Frequent travelers will realize that there are few better places to live in the world than Toronto. Here is a CBC report on the best cities in the world to live:

Toronto is in top demand from the WORLD, yet prices are more expensive elsewhere. For example, housing prices in Hong Kong are TWO TIMES more expensive than Toronto (accounting for living expenses of course). This detailed analysis from The Economist shows the comparison

Renters in Toronto may feel prices are high, but Canadians enjoy a stable economy, a great environment, world-class education and some of the world’s best social safety nets. Toronto is uniquely located near the economic hubs in the USA and yet it features a very diverse and inclusive culture. This is what drives Toronto to be a top immigration destination and supplies the economy with a young and eager working force.

Stocks Don’t Collect Rent

GTA residential prices have out-performed the TSX and are generally in line with the S&P. The 2009-2019 S&P / Dow Index has performed very well with a 280% gain. While GTA residential prices for the same period performed admirably with a 218% gain. One should study a normalized data-set together below:

At this point, the first friend eagerly pointed out, “See! If I bought an index fund in the recession of 2009, I would have almost tripled my money by now!”

“You would have gotten similar gains in GTA real estate, but with real estate, you also collect rent”, replied the second friend. “Think about it; an extra $1500 rent cash flow over 10 years is $180,000, on top of your existing rising asset price. This is my secret sauce.”

The second friend continued with another point.

Time is On Your Side

Take any stock market and look at the trend on a 20 then 50-year horizon. That’s how long one should expect to keep some investments for. The law of averages states that one is bound to catch an upswing as long as they are invested.

Secondly, younger adults have more working capital. So if a $20,000 investment is stale at the age of 30, that is still a very small part of one’s total life’s earning. One can easily recover that amount.

“Time in the market is better than timing the market”, says the second friend, as he finished his coffee.

There are many things that YOU may not have been taught in school about investments. So please feel free to email us for any advice on your situation.