A Case Study – The Power of Trajectory

By Matt Redshaw

Here is a real life case study.

My new client, let’s call him Steve, is 28. He doesn’t make an unusually high income, but he does make the most of the income that he has. 

Steve earns $70,000 per year. He lives on 50% of his after-tax income, which equates to around $27,500. He is single and has no children, so it makes it a little easier to save. Nevertheless, he is doing the right things.   

A few years ago he was able to put a down payment on a condo, which has risen in value. He now has $130,000 of equity in the condo, which is worth $330,000. You could argue this was due to Steve being in the right place at the right time, in Vancouver’s rising property market, but it still speaks to his vision and choosing to invest in appreciating vs. depreciating assets (new cars, expensive holidays, excessive eating and drinking out) at an early age. It seems the harder you work the more breaks you get in life.

Through consistent saving, Steve has also accumulated $75,000 of investments. This is a fantastic start to a nest-egg for the future. We know that every investor’s success is based on four variables:

  1. time
  2. contributions
  3. performance
  4. tax.

Steve started early; he’s giving his money a lot of time to grow. He is making regular contributions ($2,000 per month). Of course, he is going to get great performance because he is investing with the Tycuda Group :-). And he has a tax strategy, including making the right contributions to both his RRSP and TFSA each year to minimize tax in the short and long term.

If Steve keeps going on this trajectory, assuming a very conservative investment return of 6%, he will have $3.3M at age 60* – the age he wants to retire. This doesn’t take into account the future value of his real estate. Steve is not living an overly frugal life; he is just living with intention, delaying some gratification and has a plan. 

Wealth doesn’t just happen. Steve is a great example of this. What is your trajectory? 

 

 

* See “Investment and Regular Deposit” calculator at https://www.mackenzieinvestments.com/en/investor-education/tools-and-calculators. Assumes $75,000 starting balance, 6% ROR, 2% inflation, $2,000 monthly contributions.