Financial planner and adviser
Real estate, low-fee index funds, permanent life insurance
For more than 20 years, Paul Philip has run his own financial-planning business (fwbsecurities.com). He bought his first real estate property at the age of 22.
How he invests
Mr. Philip takes a "holistic" approach. His portfolio addresses "the whole picture" with strategies applicable to more than the accumulation of wealth. A centrepiece is the use of life insurance to enhance after-tax wealth, estate planning and retirement lifestyle. His first and largest asset class is rental and commercial properties, mostly in the Toronto area acquired over the past 15 years. These holdings have made a major contribution to his net worth. They are cash-flow positive and he moves those profits into his investment portfolio to further enhance returns.
His second asset class is financial securities, consisting mainly of a portfolio of low-fee, globally diversified index mutual funds from Dimensional Fund Advisors (a firm guided by the research findings of Eugene Fama, a University of Chicago professor and Nobel laureate). The portfolio has a tilt toward small-cap value stocks, which has been found to provide better returns over time than mid- and large-cap stocks.
His third asset class is permanent life insurance. Mr. Philip sees the policies as more than a way to replace income in the event of untimely death. They also give him a "permission slip" to enjoy a higher living standard in retirement without sacrificing the estate left to his family.
It works this way: In retirement, he can take out lines of credit against the equity in his properties to finance a higher level of consumption. When he dies, the tax-free death benefits from the insurance policies will pay off the real estate debt, leaving the properties free and clear for his wife and children.
Mr. Philip is incorporated and the insurance premiums are paid out of the corporation's retained earnings. The death benefits will be paid tax-free to the corporation, which can pay out the proceeds in tax-advantaged ways such as capital dividends.
"Buying real estate – the ability to use leverage makes real estate a unique wealth builder."
When he was younger, he invested in a hedge fund whose directors "stole the assets and took off for the Caribbean."
"Save 15 per cent of your gross income. Diversify. Have a holistic plan. Don't react to the media. Be patient and disciplined. Help others and be grateful, life is not about money."