Rather than spending time trying to listen to all the advice about what is the best investment, which tax regime (RSP, TFSA, etc) is best and what rate of return you are getting. Why not work out what are your real financial goals. Once you have your goals clarified then you can decide which option works best for you. A couple of observations, a TFSA that is in GICs is not liquid so the lack of liquidity makes for a poor emergency fund. As you pointed out, you have high and low risk mutual funds. Generally mutual funds are liquid so that makes them more practical for emergency funds but then you run up against what is happening in the markets. Paying down your mortgage does give you a form of emergency help as lump sums allow you to reset your payments to reflect your original amortization. For instance if you have 15 years left on you mortgage and you pay down so that at your present payment level it will be paid in 10 years. You can then reduce your payment to go back to a 15 year payout. Check with your mortgage company for their options.
mortgage paydown question
- Thread starter destillat
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Mortgage interest rates can only continue to rise. Sure, it might be a few years before they really take off, but they will increase.
As others have said, if you have "an emergency fund" of some sort, whether that is a LOC or cash in the bank, I'd seriously consider taking the TFSA and paying down your mortgage. With the rates you referred to it's almost a wash as to whether you invest it in your TFSA or "invest it in your mortgage", but at least you have the peace of mind knowing that your mortgage balance is lower and when rates inevitably rise (so does your payment) the kick in the teeth won't hurt so much.
Markets have been good overall and of course my crystal ball isn't any clearer than yours, but why not take the sure thing and liquidate the mutual funds and use the after-tax proceeds to pay down the mortgage as well.
Then even if you maintain your current regular payments, a greater portion of each of those regular payments will go towards the principal and your mortgage will be paid of even faster than you imagined.
Best attitude towards a mortgage is to hate any debt that isn't tax deductible.
Also, you could use a LOC secured to your home to invest in mutual funds and deduct the interest. While using leverage is a whole other discussion and shouldn't be taken lightly, you could in effect convert a portion of your non-deductible mortgage interest to tax deductible interest for the purpose of investing. I'm not (as a lot of fund salespeople recommend) saying that you should get the biggest LOC you can and invest in MF's, but say you had $20,000 in MF's outside your RRSP, you could liquidate them and use the after-tax proceeds to pay down your mortgage and then use the LOC to invest $20K in MF's. Assuming your tax on the disposition is negligible, you have just converted $20K of your mortgage to a tax deductible loan, your total debt is the same and your assets are about the same. However, this is more tax effective and your net worth will be greater each year going forward---assuming you would have continued to hold the MF's anyway outside your TFSA or RRSP.
As others have said, if you have "an emergency fund" of some sort, whether that is a LOC or cash in the bank, I'd seriously consider taking the TFSA and paying down your mortgage. With the rates you referred to it's almost a wash as to whether you invest it in your TFSA or "invest it in your mortgage", but at least you have the peace of mind knowing that your mortgage balance is lower and when rates inevitably rise (so does your payment) the kick in the teeth won't hurt so much.
Markets have been good overall and of course my crystal ball isn't any clearer than yours, but why not take the sure thing and liquidate the mutual funds and use the after-tax proceeds to pay down the mortgage as well.
Then even if you maintain your current regular payments, a greater portion of each of those regular payments will go towards the principal and your mortgage will be paid of even faster than you imagined.
Best attitude towards a mortgage is to hate any debt that isn't tax deductible.
Also, you could use a LOC secured to your home to invest in mutual funds and deduct the interest. While using leverage is a whole other discussion and shouldn't be taken lightly, you could in effect convert a portion of your non-deductible mortgage interest to tax deductible interest for the purpose of investing. I'm not (as a lot of fund salespeople recommend) saying that you should get the biggest LOC you can and invest in MF's, but say you had $20,000 in MF's outside your RRSP, you could liquidate them and use the after-tax proceeds to pay down your mortgage and then use the LOC to invest $20K in MF's. Assuming your tax on the disposition is negligible, you have just converted $20K of your mortgage to a tax deductible loan, your total debt is the same and your assets are about the same. However, this is more tax effective and your net worth will be greater each year going forward---assuming you would have continued to hold the MF's anyway outside your TFSA or RRSP.
Paying down your mortgage, IMO, gives you the best risk-free after tax return on your investment.
Always get a HELOC with a limit that increases as you pay down the mortgage (not all work this way). With this, you have either your emergency fund.. or a way to invest in income-producing investments while deducting the interest you pay on the loan (tax deductibility doesn't work if you're investing in registered accounts, BTW..).
Always get a HELOC with a limit that increases as you pay down the mortgage (not all work this way). With this, you have either your emergency fund.. or a way to invest in income-producing investments while deducting the interest you pay on the loan (tax deductibility doesn't work if you're investing in registered accounts, BTW..).
I know that nothing is guaranteed even if you must write it out in all caps. Governments can still spend more then they take in or get too generous to public servants as in Greece. Companies 'cook the books', bribe politicians, etc. etc.
There's a lot of criteria to consider besides what you listed above including if the investing information you obtain is accurate and non-biased. There are infinite sources of information these days like news outlets, talking heads like Kevin O'Leary, Jim Cramer, friends and family, books, etc. so it can be hard to decide what to invest in with all that noise floating around.
There are other strategies that can also limit investment risk besides your criteria above. That would include include only picking blue chip stocks that pay dividends, index investing, diversifying across companies, sectors, countries, re-balancing your portfolio regularly, changing the type of investments as you age from stocks to fixed income, investing in a rental property, etc. All of them can limit or raise the relative risk of your portfolio.
An emergency fund is a good idea so long as you use it only for emergencies and only for basic necessities. More than one friend continued their nice lifestyles of eating out multiple times a week, satellite tv, vacation, etc. even though they lost their job. IMO the first thing to change when you lose your job is to cut your expenses drastically before you touch the emergency fund. Cancel the satellite TV, newspaper and magazine subscription, cancel the vacation if you can do it without penalty, etc. If things were desperate enough, I would go so far as pulling the kids out of sports teams. It certainly is tough to do something this drastic, but you have to stop all "sources of bleeding" if you have no income. The kids might hate you for it, but you have to continue to pay for the roof over their heads and keep food on the table. Anything frivolous has to go out in an emergency. You can't use an emergency fund to continue maintaining a fairly luxurious lifestyle.
Be careful with HELOCs because you can get into serious trouble if you use it as an ATM like many people to do go on vacation, buy their big screen TV, another car, boat, etc.
In order of priority personal savings should be committed as follows assuming you are in your mid earning years with no dependants:
1. Pay down consumer debt
2. Pay down mortgage debt
3. Contribute to pension plan
4. Contribute to RRSP
5. Contribute to TSFA
6. Non taxable investments which include stocks, bonds etc. and/or income earning property
7. Hobby activities
8. Give it away to your relatives .... just kidding.:amen:
Jag had a great list (at least until he got to number 6)
The OP's original question was about right now, so the answer is 'get rid of debt!'. Once that happens, the world is your oyster.
Probably the best way is the All-In-One account (National Bank) or Manulife One account (Manulife Bank) but you have to be disciplined 'big-time'! Hammer the debt as hard and fast as you can. The account will back you up if you have an emergency, and you can monitor your progress through monthly statements. If you want to go with a traditional type mortgage arrangement, then increase your payments / make lumps sum payments, call it challengingly close budget-wise, and have a HELOC for the emergency fund.
Once you are debt-free, you can laugh at the world, and there will be lots of time to make the right investment decisions.
PS. Always max out on your employer's pension plan if they are kicking in. Free money like a pay bonus just for showing up, and usually, percentage-wise, you just can't beat it.
Amen brother. Got to follow the lessons of The Wealthy Barber and Rich Dad Poor Dad and refrain from using borrowed money to buy things that go down in value.
Correct. This also needs to happen to reset the ACB so the CRA can track from what point to ignore gains and ensure they're not taxed.
This is inaccurate. It should read "some" mutual funds are risky. Explorezip gives a good explanation on mutual funds. For example, in 2008 if you were in fixed income mutual funds, especially government bonds, you probably made 7-8%. Not all asset classes behave the same way or carry the same risk.
I manage money, including my own so I take more risk with my money than you should with yours. But across all my registered and non-registered accounts I run a tactical all equity etf strategy that has averaged 13% the past 10 years with no negative years including 2008 where we broke even on the year.
My suggestion for novice investors is that if you don't have the time or knowledge to invest for yourself, don't buy into the negativity around mutual funds. For example, RBC has some stellar equity portfolios. TD has great fixed income portfolios. SunLife has great global portfolios. If you built a balanced portfolio with these 3 brands, yes you would have paid over 2% in management fees but you also would have averaged over 8% for a solid decade AFTER fees. Isn't it worth it? I think so. The other option is to a) risk it yourself or b) make nothing at all. GIC rates don't even approach inflation levels, might as well spend it or pay down credit cards and/or mortgages.
Oh really? All mutual funds carry risk, period. It depends on your risk tolerance. Pimco's is one of the best known fixed income mutual fund company and their Canadian Long Term Bond Fund which has 85% invested in federal and provincial bonds has YTD return of -5.9%.
https://canada.pimco.com/EN/Funds/Pages/Canadian-Long-Term-Bond-Fund.aspx
and one of the best performing bond funds over the last 6 years and has won numerous awards, TD Canadian Bond Fund, had a positive return in each year the last 6 years but has a YTD return of -1.12%. Again, all mutual funds have risk, some more than others, find your own risk tolerance and trade within it.
https://research.tdwaterhouse.ca/research/public/MutualFundsProfile/Summary/ca/TDB162
This is deliberately obtuse. Carrying some risk and being "risky" are two different things. I think it was well established that short of Treasury Bills, nothing out there is completely risk-free. But when categorizing a product, the term "risky" generally refers to an elevated level of risk and volatility which not all funds have.
Define risky? What is the elevated level of risk and volatility? I think these comments are obtuse. If you ask any CFA you'll see they all will state all investments have risk and no one can define what is risky, it all depends on one's risk tolerance and we're all different.
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