Weekend Reading – Is paying off your mortgage a mistake?
Higher house prices in many cities across Canada (and in the U.S.), combined with rock-bottom rates, have decreased the urgency when it comes to answering one of the oldest personal finance questions around:
Should you invest or pay off your mortgage?
Is paying off your mortgage a mistake?
I wrote about my answer to these questions here: here is the definitive answer to paying off your mortgage or investing instead.
Anyone with a McMansion and super-sized mortgage to go with it, in some shape or form, is likely going to benefit from having less debt. Debt, based on my personal experience alone, can be stressful and time consuming – there are simply more obligations to keep track of.
My thesis is: debt must be managed.
Meaning, even with leveraged investing there is no issue with taking on some debt as long as you are somewhat solvent – you could pay off debt in a reasonable timeframe if you really had to.
Over the years, although we have and continue to make some lump sum mortgage payments, I’ve decided to prioritize investing while paying down my mortgage. I’ve followed this formula for a few reasons, and will keep doing so, until the mortgage is done. Here are my priorities when it comes to investing that might apply to you:
1. Max out contributions to my TFSA over my RRSP. I prefer this approach since I believe the Tax-Free Savings Account (TFSA) is a gift of an account all adult Canadians can and should benefit from. Where else are you going to get tax-free income and wealth-building, as long as your money stays in the account??
Don’t get me wrong. The RRSP is an outstanding account to use for any retirement planning. Just remember if you decide to focus on your RRSP to save for retirement, which is great, then you need to manage the RRSP-generated tax refund well – it’s the linchpin in any RRSP vs. TFSA debate.
2. Maximize contributions to our RRSPs. After any TFSA contributions are made, the contributions to the RRSP come next. I have a bias to put U.S. assets in my RRSP for a few reasons – I believe most investors in Canada should consider the same.
Read on: Low-cost ETFs for the U.S. market.
3. Live my life. Some investors will keep going, filling up their RESPs (makes sense) or even their taxable accounts. That’s more than fine. For the most part now, I simply don’t invest in my taxable account any longer. Once contributions to both TFSAs and RRSPs are done, I live my life. I don’t really take on additional savings or think about savings. I save any money leftover for future travel, we try and enjoy some short getaways in our area, we support the local economy by shopping and dining-out local, I go to more sporting events, and we spend money as we please. I’m at the age now in my 40s whereby because I’ve prioritized investing over paying off my mortgage, for a few decades, my money is actually working very hard and compounding away at a rate I can actually see it.
“Life moves pretty fast. If you don’t stop and look around once in a while, you could miss it.”―
The ol’ adage to save early, save often has literally paid me dividends. Something you can read much more about here on this dedicated Dividends page but my highlights are below:
Is paying off your mortgage a mistake?
Heck no….yet….while your mortgage pays itself through disciplined payment obligations over the years, wealth-building beyond your real estate will never happen unless you choose to take more meaningful action. I think investing AND mortgage payments are actually the priority. There is no debate. Maybe your mileage may vary.
Rob Carrick, on a similar theme, answered a reader question this week when they asked: “now what?” – since they have already invested inside their TFSAs, RRSPs, and RESPs.
His answer (subscribers only) made reference to the following including a cool tax tool:
“A suggestion for a next investing step: Open a non-registered investment account and then stock it, as much as is practical, with investments with tax advantages. There’s a handy little tool to find out whether dividends or capital gains will get the lighter tax hit in your personal situation – it’s a 2021 income tax calculator from Ernst & Young (online at bit.ly/EYtaxcalculator).”
Speaking of TFSAs – can you retire by just investing inside the TFSA? This young couple wants to. The answer we had for them might surprise you too!
I enjoyed early retiree Liquid’s interview on the Explore FI Canada podcast. I would never invest in Twinkies myself, but I agree based on my thesis above that some form of leverage is more than OK, if debt is well-managed.
A reader asked me about my goal to “live off dividends” to a degree – am I worried about paying too much in taxes? Nope. I don’t really think most of us can have too much income from dividends.
Wild charts in Ben Carlson’s post – demonstrating the ownership inequality in the stock market. I don’t see a shift coming anytime soon.
Source: A Wealth of Common Sense.
Physician on FIRE also tackled the paying off your mortgage debate – calling it a mistake!
“Therefore, given the difference between the two figures, I theoretically would have had double the return if I had invested in the stock market (5.8% vs. 2.9%).”
An inspiring tiny thought from one of my favourite blogs – Farnam Street:
“Spend the best hours of your day on the biggest opportunity, not the biggest problem.”
A shoutout and thanks to MoneySense and Dale Roberts for including my post in one of their recent editions. Always a fan of their write-ups!
Prolific podcaster Jessica Moorhouse had Robin Taub on her show, to share everything about her new book The Wisest Investment, an update to her bestselling book, A Parent’s Guide to Raising Money-Smart Kids. A great new book/guide for parents.
I know because I recently read Robin’s book too. I hope to publish my interview with Robin soon and giveaway copies of her book to some lucky parents as well – stay tuned!
On the giveaway front, many winners for my The Money Master review and giveaway will be announced soon so watch your inbox for an email from yours truly! Here is the interview I had with author, real estate investor and speaker Sandy Yong.
Last but not least, on my site this week and also highlighted in The Globe and Mail, I wrote about how much real estate you should have in your investment portfolio. What do you make of my answer? What’s yours??
More FREE content – investing vs. why paying off your mortgage a mistake?
How I invest in dividend paying stocks is always found here. I’ll have another juicy dividend income update soon!
Looking for free calculators, tools, or even my support? Check out my Helpful Sites page here.
I also run a site with my partner called Cashflows & Portfolios, a site dedicated to free content for any age but also low-cost services about how to drawdown your retirement portfolio and provide personal, tailored answers to these time-tested questions:
- How much can I safely spend in retirement?
- Will I run out of money?
- What accounts should I drawdown first?
- What is the best drawdown order for tax efficiency?
- When should I take CPP or OAS?
- How much will my estate be taxed?
- And more!
All my best,