Weekend Reading – Raiding RRSP, Telus, Pensions, DIY and more
Welcome to my latest Weekend Reading list. Earlier this week I provided an update on our financial goals for this year and I had high praise for Robert Brown’s book Wealthing Like Rabbits. Back to the subject of financial goals, I had an interesting comment from a financial advisor that I tweeted this week – paying off my mortgage wasn’t really a great move on my part (apparently):
What do you think of the financial advisor’s comment?
Enjoy the best from the personal finance blogosphere for your Weekend Reading, and see you here again next week.
Sandi Martin compared using the Home Buyers Plan to raiding your retirement plan, but not. “Money diverted from long-term goals is money diverted from long-term goals whether it’s taken from our RRSPs, our TFSAs, or from under our mattresses, whether we use it to buy a house, a new iPhone, or a series of piddling little purchases we can’t even remember.”
Susan Brunner reviewed Telus stock.
Mr. CBB reminded us to take the FREE money provided by employer pension programs.
My friend Larry MacDonald profiled this DIY investor.
Kerry Taylor also known as Squawkfox enlisted some help from fellow bloggers to write this article: Ten financial rules of thumb worth a thumbs up.
Dividend Growth Investor said the time to buy some stocks is when no one wants them.
Here are some lifetime investing lessons from A Wealth of Common Sense.
According to a recent BMO Fall Home Buying Report, 4 in 10 homebuyers say they need to increase their purchase budget by 21%.
Mark
My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I'm looking to start semi-retirement soon, sooner than most. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.
Mark,
Paying off the mortgage is not even an investment decision. It’s a matter of security and well being. It’s a matter of sleeping well at night knowing you have a place to sleep at night and nobody can ask you to leave. THE RENT HAS BEEN PAID!
Ignore all the “experts” and do what you need to do. Get rid of that mortgage as soon as possible and don’t feel bad doing it.
Regards
John
“The rent has been paid”. I can’t wait for those days really. My post didn’t say I shouldn’t and will not invest right now, but working to be debt-free is a priority and part of my risk-reduction plan. Thanks John.
Strictly speaking, if you can earn an average after-tax rate of return on investments that is higher than your mortgage interest rate, you are (on average) better off investing the money and applying the lump sum at the end of your mortgage term. However there is always the risk that your investments won’t produce a rate of return that exceeds your mortgage interest rate.
With that being said I am in the same camp as you, saving for retirement and paying down the mortgage at the same time. I just add an extra 20% onto my accelerated weekly mortgage payment (an extra $75/week) and cognitively I don’t even notice the difference.
With regard to the financial advisor’s comment, I am sure you would be considerably better off investing your mortgage lump sums in mutual funds with MER’s “comparable to the big banks”. Oh, and leverage too, put that leveraged money into the same funds. And just for the convenience, I’m sure they would be willing to extend you the leverage loan with an interest rate “comparable to the big banks”. Gosh, I hope that wasn’t too much sarcasm.
The other thing I think about in this debate (that folks might not think about), you pay your mortgage with after-tax dollars, so the rate of return for paying your mortgage is actually higher. Also, unless you are investing in your TFSA, there is a tax-drag on your investments, you need to pay the taxes that are deferred at some point (inside RRSP) or be wary of capital gains (non-registered).
In the end B, I think about plan to do both should serve us well. If we can semi-retire in our late-40s or early-50s, I guess I’ll know the answer 🙂
I think something that gets lost is what is the ‘financially optimum’ approach and what falls with the bin of being a really good choice.
What is the financially optimum choice is always a probabilistic recommendation. For example, if mortgage rates suddenly spike to 20% and the market crashes then absolutely you are doing the right thing. Of course, the market more often than not outpaces low mortgage rates but still the chance is there.
I think the quibbling is somewhat akin to freaking out over relatively small differences in MER when index investing. As long as you’re saving and investing it appropriately (either by paying off your mortgage or having a good investment strategy) it doesn’t really matter all that much.
I like your analogy none; the quibbling over MERs. As long as you’re saving and investing, and over time, doing more of both, I see this as a stellar plan.
There’s no way you’ll ever get to an 8-figure portfolio and retire at 50 unless you jump all over the leverage. There’s also no way you’ll go broke with your plan unless you use leverage. Thanks for the mention.
8-figure portfolio, that is totally out of reach for me. You on the other hand since I recall some people in your household want to you keep working…. ? 🙂
I think I’ll stick with increasing my mortgage payments, maxing out the TFSA and within the next 3-5 years, maxing out of any RRSP contribution room. I think that’s about as good as I can do.
Thanks for the comment Michael.
Now appearing “Bare Nake Ladies!!!”, hey it worked for the band!
Thanks for the mention, I think the advice in your comments is BULLSH*T! and you can quote me on that. Pay off your debts, then get “fancy” with your finances.
I think so as well. See my comment back to Michael. I think if my wife and I had no debt, we’d have very little stress and it would option up more financial options for us.
I agree with you, having no debt and no stress from it is easily worth a potential % or two more you’d be earning by investing more. And after this weeks corrections you probably feel even better.
Being debt free definitely makes me feel more comfortable with investing a bit more cash when I can, and needing a slightly smaller cash cushion for that just in case time if i were to lose my job since I have no debt payments to make! And once your house mortgage is paid off it will be kind of like living rent free!
I actually welcome the corrections, just wish I had money to invest. Currently saving now for our latest goal so no money to invest until likely November. I also like your “rent free” thinking Wisp.
Regarding paying off the mortgage, I think it depends on a few things – the interest rate, amount owing, interest paid annually, rate of return on the money if its invested, etc. Also, theres no sense in paying off the mortgage if the savings in monthly payment is going to be wasted
After the mortgage is paid off, I intend to put every penny into investments until the retirement date. That’s the plan. Paying my mortgage is a guaranteed rate of return and reduces my risk.
Solid plan Mark, nothing wrong with paying off debt – less risk and as you mentioned a guaranteed rate of return. And you’ll be that much further ahead if you use your previous mortgage payment amount towards investments
That’s the plan Dan, kill the debt and channel all funds that were going to the mortgage into investments. In the meantime, we will continue to invest in our RRSPs and try and max out our TFSAs.
Thanks for the mention Mark. So if paying off your mortgage wasn’t the best move what would have been? It seems to be an on-going topic with plenty of opinions. Have a great weekend!
The thing is, I’m saving for retirement AND paying off debt. I don’t see how this is a bad plan. I guess time will tell….
get rid of the mortgage mark! you can choose to save but you have to make your mortgage payments. you can put a hold on your savings plan should you lose your job, get sick, have an accident, etc. but your mortgage payments go on and on and on. i don’t have a mortgage and i’ll tell you it is a GREAT feeling.
That’s exactly what we plan to do Gary. Take every penny, after the mortgage is done, and funnel that into investments. I like hearing from folks that don’t have a mortgage, they seem pretty stress-free to me 🙂