This post is from Mark Seed who runs My Own Advisor.
A huge debt can kill your retirement plan. This is not news. While servicing debt, you can’t save very much money. You can’t invest what you don’t save. Taking on a mega-mortgage could be very stressful for young Canadians. I should know. We took on a hefty mortgage when we purchased our current home.
I’ve also read some recent counter-arguments to paying down the mortgage. Mortgage rates are cheap right now and have been for years, this implies debt is “easy” to pay back and you don’t need to rush to do it. Folks in favour of investing tout you can earn a better rate of return from investing than the guaranteed rate of return that comes from making your mortgage payment.
Here’s our approach – we do both – we kill debt and save for retirement, every month.
I have no idea what the future holds.
On reducing mortgage debt
- We are being fiscally responsible, with our biggest liability.
- We are reducing risk of our human capital, that is, should we lose any ability to earn an income.
- We are taking advantage of low-borrowing costs, which may not always be available.
On investing today for tomorrow
- We are maximizing one of the greatest assets the investment world offers, time in the market.
- We are leveraging our current human capital, to make investments in our future selves.
- We are increasing our savings, for any unexpected events.
As far as I’m concerned, we’ll have much more financial flexibility when we’re debt-free. Being debt-free will also remove any emotional burden I feel owing our bank money, something that’s difficult to quantify. Diversification principles are also important to me, which means I prefer using Tax Free Savings Accounts (TFSAs), Registered Retirement Savings Plans (RRSPs), and other accounts to build wealth instead of locking up all assets within these four walls. I have a financial philosophy of trying to do a few things, very well, instead of focusing too much on just one thing. I think most Canadians would benefit from killing their mortgage debt while investing for the retirement.
In closing I believe most sound (and successful) investment portfolios are a balancing act of managing risk for reward. Most Canadians would be best served by managing risk (reducing debt) and striving for reward (building retirement savings), becoming proficient in each.
What’s your take on the mortgage vs. investing debate?
About the Author: This post is from Mark Seed who runs My Own Advisor. You can join the 2,500+ Twitter followers of My Own Advisor here and join the 40,000+ monthly visitors by subscribing to Mark’s site www.myownadvisor.ca.