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How saving for retirement beats paying down your mortgage

One of the most common financial questions I have heard over the years, is whether it is better to pay down your mortgage or save for your retirement?

Recent behaviour indicates that many people have chosen to focus on paying down their mortgage vs saving for retirement.

 In my opinion this is a reflection of the time tested adage that money is about more than math. The emotional decision to seek out security over more financially profitable alternatives often takes precedence.

When you do take a look at the numbers; (particularly expected rates on return on your RRSP compared to the prevailing cost of mortgage debt) the decision definitely favours adding to your retirement savings.

Here is an excellent article that takes a look at the math, as well as the emotion.

Cheers,

 Coach Mark

How saving for retirement beats paying down your mortgage

​Saving for retirement beats paying down your mortgage. There – a long-standing debate in Canadian personal finance is settled. To build wealth in today’s low interest rate world, divert money you were going to use to pay down your mortgage balance to your registered retirement savings plan or tax-free savings account. This is the conclusion of a report to be issued Thursday called “Mortgages or Margaritas: Is Paying Down Debt Putting Your Retirement at Risk?”. Read on to see the proof.
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When borrowing to invest actually makes sense

When I first started out as a financial advisor, twenty years ago, a strategy that was very prominent and recommended by many financial advisors was “borrowing to invest”.

This strategy involves taking out a loan to purchase investments outside of your RRSP. The benefits are that the interest you pay on the loan is tax deductible against your income and as long as you earn a return that is equal to the after tax cost of the loan, you will be successful, and have the ability to dramatically increase your net worth over time.

However, one of the areas that was overlooked, or down played was that when the investment markets go into a big slump as they do from time to time (also known as a bear market) your losses are magnified.

Many people found that they were not emotionally prepared for the ups and downs of this strategy, and as a result this strategy fell out of favour.

Does this strategy still make sense for people today?
My personal opinion is that borrowing to invest can still be a very effective strategy for the investor with the right type of temperament, who understands the risks and the rewards, and has a long term investment horizon.

I encourage you to read the enclosed article-it features comments from Talbot Stevens, who is a highly respected thought leader within the financial community. He was also a guest on our Financially Fit For Life webtalk radio show back in 2014
Click here to listen:to our interview with Talbot Stevens The Smart Debt Coach.
Interview with Talbot Stevens The Smart Debt Coach

I look forward to hearing any comments or questions that you might have.

Cheers,
Coach Mark

When borrowing to invest actually makes sense

​Borrowing to invest is always a risky strategy, especially so in a climate like this. The bull market is six years old, and nothing lasts forever. Between March 2009, when Toronto share prices touched bottom, and this week, the main Toronto stock market index has almost doubled. Last week’s interest rate cut may be the first of several. The bank’s message is that a bumpy road lies ahead. But each cut also adds a little more energy to the markets. It makes it cheaper for companies to borrow, which improves their profitability and so lifts share prices. It makes it cheaper for us to borrow to buy stocks. But should we? Yes- borrowing for investments can be a good idea, if you do it right.
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RETIREMENT ADVICE YOU NEVER GET BUT NEED TO HEAR

A lot of the retirement advice we as financial advisors give out can tend to be on the dry side.
How to save taxes in retirement, how to avoid paying probate fees on your estate, what’s the best risk/return investment for your portfolio?
These are all very important areas to cover, but let’s face it, they are not always the most inspiring or motivating of conversations.
Here is a fresh look at advice that will spice up your retirement lifestyle, that you never get but definitely need to hear.
Have a great day.
Cheers,
Mark

Retirement Advice You Never Get But Need To Hear

Traditional retirement advice can be boring to some and less than fulfilling. Discussions about rollovers, precious metals, and the need to avoid probate can leave many new and soon-to-be retirees craving more. Desires that go beyond conventional financial recommendations and may include things such as investing in a pet, playing more golf, and taking more fishing trips. Here is some advice on topics that are not often discussed.

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Making Your Money Last

Outliving your money is a huge worry for people in or thinking about retirement.

Here is part 1 of a 2 part article that recently appeared in Forbes about how to make your money last.

Enjoy,

Mark

Making Your Money Last In Retirement
Outliving your money is a huge worry for people in or thinking about retirement. You retire and don’t even own an alarm clock anymore. Then it hits you: Can you really afford this lifestyle? Did you save enough and invest right? How long will your money last? This article presents strategies to ease your worry about outliving your savings. Plan a bigger portfolio than you think you’ll need. When planning for retirement, never imagine you’re going to get off easy. Think the opposite.
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Managing Client’s Financial Fitness

Managing clients’ financial fitness
Mark Hudon calls himself a “financial fitness coach.” The three-time Ironman triathlete serves about 100 families in his financial planning practice under the GP Wealth Management Corp.banner in Toronto. A financial advisor since 1994, Hudon has found that successful financial planning has much in common with endurance sports. Both, for example, require discipline and a focus on goals. Hudon urges his clients to apply the personal performance principles he uses in his endurance races to their financial plans.
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