# Young couple looking for opinions



## fisher14 (Jan 30, 2013)

Hi there, first off I'd like to thank you all for teaching and informing me on various financial news. I've been a frequent visitor of this site for quite some time, and am now looking for your opinions on what me and my wife should be doing with our finances.

Background info: 
-Both 29 years old
-No Credit Card debt, car paid off
-Income all together = 70K (should increase 10K in the next year or so)

Portfolio:
TFSA (Cnd, U.S., Int'l Index funds) = 10,000
RRSP (Balanced foreign equity fund)= 10,000
Non-Registered (%85 Cdn Dividend Income, %15 Precious Metals)= 25,000
Chequings = 7,000
Savings = 9,000
House equity = 120,000 (with a mortgage balance of 175,000)

As of right now we're contributing about $400/month spread through all our investment accounts. I'm hoping to put extra money onto our mortgage when we can. (amitorized over 30 years)

Now here's the question. Would it be smarter to avoid putting extra payments onto the mortgage and instead invest? I feel like our mortgage is pretty large, however our rate is fairly low (3.14 for next 2 years). Any thoughts on my fund choices, and or suggestions of other funds to maybe look out for?

Thanks again for all your advice


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## Pennypincher (Dec 3, 2012)

Classic question. No absolute answer.


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## cman2 (Jan 14, 2011)

Why the non-registered account if you haven't maxed out TFSA? 

I like doing both paying down the mortgage and investing. It doesn't have to be one or the other.


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## Spudd (Oct 11, 2011)

If you're 29, you have 51k combined TFSA room, so I would suggest moving your non-registered investments into the TFSA. 

As to the mortgage vs investing question, it's a personal choice. Personally I hedge my bets by doing some of each.


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## fisher14 (Jan 30, 2013)

Spudd said:


> If you're 29, you have 51k combined TFSA room, so I would suggest moving your non-registered investments into the TFSA.
> 
> As to the mortgage vs investing question, it's a personal choice. Personally I hedge my bets by doing some of each.



Ya that makes sense, could I just take all non-registered funds and put it under our TFSA without selling them, or would I have to first sell the funds, and then buy back?


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## InvestingForMe (Sep 6, 2012)

The average Canadian has always had limited savings and every year they wrestle with the same nagging question: Should we contribute to our RRSP or pay down the mortgage?

And every year when they ask for professional advice they hear the same answer: _It’s important to save for your future retirement, so use your extra savings to build a retirement nest egg_. (In other words, most experts don’t believe paying down your mortgage to be the right answer.) Side Thought: If Canadians focused their savings efforts toward eliminating their mortgage before contribution to their RRSP, there would be a lot of unemployed bankers and financial advisors wondering the streets.

Using what we know today about mortgage rates and investment returns over the past 15 years as a guide, the answer to that old question is much clearer. The correct answer is to forget about your RRSP until after you pay off your mortgage.

Over the past 20 years investors have averaged 2.10% annually, below the average inflation rate of 2.60%. Mortgage rates averaged 6.90% (5 year fixed-terms offered by chartered banks) over the past 15 years. And investors have incurred expensive investment costs in the process - averaging 2,06% for equity investments. We know investors are slowly converting to Exchange Traded Funds, but they are still a small minority (only 6.27% of assets). For example, of the $866 billion Canadians have in investment savings, $811.7 billion is invested in mutual funds and $54.3 billion is in Exchange Traded Funds.

We know quite a few Advisors say, in the current low interest rate environment, paying down your mortgage should not be a priority, but we disagree. First, ask yourself - will interest rates remain at these low levels for the next 5 years? 10 years? 15 years? No one knows, but if you believe interest rates will eventually rise, doesn't it make more sense to pay off as much of your mortgage as possible - now, before rates rise and your loan costs you more?

One last thought, if interest rates begin to rise there is no guarantee that stock market rates of return will be positive. We understand this investment theme is gaining popularity - stocks will rise in the face of rising interest rates, but we are not so sure history is supportive of this view.

We know from reading many of the this forum's posts, from experienced investors, they made paying off their mortgages a top priority, early in life, and continued that same discipline in saving for their retirement.

Don't agree? Maybe your circumstances are different than those of the average Canadian. Well, here is a comparison calculator that might help you in your analysis - *Pay Down My Mortgage or Contribute to My RRSP?*

Hope the above thoughts are helpful.


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## Eclectic12 (Oct 20, 2010)

fisher14 said:


> Ya that makes sense, could I just take all non-registered funds and put it under our TFSA without selling them, or would I have to first sell the funds, and then buy back?


As long as the TFSA account that you are transferring the investments to will accept them (ex. a TFSA that is a savings account type won't accept BNS common stock as a transfer), you can transfer the investments without selling. This is called an "In-Kind" transfer.

There are several things to consider - first, just like an RRSP in-kind transfer, the investment is a deemed disposition. This means that even though the shares were not sold as part of the transfer, you will have to calculate/report the capital gain (CG) on your tax return as if you had sold the shares.

Note that a capital loss (CL) is not allowed so it may take some patience to pick a good transfer day. If the non-taxable account and TFSA are with the same brokerage, the transfer can be as simple as calling a rep, asking for stock "ABC" to be transferred to the TFSA account. Some brokers will ask you to name a transfer price from the range the stock has traded that day (ex. stock ABC traded from $5 to $7 before the call & $5.50 means a small capital gain, so you tell the broker to record the transfer price as $5.50). The transfer price is then the "sell" price for the capital gains calculation on you tax return.

I haven't done an after-hours transfer but I suspect that some brokers may let you choose from the previous day's trading range.

Also - if you can't avoid a CG, check to see if you have any CL that has been reported to CRA but not used yet or consider selling some of your losing stocks to provide a CL as the CL will reduce the CG and the taxes to be paid.

Links about TFSA transfers:
http://www.moneysense.ca/2012/10/11/transferring-stocks-into-a-tfsa/
http://www.milliondollarjourney.com/in-kind-transfers-non-registered-stocks-to-an-rrsp-tfsa.htm



Secondly - if you do sell the stock as it is in a loss position, you can't claim the CL unless you wait 30 days after the sale to re-buy in the same stock in the TFSA, due to the superficial loss rule. If you think waiting 30 days is too risky, another option is to pick a similar stock in the same space. For example, sell TD bank stock at a loss, transfer the money to the TFSA and buy BNS bank stock. Since it's not the same company, the superficial loss rule will not apply.

Links regarding the superficial loss rule:
http://www.cra-arc.gc.ca/tx/ndvdls/.../lns101-170/127/lss-ddct/sprfcl/menu-eng.html
http://www.advisor.ca/tax/tax-news/sidestepping-superficial-loss-rules-11064


Cheers


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## Eclectic12 (Oct 20, 2010)

InvestingForMe said:


> ... And every year when they ask for professional advice they hear the same answer: _It’s important to save for your future retirement, so use your extra savings to build a retirement nest egg_. Using what we know today about mortgage rates and investment returns over the past 15 years as a guide, the answer to that old question is much clearer. The correct answer is to forget about your RRSP until after you pay off your mortgage...


Apparently the average Canadian has been reading the news-bites article type of professional advice (or visiting a bad advisor). The ones I've read or talked to that have made sense have said "It depends on several factors - consider them, runs some scenarios and make an informed decision."

The "correct answer" above IMO is yet another round of blanket financial advice that makes vague assumptions, does not consider where the individual is at or capable of and is likely to be wrong about half the time. 




InvestingForMe said:


> ... Over the past 20 years investors have averaged ... 2.10%[/URL] annually, below the average inflation rate of 2.60%.
> 
> Mortgage rates averaged ... (5 year fixed-terms offered by chartered banks) over the past 15 years. And investors have incurred expensive investment costs in the process - averaging 2,06% for equity investments. We know investors are slowly converting to Exchange Traded Funds, but they are still a small minority (only 6.27% of assets)...


So because other people don't know what their doing, one should follow the masses instead of reviewing one's capabilities & possibilities to build a personal plan?

To give you an example of why I'm not concerned about the averages - since I had experience and recognised the opportunity of Mar 2009 - I ended up with some like 13 of 15 stocks with a capital gain (cg) in under a year, with 8 having between 100% to 200% (cg) and 90% of these stock paid dividends at 5% on the purchase price.

Was it an exceptional opportunity? Did I have cash flow to handle it if it didn't work out? Did I evaluate my options to create a plan? Yes to all of this.

But for a calculated risk - I ended up retiring my mortgage much earlier plus stock left over that has increased the dividends since instead of being concerned about the averages.




InvestingForMe said:


> ... We know from reading many of the this forum's posts, from experienced investors, they made paying off their mortgages a top priority, early in life, and continued that same discipline in saving for their retirement.
> 
> Hmmm ... I'm not sure it is that simple.
> 
> ...


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## InvestingForMe (Sep 6, 2012)

Eclectic12 said:


> So because other people don't know what their doing, one should follow the masses instead of reviewing one's capabilities & possibilities to build a personal plan?
> 
> To give you an example of why I'm not concerned about the averages - since I had experience and recognised the opportunity of Mar 2009 - I ended up with some like 13 of 15 stocks with a capital gain (cg) in under a year, with 8 having between 100% to 200% (cg) and 90% of these stock paid dividends at 5% on the purchase price.
> 
> ...


Eclectic12 -We doubt your investing success, taking _calculated risks_ at the height of the stock market down-turn, is the experience of most Canadian investors - let alone anywhere near average. 
Our comments were made in view of fisher14's post outlining their current financial position and expressed concerns about the size of their mortgage. 
But even you have stated that paying off your mortgage was a top priority for you. Choosing to sell winning investments to eliminate your debt as soon as possible rather than carrying the mortgage and continue to make impressive returns on your investments. So we simply state our view that this couple should have a similar priority.

Regards


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## Oldroe (Sep 18, 2009)

Life starts when the mortgage ends. Anybody that advises other wise has never been mortgage free.

We put the focus on the mortgage and still manged to make investments in div. stocks. Balance this with having a life a vacation and fun.

Basically I made all the investment mistakes well still paying mortgage so when the mortgage ended I was ready.


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## Eclectic12 (Oct 20, 2010)

InvestingForMe said:


> Eclectic12 -We doubt your investing success, taking _calculated risks_ at the height of the stock market down-turn, is the experience of most Canadian investors - let alone anywhere near average...


This wording is confusing me so that I'm not clear on what you mean here.

If you mean that buying around Mar 2009 was common - I'd have to see some objective numbers. Most people I was talking to at the time were either holding tight while avoiding buying stocks. Or worse, selling near the bottom to move into cash or GICs as they couldn't stomach any lower values. Others missed the bulk of the gains as when the bank stock prices were rising, they though it was temporary so that their purchases were after most of the gains had happened.




InvestingForMe said:


> Our comments were made in view of fisher14's post outlining their current financial position and expressed concerns about the size of their mortgage...


Then why the talk about the "correct answer", which implies that this particular answer is best for all?

Again, this strikes me as blanket advice that may or may not fit the individual.




InvestingForMe said:


> ... But even you have stated that paying off your mortgage was a top priority for you. Choosing to sell winning investments to eliminate your debt as soon as possible rather than carrying the mortgage and continue to make impressive returns on your investments....


No ... I stated that paying off the mortgage was one option of several to be considered, evaluated and revisited regularly. The top priority changes on a regular basis.

Around Dec 2008 / Mar 2009 - paying down the mortgage was an option that I dismissed as I believed I could buy good investments cheaply. I kept monitoring what was happening so that two years later, the result of the evaluation was that the investments were not likely to grow, the prospects of other investments being as rewarding was slim so that selling some of the investments to retire the mortgage became the top priority.

So at times, paying the mortgage was top priority and at other times, investing was top priority.




InvestingForMe said:


> .. So we simply state our view that this couple should have a similar priority ...


If it's a similar priority to mine - the priority action is going to change year by year, depending looking at a series of variables. 


Cheers


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## Daenerys Targaryen (May 11, 2012)

Fisher14, you and your wife are doing fantastic, congratulations! You have a fair amount of equity and investments for your age and income level.
Best of luck!


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## My Own Advisor (Sep 24, 2012)

So far, so good for folks in their 20s.

Work on the mortgage with the low rate, I wouldn't go crazy on that but definitely put lump sums on the mortgage. Definitely work on the TFSA, get that TFSA maxed out if you can. You have over $40K of contribution room.


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## fisher14 (Jan 30, 2013)

Update a year and a half later...

Listened to all your advice and decided to put lump sum payments down (when we had the extra cash) and also increased the amount we were investing. We transferred all non reg funds under our tfsa, and both switched are index funds to e-series.

I am now in the process of trying to max out our tfsa. I bought a few safe, reliable stocks and also put that under my tfsa as well.

Situation now looks like this:

Home mortgage - 140,000 (house value- at least 310...probably more but rather guess low)
Tfsa - 52,000 (e-series, div income fund, a few reliable stocks)
Rrsp - 12,500 (balanced mutual fund)
Savings - 25,000
Chequings - 15, 000

No debt aside from mortgage.

Our income is now closer to 95k so we've been able to save quite a bit. (Also received 30k inheritance money). I'm now hoping to have both our tfsa maxed out by the end of next year, as well as put another lump sum or two on the mortgage. (Would like to have it paid off before within the next 8 years or so).

Anyway, long overdue but thanks for the advice.


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## joncnca (Jul 12, 2009)

Just wanted to interject a thought, have you considered having kids anytime soon? They are a big expense, and a child will cause you to spend more than you planned, plus you would want to save for them as well... Throws a bomb into your child free plans. I'm quite disciplined I think, and we did save up beforehand, but when we had our daughter a few months ago (I'm about your age) it changed our lives. Worth it totally, but don't forget to factor that into your plans. Good luck ☺


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## lonewolf (Jun 12, 2012)

RRSPs were not designed for the masses to save for retirement. They were designed to make the bankers rich. The goal of the bank is to collect as much interest as possible on your mortgage & to take as much of your money as possible with there so called investments. Through fees & taking the other side of the trade of their clients they are the casino.


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## My Own Advisor (Sep 24, 2012)

RRSPs are great for high net income earners, not so great for everyone else. 

Your income seems pretty darn good, so if you continue to max out registered accounts first (RRSP, TFSA) then you can start building your non-registered account after the mortgage is done. 

If you can max out your registered accounts AND kill the mortgage debt at the same time using lump sum mortgage payments, this is recipe for financial success me thinks. This is what we are trying to do anyhow. Good luck


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## fisher14 (Jan 30, 2013)

joncnca said:


> Just wanted to interject a thought, have you considered having kids anytime soon? They are a big expense, and a child will cause you to spend more than you planned, plus you would want to save for them as well... Throws a bomb into your child free plans. I'm quite disciplined I think, and we did save up beforehand, but when we had our daughter a few months ago (I'm about your age) it changed our lives. Worth it totally, but don't forget to factor that into your plans. Good luck ☺


I hear ya. No kids yet, but yes they are in the plans (I'm hoping 2 years from now). So before kids come along my main goal is to max our tfsa and with the extra money left over, put it on the mortgage. I'm hoping to be mortgage free by our early 40's...I know wishful thinking, but might as well aim high.

When kids do come along I'd still like to max both our tfsa's, and would be fine with not putting additional payments onto the mortgage.

I'm currently contributing very little to the rrsp, and have sort of set contributing more aside for now (are incomes aren't too high, and our tfsa's still aren't maxed out).


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## fisher14 (Jan 30, 2013)

Update:

Welcomed a new baby boy into this world and am now feeling the financial pain (daycare)

Prior to the new addition we continued to save as much as we could, knowing full well the baby would put a strain on things. As of right now our situation looks like this:

Both 32 years old:

Mortgage: 100,000 (house value- 320,000. Low balling it, as our neighbour did just sell for 337k)
TFSA: 80,000 (Both are maxed- but the recent drop in the economy our portfolio is down a decent bit..all Cdn dividend payers as well as eseries funds)
RRSP: 15,000 (recently sold the mutual fund and bought an international ETF)
Chequing account: 10,000
Savings account: 27,000

We're both happy with our current situation but am now starting to wonder with the tfsa maxed is putting any additional money in rrsp's worth it, or should we just go with non registered account? We both aren't high earners by any means (her salary tends to fluctuate, while mine is around 45k/year)

Im also now hoping to have the house paid off within 5 years...so will continue putting lump sum payments whenever we can afford to. It'll be tough to do in such short amount of time but I figured to aim high.


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## Spudd (Oct 11, 2011)

Why wouldn't RRSP be worth it? Are you expecting to have a higher tax rate after retirement than you have now? 

Personally my philosophy was always max out my registered accounts (TFSA and RRSP) and then if there's anything left over, throw it at the mortgage. Only once the mortgage was gone did I open a non-registered account.


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## fisher14 (Jan 30, 2013)

No, but I guess the thought of only getting to enjoy that money at 65 years of age sort of bothers me. I would love to retire before that age (as would most of us) so I kind of like the idea of having access to the money if early retirement becomes an option.


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## Spudd (Oct 11, 2011)

You can withdraw from RRSP any time. There's no limit of being 65. The withdrawal is taxed as income, so if you withdraw while you're still working you'll face high taxes on the withdrawals (because your overall income will be high). But if you're early retired, it's totally cool to withdraw it. You'll pay tax, but with non-registered you have to pay tax all along.


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## digitalatlas (Jun 6, 2015)

remember that a dollar today is worth more than a dollar in 30 years. you don't really know how much you'll pay in tax in 30 years...may be a lot, but may be a little. but if you put it into a non-registered account today, you're guaranteed to pay tax on it today. as Spudd suggests, put it into your RRSP.

that being said, if i were you, i'd really try hard to pay down the mortgage. i'm about your age with one kid, and we recently paid off our mortgage. it's amazing. i highly recommend it, lol. but seriously, if you put it into your RRSP you won't want to touch it for a while, but if you prepare the money for additional mortgage payments now, you'll probably leave it in a savings account, which is way easier to access. that may not be great from a savings point of view, but i think it's a really significant life change that you just had a baby. that baby will be expensive, and in a jam, you can borrow from yourself if you really need to from your savings. if that money is in an RRSP, it will be much more difficult to access. just a thought, from the father of a young child.

oh, and start an RESP and max out your grants. free money for education. that's something you'll have to save for. and you might want to set aside some money for your kid...just saying, the baby will be expenses not just because of expenses today, but you'll probably be thinking about all sorts of ways to prepare for your kid in the future too.


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## My Own Advisor (Sep 24, 2012)

I think for most Canadians something like this, a combination of this works:

1. Strive to max out TFSA(s) and pay your mortgage.
2. If in high-salaried job, then contribute to RRSP. Over time, max out TFSAs, pay your mortgage and max out RRSPs.
3. Use RRSP-generated refunds to either 1) re-contribute to RRSP or 2) pay down mortgage.
4. If kids, insert 1b) which is max out RESPs. If maxing out TFSAs and RESPs only, and paying mortgage, that's still VERY good for many parents.
5. Contribute to non-registered account or use lump-sum mortgage payments after TFSAs, RRSPs and RESPs are maxed.

With borrowing costs/mortgage terms available under 2.5% for 5-years now, I don't think it makes _too much sense _to be putting lump sump payments on your mortgage, UNLESS, a) you are worried about job prospects and are debt averse and/or b) you are close to having all registered accounts maxed out.

Last but not least, I if you have to ask the question, "should I pay down my mortgage or invest?" then this probably means you're worried about debt you need to pay that down until you don't have to ask the question anymore.


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## fisher14 (Jan 30, 2013)

Hey all, thanks for your thoughts and opinions...it seems like I had the wrong idea in terms of rrsp withdrawel (no clue why I thought that I couldn't take them out until age 65)

After reading your thoughts I think it is the smartest route for me to start focussing on the rrsp's. I'm not to worried with the amount of mortgage we have left (especially with our rate) so will continue with a balance of investing into the rrsp and paying down the mortgage when we have extra cash. (My Own Advisor- I follow your site, and Understand that you follow this same approach)

RESPs will start next year, probably just use a couch potatoe formula and go with 2 or 3 ETF's. I think for the first couple years we will try and max contributions to where the gov't matches.


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