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August 16, 2019 | It’s Over!

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

Well, that was some week. The Dow plunged. It crawled back. It fluctuated. Then it soared. Bonds roared and retreated. Gold jumped, gyrated and weakened. The recession talk crescendoed, then we all got distracted with Hong Kong, Putin’s insane nuke-in-a-missile explosion and Trudeau’s ethics. Or lack thereof.

If you ever wonder why a balanced, diversified set-it-&-leave-it portfolio is the best choice, just think about this week. Stress will kill you faster than anything. So forget about the inverted yield curve, climate change and Trump. Let’s focus on the micro, since we can’t change the macro.

It’s time, in other words, to address some to the plaintive cries from the steerage section…

“My boyfriend has been following your blog for a long time now and it has become his morning ritual to grab a coffee and read your posts,” says Jillian. “Thanks for the valuable information! I wanted to ask your advice when it comes to paying off our debt and how we should go about prioritizing it.

“I work full time in oil and gas, and my partner is a firefighter/paramedic here in Alberta. I graduated with a business degree and am currently working away at my masters. We are 25 and 28 years old, have 7k credit card debt, 0 car payments, share finances and have a combined income of 120k annually (in 4 years we’ll be at min 160k). Approximately 117k saved split between our home equity/savings/TFSA/stocks, and 335k left to pay on our mortgage.

“What are your thoughts on getting a HELOC, LOC, etc. to pay off the student loans? Should I keep making the monthly payments I can comfortably afford, or is there a better and faster way so I’m not paying it off until I’m in my mid 30’s? My partner has 9k right now in his stocks, but we were thinking of pulling it out to pay off a large chunk of the loans since my interest alone is significantly higher than his annual return. I think we’ve put ourselves in a pretty good financial position given our age, but what are your thoughts so we can further progress and achieve our goals to retire by 50-55 with 0 debt? Thanks for all your help!”

That’s easy, Jill. Dump the stocks and pay down the debt. That BF of yours shouldn’t be flipping equities anyway, since you two have a negative net worth – total debts far exceeding your liquid assets and equity. Losses are not justified at this point, and with volatile markets upon us, holding single stocks is a really dumb idea when your finances are thin. Didn’t he learn anything reading this blog every morning? Does he just come for the weirdo dog pictures?

No HELOC, either. You might be saving a little on the loan rate, but you’re just replacing non-secured debt with new debt locked against your home. Better to set a household budget that lets you trash the student loans as fast as possible. Don’t Starbucks. Eat at home. And don’t accelerate your mortgage payments.

Now here’s Aaron. Asking for his sister…

She is heading back to school and has qualified for a student grant and loan.  The loan is about $8,000 which she doesn’t plan on using at all.  It is interest free until after school is complete (about 2 years).  I’ve told her it’s free money to take and invest for the length of her schooling, paying back the principal at the end when required (or potentially not if the interest is very low).

I’ve got a Questwealth ETF managed portfolio set up at 60/40 with good exposure and had initially suggested the exact same for her. My question then is this; you’ve said it’s always a good time to invest… so is it in this case and is the right set up your standard portfolio?

She has an amazing chance to become an investor with this OSAP loan and see some tangible results, thus creating some life-long healthy financial habits?

No. Bad idea. A loan is a loan. If she takes the money it’ll have to be repaid in two years and there is absolutely no guarantee a portfolio of ETFs will be worth more at that time. Sure, the expectation is that gains will accrue, but what happens if there’s a temporary downturn exactly when the funds are needed? Investing for a period of 24 months is not investing. It’s speculating. And remember that we’re in Year 10 of an economic expansion, with high stock markets and low bond yields plus lots of talk about an inevitable slowdown. No reason to be a doomer, for sure. But neither should you tell her profits are a sure thing.

The best life-long lesson for sis is to eschew debt, be very careful about leverage and be beholden to noone.

Finally, Andrew has a question about those predatory mortgages aimed at wrinklies.

A friend of mine is considering a reverse mortgage & I recall you’ve posted on that subject. Can you please let me know the title of that post(s) so I can forward her your thoughts about them.

Sure. The topic has been addressed here a few times. The most recent entry is this one. Tell your friend to be highly skeptical of the marketing materials, the long-term consequences and the true costs of a reverse mortgage. The rate charged on outstanding principals is outrageous, the admin fees are substantial and the debt keeps growing – to be paid by the estate.

If you need money to live on, sell the damn house, invest and rent. If you hate your children, get a reverse mortgage.

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August 16th, 2019

Posted In: The Greater Fool

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