Investing

$100k investment for the next 3-5 years

  • Last Updated:
  • Nov 15th, 2017 3:39 pm
[OP]
Newbie
Oct 21, 2017
45 posts
4 upvotes

$100k investment for the next 3-5 years

Is it better to put 100k additional for down payment or not use it for down payment and invest it elsewhere? For a new mortgage, the interest portion is a lot more in the beginning.

Scenarios for a new mortgage on a property that is rented out:
[1] $100,000 additional for down payment at 3.09% mortgage rate
[2] $100,000 at 4% yearly yield for average of Canadian dividend stocks
[3] $100,000 at 4% yearly yield for average of USA dividend stocks

Benchmark: $100,000 additional for down payment at 3.09% - 0 savings

[2] $100,000 at 4% yearly yield for average of Canadian dividend stocks
-You get $4K dividend, $400 in tax - so $3,600 cash in
-You pay $3K more interest, but $900 less in tax, so $2,100 cash out
-total additional cash is $1.5K vs option 1 at year 1.

[3] $100,000 at 4% yearly yield for average of USA dividend stocks
-You get $4K dividend, $1.2K in tax - so $2,800 cash in
-You pay $3K more interest, but $900 less in tax, so $2,100 cash out
-total additional cash is $700 vs option 1 at year 1.

We assume: no capital gain, no foreign exchange impact.

This is only at 4%. There are many solid dividend stocks in the range of 4-7%.

Is this a good approach to pay off the mortgage?

I currently don't have a home yet. I'm planning to sell the rental property to upgrade to a 2 bedroom condo or a town home in the next 3-5 years. The property is in Vancouver.

Because of the short time line of 3-5 years, do you still recommend investing the $100k instead of putting it towards down payment? I understand the risk of realizing the gains of the $100k could be $50k in 5 years.

Thanks
20 replies
Newbie
May 7, 2017
67 posts
27 upvotes
curiousgeorge1000 wrote:
Nov 4th, 2017 8:29 pm
Is it better to put 100k additional for down payment or not use it for down payment and invest it elsewhere? For a new mortgage, the interest portion is a lot more in the beginning.

Scenarios for a new mortgage on a property that is rented out:
[1] $100,000 additional for down payment at 3.09% mortgage rate
[2] $100,000 at 4% yearly yield for average of Canadian dividend stocks
[3] $100,000 at 4% yearly yield for average of USA dividend stocks

Benchmark: $100,000 additional for down payment at 3.09% - 0 savings

[2] $100,000 at 4% yearly yield for average of Canadian dividend stocks
-You get $4K dividend, $400 in tax - so $3,600 cash in
-You pay $3K more interest, but $900 less in tax, so $2,100 cash out
-total additional cash is $1.5K vs option 1 at year 1.

[3] $100,000 at 4% yearly yield for average of USA dividend stocks
-You get $4K dividend, $1.2K in tax - so $2,800 cash in
-You pay $3K more interest, but $900 less in tax, so $2,100 cash out
-total additional cash is $700 vs option 1 at year 1.

We assume: no capital gain, no foreign exchange impact.

This is only at 4%. There are many solid dividend stocks in the range of 4-7%.

Is this a good approach to pay off the mortgage?

I currently don't have a home yet. I'm planning to sell the rental property to upgrade to a 2 bedroom condo or a town home in the next 3-5 years. The property is in Vancouver.

Because of the short time line of 3-5 years, do you still recommend investing the $100k instead of putting it towards down payment? I understand the risk of realizing the gains of the $100k could be $50k in 5 years.

Thanks
3 Years is a short horizon. Many would recommend mostly or all fixed income or even a GIC or HISA if you plan to need the money in 3 years. In your case you will get an even better guaranteed return than any other guaranteed investment. The dividend yield can wildly fluctuate and as you point out your stock can go down. You will then have a capital loss which will offset your capital gain from your rental property so your downside risk is reduced to some extent depending on your tax bracket up to 25% or slightly more.
Newbie
Oct 31, 2017
28 posts
4 upvotes
Of course u pay off the mortgage. The 4% yield could easily turn into minus 50% yield.
Deal Addict
Nov 9, 2013
1907 posts
665 upvotes
Edmonton, AB
When investing in real estate the idea is to use leverage to drive returns - the less money you put down the higher returns you will achieve. The decision as to whether or not you should put more down on the home should be made from a cash flow point of view (ie do I need the property to be cash flow positive? If so what does the monthly mortgage payment have to be?).

I don’t think it’s a good idea to buy stocks if you only have a 3 year time horizon. In general things are expensive (more so in the US) and if there is an immediate correction or bear market you could lose money if forced to sell at a specific time.
Newbie
Oct 31, 2017
28 posts
4 upvotes
His home is not an investment ; it's a necessity.
Holding stocks for thirty years does not inoculate you against the risk of losing more than u can afford.
[OP]
Newbie
Oct 21, 2017
45 posts
4 upvotes
If you have $100k in cash, do you enter the market with all that cash at once or spread it over 12-24 months or that's not needed when investing in solid dividend stocks?
Member
Jan 16, 2009
222 posts
59 upvotes
curiousgeorge1000 wrote:
Nov 10th, 2017 2:30 am
If you have $100k in cash, do you enter the market with all that cash at once or spread it over 12-24 months or that's not needed when investing in solid dividend stocks?
I would spread it out over 6-12 months. Just buy monthly.
Member
Jan 16, 2009
222 posts
59 upvotes
Mrsleah wrote:
Nov 5th, 2017 10:22 am
Of course u pay off the mortgage. The 4% yield could easily turn into minus 50% yield.
Only if OP is "gambling" and not "investing".
I get the feeling you must not own any investments other than your home...
[OP]
Newbie
Oct 21, 2017
45 posts
4 upvotes
wayneg9999 wrote:
Nov 10th, 2017 3:54 am
I would spread it out over 6-12 months. Just buy monthly.
I guess it is either spread it out to be more safe and be down 1-3% on inflation or not spread it out and take on more risks.

Let's say I take on a mortgage tomorrow with an additional $100k in mortgage and now I have $200k in cash for investing, do you still spread it out over 6-12 months or enter the market with all $200k so you are not losing 3% interests on the additional $100k mortgage?
Member
Jan 16, 2009
222 posts
59 upvotes
curiousgeorge1000 wrote:
Nov 10th, 2017 4:06 am
I guess it is either spread it out to be more safe and be down 1-3% on inflation or not spread it out and take on more risks.

Let's say I take on a mortgage tomorrow with an additional $100k in mortgage and now I have $200k in cash for investing, do you still spread it out over 6-12 months or enter the market with all $200k so you are not losing 3% interests on the additional $100k mortgage?
Tough call.. depends on your risk tolerance. If you buy it all tomorrow, and market tanks 5-10% next 3-6 months but rebounds later, you might be kicking yourself for not waiting to buy later. On the other hand, if market keeps going up 5-10% next 3-6 months and doesn't correct, you wish you had gone all in tomorrow. But if you are just in for the dividend, you just need to buy it before the ex-dividend dates.
[OP]
Newbie
Oct 21, 2017
45 posts
4 upvotes
wayneg9999 wrote:
Nov 10th, 2017 4:12 am
But if you are just in for the dividend, you just need to buy it before the ex-dividend dates.
Fortis stock price is 48.13, dividend is 0.43, yield is 3.53 according to google finance.

If I have 100 shares of Fortis at 48.13 and I get in after the ex-dividend date, does that mean the price will go from 48.13 to 47.7 after deducting 0.43 dividend per share?
wayneg9999 wrote:
Nov 10th, 2017 4:12 am
But if you are just in for the dividend, you just need to buy it before the ex-dividend dates.
How come there's less worry on stock price if I'm in it for the dividend?
Newbie
Apr 23, 2011
35 posts
12 upvotes
Toronto
curiousgeorge1000 wrote:
Nov 10th, 2017 4:06 am
I guess it is either spread it out to be more safe and be down 1-3% on inflation or not spread it out and take on more risks.

Let's say I take on a mortgage tomorrow with an additional $100k in mortgage and now I have $200k in cash for investing, do you still spread it out over 6-12 months or enter the market with all $200k so you are not losing 3% interests on the additional $100k mortgage?
Apparently research shows lump sum > DCA (dollar cost averaging). However, If DCA helps you sleep at night, then that’s the better strategy.
Deal Addict
Jan 20, 2016
1376 posts
516 upvotes
Houston, TX
someguy23 wrote:
Nov 10th, 2017 9:28 am
Apparently research shows lump sum > DCA * (dollar cost averaging). However, If DCA helps you sleep at night, then that’s the better strategy.
* - 3 times from 4, so there is 25% chances DCA would be better...but that could happened if market will tank just after your lump sum invested.
With DI portfolio lump sum investment would be better, as you'd loose dividends if spread it over 1y, + more spend on trading commission
Make the Trudeau drama teacher again!
Newbie
Aug 22, 2012
97 posts
79 upvotes
Mark Town
If you need money after 3 years, investing in stocks is not a good idea - because it can easily lose value. Especially now when the market has rallied for almost 10 years.

It is relatively safe to play some beat down sector stocks such as oil companies right now but no guarantee not losing principal.
Deal Addict
Jun 27, 2007
3187 posts
512 upvotes
Fortis is interest sensitive instrument. We are just coming off all-time low interest rates... while I don't know what would happen to the cost of money, it's not sound investment if you need money in 3 years.
After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: it never was my thinking that made the big money for me. It was always my sitting. Got that? My sitting tight!

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