Investing

Couch potato investing for the last 12 years - tracking my progress

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  • Nov 20th, 2017 8:59 pm
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Jr. Member
Nov 25, 2007
182 posts
31 upvotes
Toronto
Thanks everyone in this thread. It's been very informative! I'm a newbie on investment, and I'm serioiusly considering the CCP portfolio, but I have a quick question:

I have a $330K mortgage (locked rate at 2.11% until June 2018), and I have $350K cash (currently sitting in a saving account with 2.5% interest rate). Should I pay off the $330K mortgage first, or should I just put the entire $350K saving into the CCP portfolio? My friend told me to pay off the mortgage first before any investment, but my thinking is, if I can easily get more than 2.11% return from my CCP investment, why would I bother paying off my mortgage in a hurry?

What do you think?

Thanks everyone!
Sr. Member
User avatar
Mar 11, 2011
565 posts
161 upvotes
Toronto
Pay off the mortgage, if only for the peace of mind. After tax, you are earning nowhere near 2.5%, so the present setup is costing you. Also, after 9 years without a serious correction, the market is way overvalued and due for a correction.
Deal Addict
User avatar
Aug 1, 2007
1284 posts
136 upvotes
raptorsfans wrote:
Oct 27th, 2017 10:59 am
Thanks everyone in this thread. It's been very informative! I'm a newbie on investment, and I'm serioiusly considering the CCP portfolio, but I have a quick question:

I have a $330K mortgage (locked rate at 2.11% until June 2018), and I have $350K cash (currently sitting in a saving account with 2.5% interest rate). Should I pay off the $330K mortgage first, or should I just put the entire $350K saving into the CCP portfolio? My friend told me to pay off the mortgage first before any investment, but my thinking is, if I can easily get more than 2.11% return from my CCP investment, why would I bother paying off my mortgage in a hurry?

What do you think?

Thanks everyone!
I think that's the right way to think about it. Long-term I think you could expect to get much more than 2.11%. You should look at your time horizon and any future cash requirements as well. If the idea of having that mortgage is a huge burden for you, the emotional aspect of becoming mortgage-free is also something to consider.
Deal Addict
Jan 20, 2016
1366 posts
515 upvotes
Houston, TX
46jimbo wrote:
Oct 27th, 2017 11:20 am
Pay off the mortgage, if only for the peace of mind. After tax, you are earning nowhere near 2.5%, so the present setup is costing you. Also, after 9 years without a serious correction, the market is way overvalued and due for a correction.
Well, raptorsfans asked about CCP vs mortgage. Mortgage vs GIS/HSA sure looks better. as 2.5% after tax is really zero game here. But with 6-8% average return from CCP, over next 10y it would be BIG difference in favor of CCP.
Another way to skin a cat (sorry, no personal avatar offense ;) ) could be pay a mortgage, take a HELOC and do a Smith maneuver (assuming most of 350k would go to taxable account)
after 9 years without a serious correction

-19% drop in 2016 didn't count as correction, eh?
Make the Trudeau drama teacher again!
Deal Addict
Jun 3, 2009
3734 posts
451 upvotes
Montreal
46jimbo wrote:
Oct 27th, 2017 11:20 am
Pay off the mortgage, if only for the peace of mind. After tax, you are earning nowhere near 2.5%, so the present setup is costing you. Also, after 9 years without a serious correction, the market is way overvalued and due for a correction.
Interest earned is taxed at 50% so I would also pay off the mortgage too unless you are a seasoned investor/trader.
Jr. Member
Nov 25, 2007
182 posts
31 upvotes
Toronto
Thanks for the inputs, everyone! I really appreciate it!

I totally forgot about the tax from the investment :). So I guess my real question is: is it realistic to expect a net return (ie, after 50% tax) of more than, say, 2.5%, from a conservative CCP portfolio?
Jr. Member
Nov 25, 2007
182 posts
31 upvotes
Toronto
BTW, there's no emotional burden for me for having the $330K mortgage. I'm currently paying $2000/month on the mortgage, and the amortization period is 14 years.

The way I'm thinking is that, if the net return (after tax) from CCP is more than the interest I'm paying for my mortgage (currently 2.11% interest rate), then I'm just treating that $2000/month mortgage payment as my CCP contribution.

Do you think that's a stupid move? Did I miss anything? Thanks again for your input!
Deal Addict
Jan 20, 2016
1366 posts
515 upvotes
Houston, TX
raptorsfans wrote:
Oct 27th, 2017 12:05 pm
Thanks for the inputs, everyone! I really appreciate it!

I totally forgot about the tax from the investment :). So I guess my real question is: is it realistic to expect a net return (ie, after 50% tax) of more than, say, 2.5%, from a conservative CCP portfolio?
http://canadiancouchpotato.com/wp-conte ... s-2016.pdf
5.08% on 10y for 70/10/20 "conservative" portfolio.
After-tax return it's a complex question, someone stated distributions paid by Canadian ETF are also treated as eligible dividends, so they have to be taxed less than general income or even cap.gains...but this really depends on YOUR tax situation.
There is also versions of "tax efficient" ETFs for bonds and "balanced" funds like MAW105 (where distributions are not paid but added to fund, so you'd pay only cap.gain taxes on selling...)
Make the Trudeau drama teacher again!
Member
Sep 20, 2006
206 posts
41 upvotes
raptorsfans wrote:
Oct 27th, 2017 12:15 pm
Did I miss anything?
For your exercise, you should consider not only your current mortgage rate as the after-tax investment return hurdle, but the expected mortgage rate over your remaining amortization. If mortgage rates return to higher levels during the 14 year period, that could potentially change things.
Deal Addict
Jan 20, 2016
1366 posts
515 upvotes
Houston, TX
plg_cp wrote:
Oct 27th, 2017 12:58 pm
For your exercise, you should consider not only your current mortgage rate as the after-tax investment return hurdle, but the expected mortgage rate over your remaining amortization. If mortgage rates return to higher levels during the 14 year period, that could potentially change things.
stocks/bonds returns are also tied to interest rate. If it will rise, their "nominal" returns will raise as well. Roughly bonds has +2% premium and stocks 5-8% to the interest rate (actually mortgage rate ~ bonds rate imo)
pay out mortgage vs invest is neveredning battle :)

p.s. the easiest from decision point imo would be split those 350k cash two way: invest half of it CPP way (maximizing all reg accounts like RRSP, TFSA, maybe delay a portion to put in RRSP till next year, and put attention to tax planning for taxable portion) and use another half to pay a (part) of a mortgage. Then renew it with shorter term making ~same monthly payments - this would save on interest, will not compromise the lifestile and will make sizeable investment portion.
like
https://www.bogleheads.org/forum/viewtopic.php?t=196877
https://www.bogleheads.org/forum/viewtopic.php?t=208988
Make the Trudeau drama teacher again!
Deal Addict
Jan 20, 2016
1366 posts
515 upvotes
Houston, TX
raptorsfans wrote:
Oct 27th, 2017 12:05 pm
Thanks for the inputs, everyone! I really appreciate it!

I totally forgot about the tax from the investment :). So I guess my real question is: is it realistic to expect a net return (ie, after 50% tax) of more than, say, 2.5%, from a conservative CCP portfolio?
Another good point from BH forum on this topic:
HOWEVER, it would reduce your risk - particularly the sequencing risk of returns - to pay off the house and then invest whatever your mortgage payment would have been every month, instead of keeping the loan and investing one big lump sum. This way you are dollar cost averaging your investment over many years rather than investing it all up front. True, lump sum investing beats dollar cost averaging about 65% of the time (depending on which study you read), but given that we are in one of the longest bull markets and still treading around all time stock market highs, I wouldn't want to be using debt to bet that returns will continue to be positive right now.
If someone would like to do it with minimal risk (looking to 350k in cash and considering 70% bonds portfolio I'd assume that...), that would probably be the MOST risk-free way to go :) - be mortgage-free and keep investing
Make the Trudeau drama teacher again!
Jr. Member
Nov 25, 2007
182 posts
31 upvotes
Toronto
Thanks for all your inputs, asa1973! The info from the BH forum is definitely valuable! I'm so glad that I asked you guys here in RFD before making any stupid decision :).

After reading the posts from BH forum, I think I'm going to pay off at least 50% of my mortgage (ie, $165K) for now to lower the risk. I'll just use half of my current monthly mortgage payment ($2000/2 = $1000) towards the CCP for now and see how that goes.

Thanks again for everyone's help! I really appreciate it!
[OP]
Deal Addict
Oct 1, 2006
1687 posts
649 upvotes
Montreal
Bart_ wrote:
Oct 24th, 2017 12:34 pm
Thanks. I was debating that when I drafted my plans.

Is my asset location ok?
A bit too aggressive for my taste, but otherwise it looks good.
[OP]
Deal Addict
Oct 1, 2006
1687 posts
649 upvotes
Montreal
sherman51 wrote:
Oct 27th, 2017 5:49 am
If I am investing in ETF's in a Non-Registered account, should I stick with the suggested CCP model portfolio of ZAG, VCN and XAW or are the better/other ETF's I should look at to minimize the taxes to be paid. The money would be invested in a HoldCo.
Yes, these ETFS work well in non-registered too.
[OP]
Deal Addict
Oct 1, 2006
1687 posts
649 upvotes
Montreal
46jimbo wrote:
Oct 27th, 2017 11:20 am
Also, after 9 years without a serious correction, the market is way overvalued and due for a correction.
46kimbo.png
Last edited by Germack on Oct 27th, 2017 9:27 pm, edited 2 times in total.

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