High-income earners might want to consider putting some money toward their debt, while investing the rest, especially in cases in which they’re carrying multiple real estate properties with variable rate mortgages, one advisor recommends.megaflopp/iStockPhoto / Getty Images
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More Canadians are sitting on cash and weighing whether to pay down debt or invest their money in an environment of higher costs of living and higher interest rates.
According to Canadian Imperial Bank of Commerce’s recently published annual Financial Priorities poll, 61 per cent of Canadians are concerned about inflation while 28 per cent are concerned about rising interest rates. Forty-two per cent are also worried about their job security.
Thus, choosing between paying off debt and investing needs to be looked at on an individual basis and there’s no one-size-fits-all approach, says Ida Khajadourian,portfolio manager and investment advisor at Richardson Wealth Ltd. in Toronto.
She notes while some clients are worried about making ends meet and might want to stash away a few thousand dollars in an emergency fund, other clients may have had a good year – especially those holding U.S. equities, small caps or tech stocks.
“Certain positions outperformed incredibly well,” Ms. Khajadourian says. “As a result, many are now asking themselves, ‘Where do I deploy that cash?’”
Here are six strategies to consider:
1. Assess the financial situation
High-income earners might want to consider putting some money toward their debt, while investing the rest, especially in cases in which they’re carrying multiple real estate properties with variable rate mortgages, says Wes Ashton, co-founder and senior portfolio manager at Harbourfront Wealth Management Inc. in Vancouver.
For lower-income earners or those who may face layoffs, Ms. Khajadourian urges them to pay off as much debt as possible. “It makes sense to put money toward that debt,” she says.
2. Factor in personal preferences
“Many of us were brought up to fear debt,” says Patrick Caffrey, a financial advisor with LT Wealth Management Partners at Raymond James Ltd. in Vancouver.
Others are more comfortable owing money. Mr. Caffrey says if debt is keeping someone up at night, it needs to be addressed, even if the individual can afford to carry it.
“Personal feelings matter,” he says. “Mental stress impacts a lot of Canadians.”
3. Triage debt
If someone is carrying most of their debt on credit cards, that debt should be priority number one, Mr. Ashton says, as the interest rates on credit cards are radically higher than other loans. Or, for example, if a line of credit has a rate of eight per cent, it isn’t wise to invest those savings in a GIC that will pay four per cent interest.
However, if they have a mortgage with a rate of three to four per cent that’s not up for renewal, “it makes sense to invest that money,” rather than pay down the mortgage, he says.
In cases in which someone has significant balances on multiple credit cards, Mr. Ashton recommends they should “pay the small ones down first.” Paying off some debt in full will act as a catalyst to pay off more debt in the future.
4. Assess what you’re carrying
Ms. Khajadourian says some of her higher-net-worth clients utilized the low interest rates of the past several years to buy real estate, such as recreational properties or farmland. With rates now up significantly, they’re looking to make payments on those loans, often using the profits they’ve made on investments to make those payments.
“It’s prudent to reduce that debt now,” she says.
5. Weighing RRSP contributions
“RRSPs are most beneficial for high-income earners,” Mr. Caffrey says, noting that those contributions defer tax and help put those high-income earners in a lower tax bracket at retirement.
However, for those earning $50,000, for example, RRSPs are not especially beneficial, as their tax bracket at retirement will not be much different than the one they’re in now. For those individuals, investing in a tax-free savings account might be a good tax-free option, he says.
6. Using RRSP contributions strategically
With those individuals who have some money to invest, putting it in an RRSP can help lead to paying off debt as well, Mr. Ashton says. “Use your refund to either [reinvest] back into your RRSP [for a bigger tax break next year] or knock down that debt,” he says.
Ms. Khajadourian says it’s important to discuss the best approach with a financial advisor before embarking on any strategy. “They can try to balance these investments and [allocate them] where it makes sense.”
She adds paying off debt shouldn’t always be the focal point. “It’s just one aspect of the overall financial discussion. Be strategic.”
NEW YORK (AP) — Shares of Tesla soared Wednesday as investors bet that the electric vehicle maker and its CEO Elon Musk will benefit from Donald Trump’s return to the White House.
Tesla stands to make significant gains under a Trump administration with the threat of diminished subsidies for alternative energy and electric vehicles doing the most harm to smaller competitors. Trump’s plans for extensive tariffs on Chinese imports make it less likely that Chinese EVs will be sold in bulk in the U.S. anytime soon.
“Tesla has the scale and scope that is unmatched,” said Wedbush analyst Dan Ives, in a note to investors. “This dynamic could give Musk and Tesla a clear competitive advantage in a non-EV subsidy environment, coupled by likely higher China tariffs that would continue to push away cheaper Chinese EV players.”
Tesla shares jumped 14.8% Wednesday while shares of rival electric vehicle makers tumbled. Nio, based in Shanghai, fell 5.3%. Shares of electric truck maker Rivian dropped 8.3% and Lucid Group fell 5.3%.
Tesla dominates sales of electric vehicles in the U.S, with 48.9% in market share through the middle of 2024, according to the U.S. Energy Information Administration.
Subsidies for clean energy are part of the Inflation Reduction Act, signed into law by President Joe Biden in 2022. It included tax credits for manufacturing, along with tax credits for consumers of electric vehicles.
Musk was one of Trump’s biggest donors, spending at least $119 million mobilizing Trump’s supporters to back the Republican nominee. He also pledged to give away $1 million a day to voters signing a petition for his political action committee.
In some ways, it has been a rocky year for Tesla, with sales and profit declining through the first half of the year. Profit did rise 17.3% in the third quarter.
The U.S. opened an investigation into the company’s “Full Self-Driving” system after reports of crashes in low-visibility conditions, including one that killed a pedestrian. The investigation covers roughly 2.4 million Teslas from the 2016 through 2024 model years.
And investors sent company shares tumbling last month after Tesla unveiled its long-awaited robotaxi at a Hollywood studio Thursday night, seeing not much progress at Tesla on autonomous vehicles while other companies have been making notable progress.
TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 103.40 points at 24,542.48.
In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.
The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.
The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.
The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.
This report by The Canadian Press was first published Oct. 16, 2024.
TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.
The S&P/TSX composite index was up 205.86 points at 24,508.12.
In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.
The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.
The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.
The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.
This report by The Canadian Press was first published Oct. 11, 2024.
