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.”
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
