Small sample size so far with 36 votes in, but I'm very surprised to see 2:1 debt to invest.
For those of you who would elect to pay down debt I have some genuine questions for you:
-What is your stock/bond ratio if you are holding investments?
-Do you see a major difference between paying down a fixed interest debt or investing in a bond?
-If you are an aggressive investor with a mix of at least 75% stocks, why would you take a conservative approach with your debts?
The only answer I can come up with is one I was faced with myself a few years ago: When your current cash flow can't service your debt load, it's clearly time to get rid of some of the monthly payments somehow. Does anyone else have another solid, logical reason for paying off debts other than the standard "it's a psychological win"? When I hear that, I think of a car warranty. It makes you feel warm and fuzzy, but it doesn't really do much for you.
Obviously there is no wrong answer here and it's a personal choice, I just thought this forum would be closer to 50/50 based on previous answers I've read.
Wow, stunningly insightful questions. Really made me think through my choices and the why...
I have three types of 'money' locations, like many of you...
Tax sheltered RRSP,
Non sheltered investments ,
Big mortgage debt.
1 - 10% bonds. I don't like bonds, prefer dividend returns when not in growth stocks but forced myself to start to buy bonds when I realized I was in a heavy cash position...and bonds are better than cash. In the RRSP only do I have bonds.
2 - I do not remove $ from the RRSP. Once money is there it is no longer available as FU money. It would not be used if we lost our jobs until about 1yr of no income and even then, I would work as a retail cashier, really flex MMM muscle to reduce costs, before touching it, and in Canada you don't have that 10% withdrawal penalty so it is easy to use RRSP as an income hedge (money in in high income yrs, money out in low income yrs).
3 - conservative, yes to less debt. Two yrs ago I had $500 k mortgage and no FU money. I was stressed at the thought of losing my job or just needing to refinance in 3yrs at slightly higher rates.. I was fully aware that my current 3.7% rate was low and could adjust by 1% and completely wipe out my ability to break even month to month.
What I did was set up a MTG saving investment outside of the RRSP, for future MTG pay off or temp MTG payments until I find employment, or even in case interest rates went up. Although invested, we did not max out RRSP in order to pay down the MTG fund. See my aversion to touching RRSP. Yes, I chose to not receive the large RRSP tax deduction, so it really is a pay debt before investment decision. Just at a MUCH higher rate.
Now, I have refinanced at 2.4%, but was able to choose a variable rate without stress, because that MTG fund is at $50k.
And yes, salary raise went to added RRSP payments, so I am nearing maxing out RRSP too, with a year or so.