Categories
Wealth

Free Financial Education Webcasts

The Canadian Securities Institute (CSI) – the Canadian organization providing Canadians with financial education and licensing exams – is releasing a number of free webinars to the general public in support of financial literacy month.

I’ve listed the free upcoming and previous (replays available) webcasts below. Click here to register.

MANAGING MONEY AND DEBT WISELY

Date: November 4, 2020
Duration: 60 minutes
Time: 12:00 pm to 1:00 pm EST
Cost: Free

Build a solid foundation of financial knowledge to make the most of your income, meet financial commitments and make wise spending decisions. Know how to track expenses and budget to feel more in financial control.

PLANNING & SAVING FOR THE FUTURE

Date: November 17, 2020
Duration: 60 minutes
Time: 12:00 pm to 1:00 pm EST
Cost: Free

Understand how to set objectives, identify paths, and take concrete steps to achieve your life and financial goals—such as education, retirement, and more. Develop an understanding of financial products and service options.

PREVENTING AND PROTECTING AGAINST FRAUD AND FINANCIAL ABUSE

Date: November 24 2020
Duration: 60 minutes
Time: 12:00 pm to 1:00 pm EST
Cost: Free

Be aware of the signs to watch out for, learn how to minimize the risks and know what to do if you are a victim. Anyone can fall prey to financial fraud. New scams frequently emerge to target people resulting in financial loss.

CANADIAN BANKS WEBINAR

Date: October 21, 2020
Duration: 60 minutes
Time: 11:00 am to 12:00pm EST
Cost: Free

This webinar will uncover the critical factors in steering a leading North American bank through turbulent times. It will identify the strengths of Canadian banks and discuss the key developments in risk management.

PROJECT FINANCE AND INFRASTRUCTURE BRIEFING: THE IMPACT OF COVID-19

Date: October 19, 2020
Duration: 60 minutes
Time: 2:00pm to 3:00pm EST
Cost: Free

This webinar explains the multiple ways by which the coronavirus pandemic has affected the project finance and infrastructure sector including unprecedented traffic declines, continuing negative impact on projects in construction and a weakening credit quality of sub-sovereign off-takers.

CANADIAN HOUSING OUTLOOK: UPWARD CLIMB

Date: September 23, 2020
Duration: 60 minutes
Cost: Free

As remote working has become the norm, more Canadians are opting for home-ownership outside of congested cities, furthered by the Bank of Canada’s mortgage rate cuts. This webinar discusses emerging risks and opportunities in the Canadian housing market, including highly localized findings from our neighbourhood and city / town-level forecasts.

SUPPORT BUSINESS RECOVERY WHILE MANAGING CREDIT RISK

Date: September 16, 2020
Duration: 60 minutes
Cost: Free

During this webinar, we will examine the steps lenders must take so they can support their clients’ rebuilding efforts while managing their own risk exposure, focusing in on cash flow, working capital and projections. We will also explore the risks most likely to persist as the economy recovers, the impact of an uneven recovery on various sectors, and the impact of government stimulus.

CANADA—SOVEREIGN AND PROVICIAL WEBINAR

Date: July 9, 2020
Duration: 60 minutes
Cost: Free

Canada and its provinces face significant deficits, large increases in debt, and a prolonged recovery from the pandemic’s unprecedented shock. Join the Moody’s Sovereign team as they discuss their view on credit pressure in Canada.

NAVIGATING PROBLEM LOANS AND SME CREDIT RISK DURING THE PANDEMIC

Date: June 30, 2020
Duration: 60 minutes
Cost: Free

In this webinar, we’ll address the macroeconomic impact of the pandemic, how SMEs in particular have been impacted, and what skills lenders will need to appropriately assess business viability and, ultimately, repayment capacity.

IMPACT OF CORONAVIRUS ON CANADIAN STRUCTURED FINANCE

Date: June 15, 2020
Duration: 60 minutes
Cost: Free

This webinar will discuss the impact of COVID-19 on the Canadian Structured Finance sector. It will cover topics including Credit card ABS, Auto ABS, RMBS, Covered Bonds and ABCP.

HOW TO BECOME YOUR CLIENT’S FINANCIAL ARCHITECT

Date: May 7, 2020
Duration: 45 minutes
Cost: Free

This webinar focuses on the importance of collaborating with clients during this unprecedented time and beyond. We will discuss the tools you need to become your client’s Financial Architect, reinforcing your value to existing clients and helping to attract others.

BEHAVIORAL ECONOMICS: INVESTING DURING A CRISIS

Date: April 29, 2020
Duration: 60 minutes
Cost: Free

Decades of social science research indicate that we are poor planners, fickle savers and self-destructive investors, and much of the reason lies in how we process information and make decisions. This webinar focuses on how to become better financial architects for clients by understanding the behavioral challenges while making financial decisions, especially in times of crisis.

HOW ARE YOU DOING? HOW ARE YOUR CLIENTS DOING? – ADVISOR TOWNHALL

Date: April 7, 2020
Duration: 60 minutes
Cost: Free

Advisors are on the front lines, and under tremendous pressure, to deal with the expectations and stresses of clients during this unprecedented time. This webinar talks about how advisors can navigate these challenging times and get through this crisis. It also prepares them for the opportunities in its aftermath.

Register here for any of the above upcoming webcasts or webcast replays.

Categories
Wealth

Should You Pay Down Your Mortgage or Invest?

Note: this article was written with a Canadian audience in mind. In Canada, mortgage interest isn’t tax deductible but the appreciation of your personal residence is tax-free. If you’re from a country where mortgage interest is tax-deductible, you should adjust the mortgage rate accordingly. Also note that the comparison assumes a taxable investment account. Some tax deferred accounts (e.g. RESP) come with additional incentives (e.g. grants) that must also be considered.

Let’s say you’re a family man or woman with $100,000 in cash, an outstanding mortgage balance of $100,000 at an interest rate of 3.5%. Amortized over 25 years, you’re paying $499 per month.

Debt costs money. In this scenario, you’d be forking out $49,781.05 in interest payments over the life of the loan – almost 50% of what you borrowed!

Let’s also say you have already maxed out your registered accounts (in Canada: RRSP, TFSA, RESP).

So does it make sense to pay down your mortgage or invest that cash in a taxable non-registered investment account?

(Note: the mortgage actually spills into one extra month, but that’s only a $0.05 payment to close off the mortgage).

Should you pay off your mortgage or invest the money?

This is not an easy question to answer. While this is a math question, the real answer comes down to psychology.

Can you imagine the regret if – instead of paying off your debt – you invested the $100,000 only to lose 10 or 20% in the first two years?

Many will simply point to the interest rate on the mortgage and say if your portfolio can beat it you should invest. For many this makes intuitive sense. In this example, you’d need a 3.5% after-tax return to break even.

One of the problems with this comparison is that it doesn’t incorporate risk. The 3.5% return gained by paying down the mortgage is a known. The after-tax 3.5% return from an investment portfolio is an estimate based on historical precedent for a given asset allocation. Moreover, the estimate is an average of returns calculated over many years, some of which were higher and others lower. Indeed, actual returns can remain below expectations for many years. Can you imagine the regret if – instead of paying off your debt – you invested the $100,000 only to lose 10 or 20% in the first two years?

The inherent volatility plus uncertainty means that you should expect greater compensation from your investment than from your ‘guaranteed’ mortgage investment. In other words, the estimated return for the investment opportunity should be significantly above 3.5% after-tax to account for additional risk-return ratio.

There is also a psychological aspect not captured by the risk-return ratio that deserves a premium. For many, debt is an albatross around their neck. They live at the mercy of their creditors, who can choose to call their loans at any time. They remain in jobs they hate because they can’t miss a payment. They worry about losing income in the next recession while their debt payments persist.

Thoughts of bankruptcy, liquidation and repossession force them to lead a less-risky lifestyle, barring them from entrepreneurial and meaningful career shifts. For someone with a family, defaulting on a mortgage simply isn’t an option.

Big debts mean relentless payments, requiring steady income. Not fun.

After tax payment vs. after tax return

You’ve probably noticed I’ve specified ‘after-tax’ returns a few times. This is an important distinction.

For someone with a family, defaulting on a mortgage simply isn’t an option.

You are paying your mortgage with cash that has been already taxed. So your mortgage ‘return’ of 3.5% is effectively an after-tax return. When comparing against portfolio returns you must also consider tax. For example, if your tax rate on your investments was 30%, you’d have to earn 5% to come out mathematically even. Of course, you’d actually need more once you factor in additional risk of investing vs paying down a mortgage. Loosely, you could be looking at a 6-8% portfolio return requirement.

From a cash flow perspective it looks worse

The mortgage example above requires a $499 monthly payment. That equates to $5,988 per year.

Could you find an investment to adequately cover your $5,988 annual net-of-tax mortgage payments? Some will argue that this overstates the true requirement, as this amount includes both interest and principal. I agree the principal portion isn’t a true cost, but it is still part of the repayment you must provide the bank whether you want to or not. So from that perspective, it’s still a fixed cash outflow that must be made (even if a portion of it is technically going from one hand to the other).

Assuming a 30% tax rate on investments that’s equivalent to $8554 or an 8.6% annual return on the $100,000 portfolio. Possible, but doesn’t sound like a slam dunk.

My conclusion

Over the long run the math often works in favour of investing extra cash in a taxable non-registered account. However, in my opinion, there is quite a high psychological hurdle to justify not paying down your mortgage. Humans evaluate gains and losses in ways that can’t be captured in a spreadsheet. Right or wrong, this is a fact that must be accepted by the personal finance community. After all, many people seek happiness, comfort and security as primary life goals.

If you’re like me the thought of debt keeps you up at night. Especially when that debt is financing the roof you keep over your family’s heads. The downside of defaulting on that debt is simply too great.

If I were in this situation, I think the ideal compromise would be to pay off the $100,000 mortgage and then divert the canceled monthly $499 mortgage payments into an investment account.

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