The people who think the best use of extra money is paying down your mortgage and not investing in stocks must be feeling vindicated now.
Reducing the amount you owe on your mortgage is a guaranteed result – you have less of a balance outstanding and you reduce your overall interest bill. With stocks, you just never know. After reaching all-time highs in February, the markets have gone into one of the most sharp and sudden reversals ever seen.
And so, a reader has asked about mortgage paydowns versus investing. He’s 36, and he and his partner count their mortgage as their only debt.
“Should we keep putting [money] into our registered retirement savings plans, given the current state of the markets, or put more towards paying down our mortgage?” he asks.
The mortgage held by this reader is at 2.69 per cent for five years. The S&P/TSX composite had a loss of almost 30 per cent for the 30 days to mid-March. Even with a very low rate of 2.69 per cent, paying down the mortgage is the no-brainer move, right?
Not so fast. Now that the market has been hammered lower, it’s arguably an inviting place to invest for someone who is in his 30s and has at least 30 years to go until retirement. Stocks will likely go lower as investors absorb the economic damage caused by the coronavirus. But a decade from now, we can reasonably expect a very solid gain over current levels.
Buying at a market low gives you a great foundation for future gains. If you bought at the 2009 low during the last bear market, you’d still be up 50 per cent at today’s depressed levels on the S&P/TSX composite.
The comfortable move right now is to pay down your mortgage, and that’s not a bad way to go. This reader may end up with a paid-off mortgage way ahead of schedule, and that might put him in a position to invest the money he was formerly shovelling out as mortgage payments.
Meantime, he’ll have missed out on a once-in-a-decade chance to build long-term wealth by investing in beaten-down stock markets. Those markets may get beaten down some more, but they’ll come back with a vengeance at some point.
-- Rob Carrick
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The Rundown
‘Unprecedented valuations’: Retail REIT executives are buying while unit prices collapse
As stock markets were plunging this week, Michael Zakuta wasn’t panicking. He was calmly buying shares of his own real estate company. “I bought today and I bought yesterday,” he said in an interview on Wednesday. “I’m confident we’ll look back and say, wow, what a great buying opportunity this was.” Mr. Zakuta is in a better position to judge the current crisis than most. As president and chief executive officer of Plaza Retail Real Estate Investment Trust (PLZ.UN), which operates primarily open-air retail centres in eight provinces, he has an insider’s view of how novel coronavirus fears and social distancing measures are affecting business at Plaza and other REITs. He’s not the only insider buying retail REITs, and analysts can see why. John Heinzl reports.
Don’t take a chance on catching a falling knife
Our equities analyst, Jennifer Dowty, shares her advice on when to know it’s time to buy.
Short sales on the TSX: What bearish investors are betting against
Over the past month, we’ve seen the coronavirus become pandemic, oil prices collapse and stock markets plunge. With this much gloom, one might expect short sales of TSX stocks to be a lot higher now. But data sources show they have, in fact, fallen back. Larry MacDonald shares the latest data.
Others (for subscribers)
The week’s most oversold and overbought stocks on the TSX
Friday’s analyst upgrades and downgrades
Thursday’s analyst upgrades and downgrades
Friday’s Insider Report: Two CEOs see buying opportunities in these dividend stocks
Thursday’s Insider Report: Company leaders are loading up on these four dividend stocks
S&P Global says volatility in financial markets at record highs
Prominent strategist expects ‘V-shaped’ market recovery when epidemic fades
Calls for markets to close intensify amid global economic crash
‘Demand destruction’ - analysts race to lower outlooks for oil
Number Cruncher: Five companies that provide work-from-home technology and pay dividends
Number Cruncher: Shopping for safety and value: 22 low-volatility stocks
Others (for everyone)
Coronavirus uncertainty muddies views on buying opportunities for plunging stocks
A look at the sectors and stocks bucking the U.S. bear market
Echoing recession fears, gold’s value rockets versus silver, copper
Globe Advisor
Extreme market stress puts US$6.4-trillion ETF sector under acute pressure
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Question: My husband will be 72 this year and has converted his RRSPs to RRIFs. We were wondering if he could still contribute to a spousal RRSP for me. I’m 65 and have not converted to RRIFs yet.
Answer: Yes, if he has RRSP contribution room available.
--Gordon Pape
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What’s up in the days ahead
Rob Carrick this weekend presents the next instalment of the ETF Buyer’s guide. This time around, he stress tests dividend ETFs to see how they’ve come through the latest market crash.
Click here to see the Globe Investor earnings and economic news calendar.
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Compiled by Globe Investor Staff