Business Hours

Monday-Friday 8:30-5:00

Phone: 709.634.4944

info@harbourfinancialgroup.ca

Corner Brook, NL

90 Broadway, A2H 4C8

News

INVESTING VS. PAYING DOWN DEBT

INVESTING VS. PAYING DOWN DEBT

It’s one of the most common questions we hear as financial advisors: I only have a limited amount of money left after paying my monthly bills. Should I pay down my debt first or save for the future?

First things first. We can avoid this decision altogether by being smart about taking on debt. Many consumers these days are falling into the trap of bad loan deals because they’re focusing only on whether they can “afford” the monthly payment instead of whether the actual terms of the loan make sense.

Our number one rule of thumb is to never take out a loan for longer than the usefulness of the item. If you plan to keep a new car for 5 years, you should have it paid off within those 5 years instead of taking a longer-term loan to reduce the monthly payments.

Here’s another common example. If I told you that in 15 years you’d still be making payments on the cell phone you have today, you’d tell me I was crazy. But that’s exactly what happens when we consolidate our consumer debt into mortgages, lines of credit, or other long-term loans. We pay for items we’ve long forgotten about over 10, 15, or even 20 years. If you’ve already done this, you’re certainly not alone – sometimes it makes sense to reduce your interest and get things under control. However, keep this rule in mind so you can make better choices about debt in the future.

If you need to decide whether to use the “extra” money in your budget to pay down debt vs. put away savings for the future, here are a few considerations:

1. The Hard Facts of Dollars and Cents. How much interest will you save on paying down debt vs. the amount of growth you could expect to earn through investing? Example: if you have a low-interest line of credit at 4.5%, but your investment portfolio has been earning you an average of 6% per year, it would make more sense to invest your money as long as you’re still able to make the regular payments on your line of credit. However, if your debt is held on a credit card at 19% interest, it would clearly be better to pay this off first. It’s also important to consider any penalties for paying off debt early, or other fees that may come into play.

2. The 5 Year View. If you’re chugging along, making the regular payments on your debt with a plan to pay it off in a certain time frame, should you withdraw money from your existing savings to pay it off sooner? The answer lies in whether you’d have the discipline to redirect those regular monthly debt payments to a savings account or investment portfolio once the debt is paid off. Making loan payments is a no-brainer. They’re not exactly optional and we skip them at the risk of ruining our credit. However, saving money is often overlooked because it’s totally at our own discretion. In this scenario, if you kept paying off the debt as planned, in 5 years you could be debt-free and still have your savings intact (hopefully with some growth from investing.) But if you withdrew your savings to pay off the debt and didn’t subsequently save the equivalent payments, in 5 years you’d be debt-free but have no savings to show for it.

3. The Emotional Toll. Do you worry about debt on a daily basis? Or are you stressed about your lack of savings for the future? The answer could be a combination of both. Everyone has their own priorities, and what’s right for one person may not be right for someone else. Although this factor can’t be quantified, it’s still an important question to ask. It makes no sense to save a dollar at the expense of your emotional health, so you may have to make the less-desirable financial decision based on what you can comfortably live with.
There is no “one size fits all” answer when it comes to financial planning. Regardless of which choice is right for you, the important thing is that you’re making a plan to get on track, pay down debt, and save for the future. Once you’ve established clear goals and time frames, you’ll be able to put the daily stress aside and feel confident that you’re set up for financial success.

Vs. The Banks

Over the past 2-3 years, all 4 of the Big Banks (BMO, TD, CIBC and Scotiabank) have been found guilty of overcharging clients on management fees associated with their Mutual Fund sales (see article below). The level of overcharging, misrepresenting compensation and fees, is disgraceful. Collectively, in the first quarter of 2017, the Canadian banks made over $10 Billion dollars. $10 BILLION! Canadian consumers deserve much better.

 

http://www.cbc.ca/news/canada/banks-misleading-clients-on-mutual-funds-1.1415027

 

The biggest mutual funds are largely with the banks, and this is causing some real problems for consumers.  When a mutual fund gets too big it becomes nothing more than an ‘index fund’, meaning that whatever index it tracks, it follows in performance. Funds with ~$10B+ in assets are no longer nimble, and fund managers can’t move into/out of equity of fixed income positions with the ease of other funds. The manager’s hands are effectively tied. There are two reasons why this is harmful;

1) The client thinks they have someone actively managing their money (They don’t).

2) The client is getting charged 2% or more per year for this ‘management’ when an ETF (Exchange Traded Fund) would do the same thing while only charging 1/10th the price. They’re getting ripped off. The chart below shows the cumulative effect of a 75 basis point (0.75%) difference in fees over the course of 30 years of investing. The difference to the client is staggering. A 1.5% or 2% difference in fees is outrageous.

 

I’m not sure if the people who work at the banks think about these things, or are even aware of it.

 

Being a competitor to the banks, we often hear different things from clients, regarding the banks. As an independent advisor I hear things like, “My bank rep says you charge higher fees” or even better, “You work on commission, they’re on salary”. These arguments are misleading to the point they’re funny.

 

Harbour Financial Group Advisors have access to thousands of mutual funds, from dozens of different mutual fund companies, and we will pick the right product for you. Being independent means we are not influenced by any commission driven sales, nor told by anyone to sell a certain product. We have the client’s interests at heart. It’s the reason we chose to be independent and the reason why our business keeps growing.

 

The best advice you can get from anyone is independent, uninfluenced, educated advice. Same goes for Financial Advice. We are a team of independent, highly educated, financial advisors who can help you plan for your financial future. Please contact us today to speak to one of our advisors.

– Geoff Wareham, B.Sc.

 

Vs. The Banks
Mortgage Insurance versus Life Insurance

Mortgage Insurance versus Life Insurance


Have you ever asked yourself what the difference is between mortgage insurance and life insurance?  Let me tell you, the differences are great and they are something you need to know about.

How does this scenario sound?  You have been paying for mortgage insurance through your bank for many years, only to face a life altering change and find out that the bank denied your claim! Unfortunately, this happens more than you would care to think.

Here is a great write-up on the important differences you need to make yourself aware of when it comes choosing between mortgage insurance and life insurance.

See the article here: Mortgage Insurance versus Life Insurance

What Oil Prices Mean for Our Province

What Oil Prices Mean for Our Province

Wade Locke suggested this past fall that Newfoundland and Labrador loses between $20 to $25 million in revenue for every dollar that oil falls below the $105/barrel that the provincial government used as an estimate. At current prices, that means we lose approximately $875 MILLION dollars. I really want a new hospital in Corner Brook, and a big green energy hydro project at Muskrat Falls sounds great, but how can we possible afford this? Where’s the leadership to address these glaring issues? Someone please step up to the plate.

I know this article is only 2 months old, but we’re headed for big trouble – Read more on what Mr. Locke had to say.