Debating between saving for retirement or paying down your mortgage faster? There’s a way to do both at once without having to alter your existing budget.
The Total Wealth Approach
The Total Wealth Approach is Chippingham Financial Group’s proprietary investment strategy to help address the entire financial life cycle of an individual. They have spent a significant amount of time developing this strategy to help families pay off their mortgage in as little as half the time, provide increased tax deductions, and build a self-funded pension, all without significant additional contributions from the clients’ existing monthly budget.
Here’s how it works:
Borrowing to Invest
Chippingham Financial Group partners with Bank of Montreal and National Bank to help their clients secure an investment loan at the most competitive rate 3.6% (prime + ¾%). Borrowing to invest is an efficient form of debt because Canada Revenue Agency (CRA) allows Canadians to deduct interest costs when borrowing to invest in income producing assets. In addition to the tax advantages, it is also more efficient in terms of accessibility and there is no upfront capital required from you to begin investing. Best of all, if done properly, it won’t affect your existing monthly cash flow.
What do they invest in?
For this particular strategy, they invest in a portfolio of productive assets – boring, stable, high quality dividend paying blue chip companies. The portfolio’s objective is to grow at 8-10% per year and pay out an 8% annual distribution payable monthly. The portfolio managers are confident they can reasonably grow at 8%-10% because 3-4% of it is expected to come from dividends, 2-4% from capital growth, another 1-2% from securities lending, and lastly 1-3% from covered call writing.
Putting it all together
- Paying down your mortgage
The portfolio essentially pays a monthly distribution that exceeds the interest costs on the investment loan. The excess distributions along with the tax write off from interest costs are used to help increase your monthly mortgage payments.
- Building a Self-Funded Pension
Once your mortgage has been paid in full, the excess distributions can be redirected to paying the principal & interest portion of your investment loan.
- Retirement Savings/Income
Once your investment loan is paid off, you’re free to spend the excess distributions as you please. For maximum benefit, they usually recommend reinvesting the distributions in a RRSP and TFSA.
For a video demonstration of how this strategy might work for you click here. Chippingham’s advisors offer a free financial assessment and they’ll show you how this strategy might help you with your financial goals.
Sean Cooper is the bestselling author of the book, Burn Your Mortgage: The Simple, Powerful Path to Financial Freedom for Canadians, available now on Amazon and at Chapters, Indigo and major bookstores, and as an Audiobook on Amazon, Audible and iTunes.
My husband and I made the decision to do both also, but we decided that we would aggressively pay down our mortgage. Although mortgage rates are low, we found the benefit to paying it down was that we became so excited about it (watching it shrink so drastically with each lump sum), that we think we put way more towards it than we would have gathered if we were just saving. We never thought it possible, but we paid off our mortgage in 5 years.
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