“Charles in Vancouver // Jan 16, 2009 at 1:15 am

Really, there is no safer an investment than simply choosing where not to throw your money away.”

k

Jamie: I’m a huge fan of paying down the mortgage even though stocks can be expected to provide generous long-term returns. The reason is simple: it seems investors, on average, do not get those wonderful past stock returns. Expenses and emotions result in a large gap between the returns that stocks provide and the returns that investors actually realize. The gap is so large that they might have done better by being in bonds!

It is not clear to me that buying stocks today is a slam-dunk as opposed to paying down a mortgage. Like Ben points out, there are other advantages of nuking the mortgage, including peace of mind, a healthier balance sheet etc.

Historically, I agree with you that investing in equities seems to have been a better bet than investing in the mortgage (although the numbers probably need to be re-calculated after the fall’s market crash). It does not necessarily hold true that past performance always predicts future performance. There are a lot of market pundits out there right now calling for reduced expectations from equity markets in the next decade (although, again, perhaps these projections may have to be revised higher now that the starting value is so much lower today).

For me, I follow this train of thought. I might agree with you that, at retirement age of 65, my pool of assets are likely to be a higher value by investing more heavily in equities than by paying down my mortgage, ignoring all other variables. However, for me, simply having a larger asset value is not the whole equation.

We need to think about the internal/external forces that play in our personal finances, such as job security, desire to reduce periods of financial distress/stress that result from job loss, family happiness, reduced arguments about money and bills, ability to pay the bills all of the time, etc. For many people who do not have an emergency fund, stuff wads of money into illiquid assets, and have no additional funds beside those, they walk a fine line should the employment disappear. Without cash to fund the monthly expenses, the home and car may have to be sold, causing real stress in your life, and in your family relationship. If your mortgage is paid off, you can probably go jobless for some time, and still have the comfort of the shingles over your head, and the Serta beneath. For every individual, the right balance is going to be different, and the appetite for risk different. If both spouses work in stable government jobs, then appetite for risk can justifiably be very high, and stuffing all available funds into equities is quite possibly the best course of action. Those who walk too fine a line between leverage and security in the name of juiced investment returns need to be aware of the range of possible outcomes.

Clearly, economic times like these play on people’s fears, and a swing in sentiment occurs from high-risk activities to low-risk activities. Young people with no dependents will not feel this fear to a large extent, but for those with children especially, the change in sentiment is palpable over the last months.

Lest one think me completely risk-averse, I should say that the lion’s share of my investments are in equities, and I have continued to contribute 10% of income to RRSP’s throughout this market turmoil.

CC does a much better job of objectively laying out the facts in some of his earlier posts (look under mortgage or RRSP tags).

For a bonus entry I am also going to vote for Ben at #10

and i really like #13, but i will be marrying my hon in feb or march, and waiting for the good times again…………ha

k