Posted by I think it’s apt to kickstart this blog with a first post that’s on setting goals.
With the inflation concerns, pandemic uncertainty and supply chain challenges globally, many expect lower stock market returns than 2020-2021.
Both Bank of Canada and the Feds did not increase interest rates in the past week. However, all indications are pointing to higher rates come March and throughout the rest of 2022.
We’re now a month into the new year and the equity markets have already hit some volatility. Technology and 2021 equity darlings have come down from the stratosphere. Our aggregate investment portfolio has see-sawed between -5% and -10% drops.
Despite all the macro indicators dampening expectations, we won’t be repositioning our investments or overweighting certain asset classes. We are here to play the long game and volatility is to be expected. Frankly, no matter where equity returns land in 2022, we will still be buyers into the stock market.
Financial Goals
We remain steadfast in our asset allocation of 100% equities. We have at least another decade (and hopefully not more) before any version of retirement. So we are comfortable with riding the wave of the equity markets.
For 2022, our key financial objective will be to maximize savings into our accounts, in priority sequence:
- Continuing with company plans top-ups, such as pension plan matching and employee stock purchase plans
- Maxing out my RRSP contribution limit
- Grinding down Mr Loonie Journey’s RRSP contribution limit to manage his 2022 taxable income, but preserve some room for the next 2 years
- Grinding down Mr. LJ’s TFSA contribution limit
At our typical savings rate with some vested RSUs and a large tax refund, we should have $100K+ in contributions in 2022.
Increasing payments on our variable mortgage
We refinanced our variable rate mortgage at the end of 2021, reducing our rate by about 0.75%. This means our mandatory payments amount is also lower.
While growing our investment accounts is critical to reaching financial independence, paying off our principal property is just as important.
The investment community is expecting around 1% of rate increases in 2022. This means increasingly less of our mortgage payment will be going towards our principal balance. Effectively, this pushes out the number of years it’ll take for us to repay our mortgage.
We plan to increase our mortgage payment to match any rate increases on our mortgage. This allows us to repay our principal balance by the same dollar amount and allows us to pay off our house in the same timeframe.
Arguably, we could reallocate the extra cashflow towards our investments , but we’re looking to balance our net worth growth in both our investments and our home.
Aside from that, I believe it’s important to be able to afford our mortgage even if rates increase moderately. Effectively, we are recalculating our payments as if we are “refinancing” with every interest rate increase.
Focus on what we can control
We cannot control where the stock prices or interest rates will go.
We can somewhat control our household inflation through the purchases that we choose or choose not to make.
With some effort, we can somewhat control our salary growth by negotiating with our employers or looking for a better paid job.
But we can definitely control our spending and manage our savings rate. There are many macro factors that we cannot control. We choose to focus on what we can control and not let the macro noise take up too much mindspace. If we can do that, it will be a good 2022.