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Part II | Building a Better Tomorrow: Private Mortgage Investing for Conservative Investors at Every Life Stage – Growth and Preservation

12 September 2023

There comes a time in everyone’s life when they begin to hit their stride both in career and finances. As your financial picture begins to stabilize, it’s important to prioritize the right things to ensure your retirement — and lifestyle — aren’t compromised due to a lack of planning. 

Part I of CMI’s Building a Better Tomorrow blog series introduced the concept of financial lifecycle planning, beginning with the Accumulation phase that usually kicks off at the start of our professional careers. In Part II, we look at how you can supercharge your investments and savings during the most lucrative years of your life — a period we call the Growth and Preservation stage. 

Stage Two: Growth and Preservation

  • Financial focus: Grow savings and net worth; asset allocation and portfolio diversification; inflation protection
  • Savings and investment focus: Education savings for children/grandchildren, grow retirement savings
  • Accounts: TFSA, RESP

The second stage of financial life is usually the most lucrative. You’re at or approaching your  peak earning potential thanks to years or even decades of experience in the workplace. As a result, your financial picture has likely stabilized as you know how much you’re making and how much you’re spending each month. As you slowly inch toward retirement, you’ve likely begun making plans to grow your tax-advantaged retirement accounts, diversify your portfolio, and cycle into capital-preserving assets. Protecting your wealth from inflation is also a primary concern, leading you to seek out more stable investments in the fixed-income market. You recognize that now is the time to revisit your financial goals and adjust your risk exposure accordingly. 

But being in Stage Two doesn’t automatically make you wealthier. Although you’re in a higher income bracket, you’re likely to  have dependents, a mortgage, and other responsibilities that drive up expenses. Your financial priorities likely include a combination of growing your wealth, providing for your family, and saving for your child or grandchild’s post-secondary education. 

Unlike in Stage One, where you had ample time to recoup losses from investing, in Stage Two you must also focus on preservation. That means keeping a larger portion of your portfolio in safer investments with lower volatility. The closer you are to retirement, the more you should shift into fixed-income and cash to preserve wealth and generate income. Investing in lower-risk assets such as government bonds, Guaranteed Investment Certificates (GICs), and mortgages can provide predictable income streams while safeguarding your portfolio from severe market fluctuations.

Investment vehicles like the Tax-Free Savings Account (TFSA), Registered Retirement Savings Plan (RRSP), and Registered Education Savings Plan (RESP) should be fully maximized during this stage of your financial life. Each of these programs provides some level of tax-free growth for your investments, allowing your assets to build up over time without facing any tax consequences  (so long as you do not withdraw the funds early in the case of RRSPs and RESPs). 

Although most investors prioritize retirement planning, the RESP is often overlooked. This government-sponsored program encourages parents to invest in their children’s post-secondary education by making regular contributions that grow tax-free. No taxes are due until the funds are withdrawn to pay for a child’s education. Even then, only certain types of RESP withdrawal payments are taxable – and in the hands of beneficiaries, who are likely to have low income during their studies and pay little to no tax on these payments. 

Overall, by making the most of tax-advantaged accounts and investing in assets that provide predictable returns that can be reinvested automatically, you are more likely to reach your savings goals faster.

Private mortgages, private lender, private mortgage investing, MIC, mortgage investments

Investing in Private Mortgages: Capital Preservation and Growth

Portfolio diversification is one of the most important investment strategies for anyone in the growth and preservation stage of their financial life. One of the best ways to diversify your portfolio is to ensure that a portion of your assets is invested outside public markets. Private mortgage investments fall into this category, and more sophisticated investors are adding these income-generating assets to their portfolios.

Because mortgage investing is capital intensive, the alternative asset class was limited to high net-worth investors and private institutions. As traditional banks adopted tighter lending rules in response to government policy, private lenders stepped in to fill a crucial gap in Canada’s residential mortgage market. With them came a slew of innovative products that gave smaller investors direct access to private mortgage investment opportunities. 

Mortgage Investment Corporations (MICs) offer the most efficient pathway to the Canadian mortgage market. MICs are investment portfolios that pool capital from multiple investors for the purpose of lending to borrowers in the form of mostly first and second private mortgages. By investing in a MIC, investors become preferred shareholders in the fund, entitling them to regular dividend payments generated by the interest and fees paid by mortgage borrowers. 

A MIC is both an investment fund and a corporation that oversees the entire investment and portfolio construction process. The most successful MICs have a proven track record of performance backed by rigorous due diligence and risk mitigation practices. Most importantly, leading MIC funds have a history of meeting their annual yield targets. This is an important detail for investors seeking to grow and preserve their wealth as they progress toward retirement or the start of their child’s post-secondary education. MICs are also eligible to be included in tax-advantaged accounts like RRSPs, RESPs, and TFSAs.  

Historically, leading MIC funds have delivered higher yields than government bonds or GICs without taking on excessive risks. For that reason, MICs have provided more reliable risk-adjusted  returns than other fixed-income assets. 

Alternative asset, fixed income, conservative investors

CMI MIC Prime Mortgage Fund: Designed for Capital Preservation

CMI Financial Group is Canada’s premier private lender and a leader in private mortgage investment opportunities. We help investors at various stages of their financial life gain access to Canada’s lucrative mortgage market. CMI is Canada’s mortgage investment expert, with over $2 billion in mortgage placements since our inception. 

We developed CMI MIC Funds to help investors gain seamless access to mortgage investment opportunities. CMI MIC Funds are transparent mortgage investment solutions that are suited for defensive-minded investors. Of the three CMI MIC Funds available, the Prime Mortgage Fund is the most conservative. As your portfolio cycles from growth to preservation, the Prime Mortgage Fund can provide another layer of stability and protection while still offering inflation-beating returns. 

The Prime Mortgage Fund has the lowest risk profile of all CMI MIC funds because it invests primarily in first mortgages with an average loan-to-value ratio of 65%. This defensive portfolio targets an annual return of 6% to 7%. The Fund has successfully delivered its targeted returns since its inception.

Like all CMI MIC funds, the Prime Mortgage Fund is eligible for a Dividend Reinvestment Plan (DRIP). This gives investors the ability to buy additional shares in the Fund with their monthly distributions, rather than receiving these regular dividends in cash. When investing through a registered account,  a DRIP not only enables you to compound your returns, but also minimize fees since automatic reinvestment of monthly MIC distributions happens inside the plan and therefore does not incur a transaction fee  For other regular investments into a registered MIC account, transaction fees can be optimized by managing the frequency of your contributions. However you invest, a CMI mortgage investment professional will guide you through the investment process. 

To learn more about how mortgage investing can help you grow and preserve your portfolio, contact us today for a free consultation. 

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