Diversifying Assets for a Balanced Portfolio: A Boomer & Echo Financial Makeover

Sean Cooper (30) is a full-time pension advisor for a global pension benefits consulting firm earning $50,000 per year. He also earns approximately $20,000 per year as a freelance financial writer.

Sean has channeled much of his income into paying off his mortgage. His goal is to reach financial independence by his mid-30’s.

Current Assets

  • Home worth $550,000 (with $60,000 mortgage)
  • RRSP’s – $50,000
  • Non-registered investments – $340
  • Personal accounts – $25,260
  • Defined Benefit Pension Plan – $24,500


  1. Be mortgage free by November 2015.
  2. Build-up his non-registered portfolio.
  3. Have a $1 million net worth by his mid-thirties.
  4. Write a book on personal finance and how he became mortgage free.

Financial Plan

Sean wants to diversify his assets. Here’s what he can do.

Be mortgage free by the end of the year

Sean purchased his home in Toronto in August of 2012 for $425,000 and took out a mortgage of $255,000. He rents the main floor of the house for $1,550 per month and takes advantage of the mortgage company’s prepayment policy by funnelling any extra funds toward his mortgage.

Personally, I am in favour of taking a more balanced approach to paying off debt versus saving for retirement (or financial freedom). Most of Sean’s net worth (80%) is tied up in a single non-liquid asset. While a house is an asset in that it can appreciate over time, it is also a consuming asset – property taxes, insurance, maintenance, and repairs – and indeed Sean has already spent a good deal on various upgrades with an upcoming costly foundation repair due.

Related: Do home renovations really pay off?

Sean could have used his rent money for additional payments and still been well ahead of most homeowners in paying off his mortgage early. He might have used his part-time freelance income to beef-up his portfolio instead. The TSX has increased by about 50% since 2009, so there’s some missed opportunity to invest and diversify his assets.

Nevertheless, Sean has been focused on his goal and is on track to be mortgage free by the end of the year, so kudos to a remarkable achievement.

Build up investment portfolio

Sean’s RRSP is made up of TD e-series mutual funds (30% each in Canadian equity, US equity and International equity, and 10% bonds) and CI Mutual Funds (Signature Select and Harbour Growth and Income). He makes new contributions to the TD e-series only and wonders if he should continue holding both the TD funds and the CI funds.

He is not inclined to purchase individual stocks and he is wondering if he should switch his money into ETFs.

On reviewing his funds I found the top holdings of the CI mutual funds are almost identical to the TD funds and have an MER of 1.3% (vs. an average of less than 0.5% for TD) and are underperforming in comparison. He should drop them.

Related: How to get started with an index portfolio

TD e-series are good, low-cost basic index funds, but should he switch to ETFs instead? There are more decisions to make in selecting from the many ETF choices available and a little more work to set up an account. Once his mortgage is paid Sean intends to make weekly contributions so he should open an account with a brokerage that has no trading fee for purchasing ETFs (such as Questrade).

Advantages of ETFs are:

  1. Slightly lower MERs, and
  2. More choices in sector and specialty funds if he wishes to diversify from the core indexes.

To reach a net worth of $1 million (assuming his house value remains the same) in the next 5 years will require a weekly contribution of $1,500 assuming a 5% rate of return.

Home Equity Line of Credit

Sean has been considering taking out a HELOC once his mortgage has been paid and using the money to invest.

“I like the idea of tax deductible interest.”

I’m not in favour of using a HELOC for investing purposes. The loan can be costly to set up and is not risk free. Sean has already indicated he is debt adverse. That said, there are people who have done well with them. It should be noted that the interest is only tax deductible if the investments are used to produce income (e.g. interest, dividends) not capital gains.

He should investigate all the pros and cons of this approach before committing to it.

Final thoughts 

Sean has shown a single-minded purpose towards his goal of becoming mortgage free in a little over 3 years. He then intends to switch his focus to achieving financial independence in 5 years. He works long hours and has a very frugal lifestyle that not everyone would tolerate.

He should think about what financial freedom would mean to him when it is achieved, rather than focusing on a dollar amount ($1,000,000). It’s easy to fall into the trap of eternal frugality and greater and greater savings goals.

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  1. Colin on March 6, 2015 at 9:41 am

    I think Sean should forget paying off the mortgage and instead refinance for the longest possible term at the longest possible amortization. I believe at the moment that looks something like 10 year term, 25 year amortization at about 3.84%. Since he is renting out part of the house, some of the interest will also be a tax write-off (and should have been all along). Monthly mortgage goes to a very manageable $310/month and the difference in payment as well as the accelerated payments can all go into investments.

    • Ben on March 6, 2015 at 5:37 pm

      Sounds like a terrific idea, with the exception of the risks that come with a 10 year term.

      • Colin on March 9, 2015 at 9:52 am

        What risks? Rates are historically low. A ten year fixed rate comes with the same prepayment options as a 5 year and after 7 years the full value can be paid off. This provides cost certainty over the term against a rental income that is pretty secure in Toronto’s market.

  2. My Own Advisor on March 6, 2015 at 10:04 am

    I’m not a fan of borrowing to invest (either) Marie. Why bother when he will have the mortgage paid later this year?

    Also, it seems his debt re-payment plan is working so I wouldn’t fix what isn’t broken…he’s doing very, very well.

    As soon as the mortgage is done, I would simply divert all funds that would have been going to the mortgage to investments. Once that is set-up, slowly transition out of CI funds into some simple indexed ETFs for long-term growth.

    Let the investments do their work and see where he ends up in his 30s and 40s as he cannot control his investment returns. At least I can’t! 🙂


  3. CCMD on March 6, 2015 at 1:13 pm

    Your interpretation of the deduction from an investment loan is different from what I’ve been advised- the investments have to have the potential to produce income to remain deductible. This is much different from actually producing income (ie. Most if not all stocks would qualify even if they didn’t pay a dividend….yet).

    I’ve read Sean’s story a few dozen times around the Interweb. I was always puzzled how a “retirement professional” ignored the rules about diversification, benefits of a low interest rate environment, reducing the deduction from his rental income In aggressively pursuing his single asset financial strategy. I see now that it appears it’s all about single-focus goal setting. More interested to see how this next phase (to $1M) goes and for the subsequent goal beyond that.

  4. Tawcan on March 6, 2015 at 4:15 pm

    Agree on switching to a lower cost investment like ETF’s. Opening up a Questrade account will allow for free ETF purchases. I’m not a fan of borrowing to invest either. Makes very little sense to be mortgage free and then be in debt again. Once he is mortgage free, he should use whatever monthly payment he used to contribute for investment purposes. That’s what I’d do.

  5. Sean Cooper, Financial Journalist on March 7, 2015 at 6:11 pm

    Thanks for the comments everyone! I feel a lot more confident about my finances now. I’ll take all the advice to heart.

  6. Neil Murphy on March 10, 2015 at 10:15 am

    Hey Sean, you are doing great! You are a great example of being committed to your goals and getting them done. There are so many ways that one can improve their financial situation and clearly this is the way that is working for you. Keep it up and can’t wait to read the book.

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