Why Debt Reduction Is As Important As Equity Building

For Canadian investors, focusing on a rising investment portfolio is certainly a priority. Ensuring that one's portfolio is properly optimized at all times and is providing said investor with a desired risk/return profile is extremely important. That being said, it is true that many Canadian investors often spend far too much time worrying about their portfolios at the expense of...managing expenses.

A recent study from Environics Analytics has showed that the net worth of the average Canadian has increased, largely due to property prices which remain on the rise. The amount of equity Canadians have gained has outpaced debt growth, albeit at a slim margin, and many analysts and pundits are now pointing to debt reduction as a necessary step for many Canadian households to decrease liquidity and solvency risks related to soaring levels of consumer and non-consumer debt.

Canadians owe more than nearly any developed nation, on average, due in part to a banking system which has supported debt growth at a pace which has exceeded most countries. With interest rates on the rise and other key factors related to debt growth pertinent to every Canadian, taking charge and paying down debt at the expense of expanding one's RRSP or TFSA may be the way to go in the current climate - when a company finds that it is leveraged beyond an appropriate long-term threshold, action is taken - the same should go for households.