Written by Brayden Grant, CIM
Cornerstone Financial Management Inc.
Published December 11, 2025
One of the fundamental influences affecting money and how it’s managed can be narrowed down to what’s called ‘Behavioural Finances’ (a subset of Behavioural Economics). We can extrapolate how the markets are moving, how people’s financial futures might play out, and anything to do with your savings and spending. Of course, if we were able to perfectly identify and manage all the biases, I would have retired a long time ago! The psychological management of clients and investing is a big part of what financial advisors can help with.
In this blog post, we want to share a key influence impacting people’s ability to manage their money, which has several biases associated with it: What are the opportunity costs when trying to decide if we should pay off debt, or if we should save and invest that money instead. We argue that if interest rates permit, and cashflow is sustainable, investing will leave you better off in the future.
First and foremost, debt can have a serious psychological impact on people. The aversion to debt and inclination to pay it off as soon as possible impacts almost everyone. When your debt has an interest rate associated with it, that is a fundamental drag on your future wealth. We need to consider multiple items when looking at debt; how much debt are we taking on (and how long are we expected to pay it off for), what is the interest rate associated with the debt, and what is our current cashflow (income and other expenses). Knowing those items can then give us a rationale next step – should we taking from our savings and investment portfolio to service the debt, or should we stay invested.
Now we can discuss the purpose of this blog post, what are the opportunity costs of using our savings or investments to pay off debt vs. staying invested. If the following scenarios are met, it should provide a strong case to invest your money.
In this blog post, we wanted to share a key influence impacting people’s ability to manage their money, which has several biases associated with it: What are the opportunity costs when trying to decide if we should pay off debt, or if we should save and invest that money instead. We argue that if interest rates permit, and cashflow is sustainable, investing will leave you better off in the future.
First and foremost, debt can have a serious psychological impact on people. The aversion to debt and inclination to pay it off as soon as possible impacts almost everyone. When your debt has an interest rate associated with it, that is a fundamental drag on your future wealth. We need to consider multiple items when looking at debt; how much debt are we taking on (and how long are we expected to pay it off for), what is the interest rate associated with the debt, and what is our current cashflow (income and other expenses). Knowing those items can then give us a rationale next step – should we taking from our savings and investment portfolio to service the debt, or should we stay invested.
- What is the interest rate on the debt? There is no silver bullet here on exact numbers; it’s all dependent on your risk profile, time horizon, and investment portfolio if we should invest the money. The higher the interest rate on your debt, the more important it is to service and pay off the debt. The lower the interest rate on your debt, the benefits of investing increases.
- Is your cashflow sustainable when paying off your debt? Make sure you keep your emergency reserves available and your month to month cash flow is sustainable when you take on debt.
- How has your investment portfolio historically been doing? Have the rates of return been adequate and are the future prospects looking promising
Let’s make up a hypothetical example. You have a $100,000 investment portfolio in your TFSA and it is averaging 10% net returns per year. You just purchased a new car for $40,000 and the financing rate is 3% per year. You are trying to determine if you should take $20,000 from your TFSA to pay off half the debt, or if you should stay invested in your TFSA. If you are making 10% returns each year in your TFSA (and expected to continue this performance), and the cost to finance your debt is 3% per year, your net returns would essentially be 7% per year till the car is paid off. If you pull the money out and into the car loan, you not only give up your return potential, but you also miss out on compounding your growth over that period.
- Yes, you are paying your debt off sooner than later, HOWEVER, the importance of compounding your growth with investments is significant. The likelihood of adding that money back into your TFSA also tends to be unlikely. We can chart this out relatively simply:
Hypothetical Results: Staying invested, you have a net return of 7% a year (10% returns in your investments but 3% debt rate), meanwhile servicing debt you start off lower, but halfway through you experience full returns of 10%. We can see the difference can be significant: Staying invested you end the 8-year period over $160,000. Servicing the debt at the end of 8 years you end with just shy of $140,000.
Of course there are risks associated with investing. Markets are unpredictable and you can’t determine the exact future here. Debt can be consistent and easily predictable. Careful thought needs to be taken on what the best course of action in your specific scenario. After the decision have been made, it is certainly important to speak with your financial advisor to consider next steps.
There are multiple accounts and investments that can benefit you, it is important to do your research and have discussions with professionals that benefit you most! Trying to combat behavioural biases is ongoing, it is extremely important to always remind yourself how it impacts your decision making.