Canadian Money Forum banner

1 - 9 of 9 Posts

·
Registered
Joined
·
2 Posts
Discussion Starter #1
Hi all,

Looking for some investing advice; any and all comments appreciated.

I'm 27, engaged, living with my parents, and am debt free.

- salary $70K/year, with a DB govt. pension
- finance $35K/year, DC pension
- $20K maxed out both my and my fiance's TFSAs through ING accounts
- $10K excess is currently sitting in a regular ING savings account
- $7K in an old RRSP mutual fund account I haven't touched in years at CIBC

I'm starting to look at options for investing, given that the $10K in the ING account in particular isn't doing very much. On average I'm adding ~2K a month.

The TD e-series mutual funds are attractive, as I would like to contribute monthly. However I'm unsure as to whether I should hold the e-series funds in an RRSP, TFSA, or both.

Ideally I'd like to transfer the CIBC RRSP-held mutual funds over so they're all under one roof. Perhaps transfer in-kind?

One challenging issue is that I don't know what my short-term goals are. I'm still debating between purchasing a condo downtown or renting until I can afford a house. Despite this, the RRSP home buyers plan doesn't seem all that appealing to me (though should it be?)

I also wonder if having a DB pension skews my perspective towards RRSPs. Should I still be maxing out my RRSP room if I can? I'm finding it difficult, given potential career advancement and the pension I'd received to calculate what my expected retirement income will be.

Sorry for the lack of coherence in this post. Just feel the need to start focusing my savings/investment strategy.
 

·
Banned
Joined
·
20 Posts
Good for you Brian, you are in a pretty good position. I was in a very similar situation about 2 years ago and I will offer you my suggestions.

RRSP's - I no longer contribute to them as they (IMHO) will hurt you in the long run come retirement tim. My problem with them is that I get a tax break now, BUT after increasing in value the government taxes the larger amount down the road. As an example, you get a refund of 35% of X (where X is your contribution) but are taxed at probably a similar percentage of a higher value, say 2X or 3X. Another issue is that later on (age 71) the government is now forcing withdrawls. Currently I believe it is something like 7.38%. Well, depending on the amount in your RRSP's (combined with the DB plan) this can put you into another tax bracket, again, seeing less of your money, and even paying more taxes than the tax break you originally received. Just remember that RRSP's are tax deferred not exempt. What I ahve done for my wife and myself is stopped contributing to our RRSP's and started investing outside of our RRSP's. I am buying good quality dividend paying stocks(reinvesting all dividends) and holding them in her non-registered account as she pays less taxes than I do for anything that actuall comes out as cash. ETS's and mutuals can also be used, whatever you prefer. As for the $250K we have in our RRSP account, I have rebalanced to quality dividend stock and left it to grow. The next step, around 40 years of age or so is to use leveraged borrowing and Seg. funds to drain it down without incurring any or a minimal amout of taxes to wipe out the RRSP accounts. Gotta remember I already got the tax break on this when I contributed.

The benefit I see to the dividend paying stocks in a non-reg account is that they are taxed much more effeciently than anything coming out of an RRSP which is all taxed at your marginal tax rate I believe. Seeing that you are only 27 these dividend paying stocks have time to grow (capital appreciation) as well dividend growth. Now with all this said, you should contribute to your TFSA first and foremost in this situation, then non-reg. I did not mention TFSA above as you are already maxed out for the year, but next year I will be doing my TFSA first (as usual) then continuing on in the non-reg account, both with good yielding quality stocks.

As for my mortgae, I would leave your cash in your account and carry a higher mortgage principle as rates are currently so low that you can make more than 4 - 5% on your investments that you get ahead by putting more down on your mortgage. You would have to crunch the numbers for your own situation, but for me it was easier to invest and build a good dividend portfolio that in about 5 years will cover my mortgage if I choose to than give it back to the bank.

My goal is to try and make retiement at 45 and work till 50 for enjoyment as I really like my job. Just remember that savings and investments are only half the battle, tax planning should also be a big consideration.

Hope this is not too scatter brained, I've been up waaay to long at this point.
 

·
Registered
Joined
·
56 Posts
Low cost e-series index funds are good, tracks the general market, low fees, don't need to monitor what an active fund manager may be doing with your money.
If you have a taste for business, then individual stocks are good.

I'd go with low cost index funds if you want to take the easy route. there are plenty of books on index investing available.
 

·
Registered
Joined
·
3,936 Posts
I think you are doing VERY well. For your protection, I recommend that you implement the 3-tier savings plan (see my older posts) as well as to established a 4th tier to save up for a likely home downpayment. I personally recommend against using your RRSP $ to fund the down payment of a house. That money needs to be paid back within 10 years. Added to the very high and real costs of home ownership, you will be in a real cash crunch. You may also need a new car or 2 in the coming years, so try and save for that as well.

Better to try and alleviate some future pressure off yourself by saving now as mentioned above. When you do so, you will quickly see that you don't have as much $ as you thought! I'm going through this right now and it takes TIME to do all of this.

What do you think? Is this something that you feel you could establish?
 

·
Registered
Joined
·
12,788 Posts
I think you are doing VERY well. For your protection, I recommend that you implement the 3-tier savings plan (see my older posts) as well as to established a 4th tier to save up for a likely home downpayment. I personally recommend against using your RRSP $ to fund the down payment of a house. That money needs to be paid back within 10 years. Added to the very high and real costs of home ownership, you will be in a real cash crunch. You may also need a new car or 2 in the coming years, so try and save for that as well.

Better to try and alleviate some future pressure off yourself by saving now as mentioned above. When you do so, you will quickly see that you don't have as much $ as you thought! I'm going through this right now and it takes TIME to do all of this.

What do you think? Is this something that you feel you could establish?

If they can't afford to repay the RRSP loan, they can't afford the house.
 

·
Registered
Joined
·
5,464 Posts
1. The HBP repayment schedule is 15 years, not 10.

2. You do not have to make the repayment - you can choose to take the repayment amount into income instead.

3. In the right circumstances, this can be a very effective form of tax arbitrage. Namely: contribute in a high-income year; take 1/15th of withdrawn amount into income in low-income year.
 

·
Banned
Joined
·
407 Posts
Brian, congratulations! You're doing exceptionally well for your age.

It's awfully important to sort out your short and long-term goals prior to investing. The investments you choose will be dictated by the goals you have. For example, if you're saving for a home in the near future, then you would want security of capital first and foremost i.e. fixed income. If your long-term goal is accumulation of capital, then you would likely choose equities. You're what Moshe Milevsky would call a "bond." You have a stable, relatively secure government job with a DB plan. There is a belief that you can afford more risk in your investing portfolio if your career is "bond-like" rather than "stock-like."

I personally did not use the HBP (homebuyers' plan), but I know people who did use it successfully. It's one of the few ways to withdraw money tax-free from your RRSP. The advantage of the HBP is that you can contribute an after-tax amount to an RRSP, re-contribute the tax savings, and then withdraw (for a downpayment) the original after-tax contribution + the tax savings. If you make annual RRSP contributions, then you'll have cash flow to repay your RRSP. If a contribution to a RRSP is designated as repayment of HBP loan, then you don't receive a deduction for that amount. See www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/hbp-rap/menu-eng.html

You and your fiancee could withdraw up to $25,000 each. If you and your fiancee can save a downpayment of 20%, then you can save substantially on CMHC insurance. As has been previously mentioned, be careful not to withdraw more than you can comfortably repay. One disadvantage of the HBP is that you lose the compounding of the funds withdrawn. I'm one of the people on this forum who is bearish on real estate, at least in the short-term. Depending on where you live, I suspect real estate will suffer.

What are you using your TFSA and RRSP for? If they're for saving, then fixed income is appropriate. If you want long-term capital accumulation, then equities are appropriate, at least for the portion you designate as long-term. The Globe and Mail just had its online brokerage survey. CIBC is considered below average. I have accounts at TD and BMO. TD's research tools and ETFs are superior to BMO's, but BMO is much more user friendly to the new investor. I think the Globe and Mail survey overrates the importance of $4.95 commission. My commissions are $9.95 with either BMO or TD. If you're concerned about $5 in commission, you're trading way too much.

Again, congratulations and good luck.
 
1 - 9 of 9 Posts
Top