[michika]

I've been doing a lot of reading lately as recommended when I first joined the board. I'm now feeling more overwhelmed about my options and I just need some more opinions please.

I have $800-$1,000 a month to invest/save, and I am now very confused as to where I should be putting it, what vehicles are good choices, etc. The money currently goes into my TFSA and RSP accounts, with the TFSA money ear marked as emergency funds/general savings.

What I was thinking my plan should be is that I should

1. Max out my TFSA
2. Find a better vehicle for my RSPs, but what?
3. Sign up for online trading, mostly likely a Cash account

I keep hearing all this discussion about Mutual Funds and MERs, and its just starting to get to be too much.

So in your opinion what should I be doing with this money each month to maximize its long term value? I'm savings for retirement, to build wealth, and to maintain my emergency fund.

 

[leslie]

1) I would not be working with $1,000 increments. They are just too small to be worth while. Let them sit in your checking account. You know when, in the year, some of your big bills come due (like Xmas, or car insurance). After those are dealt with evaluate your balance and move the excess (to what is needed for the emergency fund) into a savings vehicle.

2) Since I presume you are just starting out, you have to look forward in your life and decide what expenses you will have. New car, back to school, wedding, children, downpayment on home, etc. I don't believe in divvying up your savings into small separate piles of $$ for retirement, $$ for new car, etc. Attack the first need first. I cannot believe that you want nothing and have only retirement to save for.

3) Whether you 'invest' or keep the $$ in savings vehicles depends on the timing for what you want to do with it. Use savings accounts for emergency funds and GICs for things needed at a specific time. Invest for longer horizons.

4) Open a discount broker account and do the 'couch potatoe' --- buy a small few ETFs of the large indexes. Do any rebalancing with your subsequent contributions.

5) There is a huge misunderstanding about the importance of rates of return. It sounds like you are thinking "I should be earning more". But that is wrong when you are just starting out. It only matters once you already have a whack of capital. Consider the $1,000 per month you feel should be invested. Say it earns 8%. In one month it earns 8%/12mo*$1,000 = $6.70.

So you lost in one month the cost of one Starbucks coffee. It is your saving that is important, not the rate of return. See argument.

 

[Cal]

Considering the amounts...you may want to look into opening a trading account and setting up some DRIP's w SPP's. Then you could avoid the transaction fees and invest....as you seem to want to avoid the MER's of MF's.

 

[Cal]

You could check:

http://cdndrips.googlepages.com/

http://cdndrips.googlepages.com/canadiandriplist

http://cdndrips.blogspot.com/

to gain more info.

 

[Stompie79]

Our plan

After reading a bunch of books and blogs I can give you my basic plan

First I have got my RRSP contributions at about 14% of my salary which should give us a basic pension at 55 or a good one at 60. I was a bit late starting this.

Next we plan to have all of our 3 months emergency savings in my wifes TFSA interest account by next year.

Following that I'm planning to put my monthly savings (in the $100-$500 range depending on a few unknowns) into my TFSA TD e-funds until I have around $25,000+ which I believe to be the minimum I should do to minimise broker fees. It will then be transfered to some sort of ETF, rinse and repeat. I figured this amount based on
http://www.milliondollarjourney.com/reader-question-when-to-switch-to-etfs.htm

I'm hoping that is a better gain then just paying off my mortgage which is currently fixed at 5.1%

After 4 years when our student loans are paid off I'm kind of assuming I'm going to need that cash for increasingly demanding children.

 

[Rickson9]

I've been doing a lot of reading lately as recommended when I first joined the board. I'm now feeling more overwhelmed about my options and I just need some more opinions please.

I have $800-$1,000 a month to invest/save, and I am now very confused as to where I should be putting it, what vehicles are good choices, etc. The money currently goes into my TFSA and RSP accounts, with the TFSA money ear marked as emergency funds/general savings.

What I was thinking my plan should be is that I should

1. Max out my TFSA
2. Find a better vehicle for my RSPs, but what?
3. Sign up for online trading, mostly likely a Cash account

I keep hearing all this discussion about Mutual Funds and MERs, and its just starting to get to be too much.

So in your opinion what should I be doing with this money each month to maximize its long term value? I'm savings for retirement, to build wealth, and to maintain my emergency fund.

I wish I could offer something. As far as my competence level is concerned, I'm having difficulty finding things in the stock market and virtually nothing in the RE market.

After my heavy investments in the stock market at the end of 2008 and the beginning of 2009, I have been stockpiling cash. I have looked around the markets and even looked at some investment RE, but have come out with nothing. Having said this, you have to understand that 99% of my investing career has been spent waiting, so this isn't new.

Holding cash isn't the worst idea right now.

 

[Rickson9]

5) There is a huge misunderstanding about the importance of rates of return. It sounds like you are thinking "I should be earning more". But that is wrong when you are just starting out. It only matters once you already have a whack of capital. Consider the $1,000 per month you feel should be invested. Say it earns 8%. In one month it earns 8%/12mo*$1,000 = $6.70.

So you lost in one month the cost of one Starbucks coffee. It is your saving that is important, not the rate of return. See argument.

I agree. Too many people are too eager to burn the money that they have.

My wife had to learn this lesson a few years ago as she hounded me for ideas to "do something".

Cash is not the worst idea atm.

 

[scomac]

What I was thinking my plan should be is that I should

1. Max out my TFSA
2. Find a better vehicle for my RSPs, but what?
3. Sign up for online trading, mostly likely a Cash account

For a somewhat different perspective than has already been expressed:

If your intention is to build up a pool of emergency savings, then it might as well be in a TFSA. Leave the money in cash savings until you can purchase a cashable GIC (usually $5K in a registered acct.) in order to get a bit better rate whilst still maintaining access to the money. You also have the added advantage of being able to cash out early, without penalty, in order to take advantage of a better rate if it is available.

I don't know what you have in your RSP at present, but if you are just starting out, I would avoid a self-directed account until you have amassed enough assets to avoid the annual fees. The simplest way to begin saving for an RSP is to invest in a simple balanced fund through a regular investment plan. Any of the bank monthly income funds will work fine for this. While not as cheap as index funds or ETFs, their fees are still well below typical mutual funds. The regular investment plan is important IMO as it is a forced savings plan. If you want to save up specific amounts and then invest periodically, you will likely find this more difficult to do as there will always be a temptation to spend the surplus cash on something else. Beyond the balanced fund approach, if you are comfortable with doing everything electronically, then you could start a couch potato portfolio using TD e-Funds or one of the prepackaged managed portfolios that are constructed using e-Funds. In the initial stages of saving for retirement there will be little advantage to using ETFs in many cases, it could work out to be more expensive than using mutual funds.

If you are new to investing, opening an on-line cash account for trading would be the last thing that I would do. It's likely that the bulk of your savings potential will be used up in making contributions to your TFSA and RSP -- you had mentioned $1K/month. Keep reading and learning, with time you will be able to figure out what will work best for you and if you decide to trade in a cash account, you can practice to see if it is worthwhile before actually committing cash. In the meantime, you will be saving in a prudent fashion while continuing along with developing a sound DIY investment strategy.

 

[Berubeland]

1) I would not be working with $1,000 increments. They are just too small to be worth while. Let them sit in your checking account. You know when, in the year, some of your big bills come due (like Xmas, or car insurance). After those are dealt with evaluate your balance and move the excess (to what is needed for the emergency fund) into a savings vehicle.

I entirely disagree.

Every journey of a thousand miles begins with just one step.

Rates of return also matter. Because this is not money you have to work extra for and through the magic of compound interest after years it adds up. 8% per month compounded on deposits of $1000 monthly is almost $600.

That nothing to scoff at.

 

[Rickson9]

I entirely disagree.

Every journey of a thousand miles begins with just one step.

Rates of return also matter. Because this is not money you have to work extra for and through the magic of compound interest after years it adds up. 8% per month compounded on deposits of $1000 monthly is almost $600.

That nothing to scoff at.

There's no problem starting at whatever amount a person has... if there was something worthwhile to buy.

 

[michika]

Just to put a little more background to this. I'm really only "starting out" in the areas of RSPS, and wealth accumulation. I do have a house, and we don't have any large life changes coming up in the next 5 years, unless its marriage.

We budget out everything like insurance etc. separately and after all that is said and done I have that $800-$1,000 a month. Really this money is earmarked for wealth building and retirement saving, not so much for future purchases, etc.

I do agree with the liquidity of cash comments. We do keep some cash available at all times, but 1% or 1.80% isn't doing much for me. This monthly saving is all mine to do as I wish.

My partner has his RSPs covered by his employer, and I do not. I'm a contracted employee who has to contribute to her own RSPs with after tax dollars and no matching. He also does his own TFSA contributions.

I'm going to look into ETFs some more, and see what is available to me. I did also recently notice that ING offers mutual funds with a capped 1% MER.

I think the plan will be to just stockpile cash for the next couple of months. I've been seeing a lot of print about (a) correction(s) in October. I'm going to set my goal of having made a decision as to which alternate vehicle (aside from savings account) to use, assuming the market has something worth buying, for November 1st.

 

[michika]

You could check:

http://cdndrips.googlepages.com/

http://cdndrips.googlepages.com/canadiandriplist

http://cdndrips.blogspot.com/

to gain more info.

Thanks! DRIPs are definitely on my list of things I'd like to hold.

 

[Spidey]

One of the best and investments may be any debts including your mortgage, if you have one. Aside from that I agree with Scomac's advice regarding TD "e" funds, which are low fee index funds. After your portfolio and investment knowledge increases, you could then consider cashing in some of the funds to purchase stocks. I would tend to place any investments (including cash) in tax sheltered vehicles such as RRSP and TFSA.

 

[michika]

I've decided that I want to keep all my investmets within tax shelted vehicles whenever possible, and I think I've figured out how to do it. As of this morning though I have maxed out my TFSA for the year, yet ING is offering the option to open your 2010 account early while they pay the taxes on it.

My next step is to figure out how I'm going to distribute my $800 - $1,000 a month between RSPs and my TFSA.

I looked at TD's e-funds and while I like the product they offer. I am balking at dealing with TD themselves. I've had serious issues in the past with them - attaching my bank account to someone else's debit card, sending out unsealed mail with info like my SIN inside. In short I don't trust them to keep my personal information safe as they've demonstrated to me a few times in the past.

Is there any other company or bank out there that also provides a similar product that you would recommend?

 

[scomac]

Is there any other company or bank out there that also provides a similar product that you would recommend?

Strictly in terms of tracking error and cost, the Altamira Precision Index Funds offered by National Bank would be one alternative worth looking at if you don't want to deal with TD. CIBC offers a wider variety of index funds than just about any other Canadian provider with the added bonus of an MER reduction for those investors with $150K in assets invested in CIBC index funds.