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Discussion Starter · #1 ·
After wasting away my earnings of the last 10 years, I have turned a new leaf and i'm determined to stop spending and get serious about securing my future and getting on the road to financial freedom. Lots to take in and sort through. I hope putting it out here will help highlight/clarify things and potentially get suggestions/advice. I've been reading these forums day and night and also read 'the wealthy barber' and currently reading 'your money or you life'. I am so ashamed that i have nothing to show for the past decade - unless i count purses, clothes and shoes:hopelessness:

Age: 35, single, no kids
Income: $106,200 (gross)
Bonus ~$17,000 (gross)

Savings account: $2,000
RRSP: $24,200 (invested in Canadian equity MF)
TFSA: $5,000 (2012 contribution in cash)
Non-reg investments: $46,000 (in Canadian equity and bonds) and US$20,000 (In cash)
Mortgage: $347,000 (April 2012...3-yr fixed at 2.79%)
Home value:$380,000
Car: $18,000 (fully paid for)
Credit line: $5,000 (to be paid down by end of Sept)

My 2012-Jan. 2013 plan is to Utilize non-reg investments as follows:
Now - Put cash in savings account - emergency fund = $10,000
Now - Transfer max contribution to RRSP = US$16,000
Now - Convert US$4,000 to clear credit line
Jan 2013 - Transfer $20,000 to TFSA
Apr 2013 - Pre-pay mortgage ~$30,000 (balance of $16K plus tax refund ~$10,000 + annual bonus ~$10,000)

I can also save about $3,000 each month (living frugally) so that will go towards paying down mortgage each year - all things being equal.

Once all of these contributions are in place, i want to start investing in ETFs. I will tackle each account separately in subsequent posts.

Short term goal - 2013/2014 - MBA. I will have to take a loan for this, and will be working full time and directing any spare cash to shave the loan quickly.

Does this make sense?
 

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Welcome to the forum!

Your profile and plan looks pretty good. Glad to hear you've given thought to an emergency fund. I guess the part I don't understand is why you are carrying debt and wasting valuable time and TFSA contribution room when you have $46K already. Why not pay off the debts and fill up the TFSA NOW? Use the $46K for this.

Also, can't part of your $46K pay for the MBA? Makes no sense to me to rack up and service debt when you have non-registered investments, UNLESS those investments are reliably giving you far better annual returns than your interest rate? Are they?

Just my opinion anyway.
 

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OK.... a quick cash flow just to give you an idea of your budgeting and savings regimes. If you spot anything you want to change such as wanting to retire at 40, etc.... let me know.

I am 35's plan
 

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Discussion Starter · #4 ·
Thanks so much for taking the time to read and responding.
@TRM - I had used up the $15K saved in TFSA from 2009 for condo down payment this year (stupid....i should have used the non-reg) I will have to wait till next year to put $20K back in. Yes, my plan is to use up all non-reg investments to pay down debt and save towards the MBA (I believe the investments have returned 8.5% since 2008) but i won't have enough. I'll need probably an additional $20K i think.

@Steve - wow, thanks for that. I would assume an annual bonus (if things continue this way in the oil sands:)). I am hoping to see at least $15,000 before tax each year (fingers crossed), and NO, i am not going to retire at 40! I just now have to figure out how to grow the savings going forward! Also,
I will likely have more questions when i've studied this cash-flow in greater detail after work today. Hope you don't mind! Thanks very much
 

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Steve, sorry to hijack this thread, but I bought RRIFMETIC a while ago and when I run projections it never draws down my TFSA, but instead I end up at 95 years of age with over $8 million in my TFSA. Am I doing something wrong when I entered the TFSA or in some cases does it plan it this way on purpose? I set it up to have the same income throughout my life. Thanks.
 

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Discussion Starter · #7 ·
I've learned so much on this site and can't thank you all enough. Just posting this here to track my own progress....
Here are some steps i've taken based on the things i've learned here and advice received.

- Living frugally and loving it. Its amazing how little a person needs outside of food, shelter, etc. (Cut cable, fall in love with library, walk 20 minutes to work, take my lunch and have a bi-weekly allowance of $100 to spend on coffee and anything else)
- Sold 1.75% MER MF
- Parked total investable cash in a HISA with brokerage (didn't know this was possible until i read it in here)
- Sold the stocks of the company i work in, as well as other non-reg investments through work and put this towards paying 10% off my mortgage principal
- Currently building 6-months emergency fund (next will be working towards establishing tier 2 savings)
- Paid off CC and LOC
- Enjoyed reading: Wealthy Barber, The Lazy Investor, and now reading the intellignet investor.

I feel so empowered and i think i'm ready to put the money to work.

At RBC Direct Investing, i have $52K cash sitting in HISA. I am thinking of doing the following:

RRSP (all US$) in a combination of individual stocks (KO, PG, JNJ, MCD) and ETF (VTI and VWO). Total is ~$40K
TFSA (all in C$) in dividend stocks (RY, BNS, IPL.UN, FTS,ENB, REI.UN). Note: Right now, i only have $5K and will buy just one, the others are on my list for when TFSA room opens up again in Jan and i have another $20K to put in.. I know this has no bonds but i have a small ($2K) bond fund at Sunlife (PH&N) which i will add to next year.

My time-horizon is long (20+years), these two buckets are for retirement funding. I will not be trading often. I'll buy and hold

What do you guys and gals think of this plan. Is this too many stocks for the $$ i have to invest? I Know i can't time the market, but i don't actually know when to pull the trigger.
 

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Hi snowbird

The banks love it when someone is holding a mortgage & puts money into an RRSP instead of paying off the mortgage. Money is made from the money invested (fees commision) as well as more interested is paid on the mortgage.

One of the biggest mistaks made is putting money into an RRSP instead of paying off the mortgage because people put to much faith into the local banker. If the mortage can be paid off within a year your 2 an RRSP makes sense other wise you must do the math your self & consider paying off mortage as fast as possible then consider maxing out RRSP.

If money is going into investments that are being defered by long term holdings such as etfs that track stock indexs then it almost always makes sense to pay off mortgage. Then max out RRSP. The best bang for your buck would be to pay off mortage then max out unused RRSP room as fast as possible while making big bucks in the oil fields. Make the money earily in life so the less interest is paid & the more time is on your side for compounding.
 

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The mortgage is at 2.79% fixed currently, and bets are good that mortgage rates will stay low for quite a while to come, so socking money into RRSP investments that are likely to earn a higher rate than that seems like a better idea than focusing on paying down the mortgage.

It's true that paying off the mortgage sooner will reduce the money you throw away in interest, but a dollar invested in your RRSP today will earn more than a dollar spent reducing the principal of your mortgage, if you assume that your RRSP will earn an average of more than 2.79% annually...or even 5% annually if you assume mortgage rates will rise to that level at some point in the next couple of decades. I don't think you said how long your mortgage is for: 15 years, 20 years, 30 years.

The mortgage vs. RRSP question also involves risks around two uncertainties: 1) whether interest rates will rise and by how much, and 2) what will happen with the market. If you defer contributing to your RRSP for 10 years while you pay off your mortgage, and stock prices reach an all-time high 10 years from now, you will have missed out on a bargain. On the other hand if the stock market tanks in 10 years you can buy an awful lot of shares for your money.

Mortgage interest rates will rise if the economy recovers, but that doesn't look like it's going to happen very quickly. Nobody can predict the future, but even if you assume your portfolio of stocks and ETFs will return an annual average of say 5% you're probably still better off investing in them than throwing everything to paying down your mortgage.

As for your portfolio, if these are retirement investments, I personally would simplify and just buy some index ETFs, no individual stocks. You'll have lower brokerage fees and a higher chance of success in the long term. I haven't seen any evidence that individual stock picks can beat a balanced portfolio of index fund ETFs (eg., one of the couch potato portfolios) over terms of 30 years, which is the term you're talking about.

I do both, by the way: I'm paying down my mortgage at an accelerated rate while also trying (without success so far) to max out my RRSP contributions. I moved to Canada 10 years ago, so my annual RRSP limit is high and I haven't yet been able to hit it. But I'll get close this year.
 

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I personally would simplify and just buy some index ETFs, no individual stocks. You'll have lower brokerage fees and a higher chance of success in the long term. I haven't seen any evidence that individual stock picks can beat a balanced portfolio of index fund ETFs (eg., one of the couch potato portfolios) over terms of 30 years, which is the term you're talking about.

brad it's always so surprising to see platitudes like this surfacing so frequently in cmf forum. If you want evidence that's contrary to this view, look at gob's thread here in this section. He's exploded out of the starting gate, but he's probably going to paint a first year with a return above 25%.

if you want a more conservative strategy, look at Dmoney's thread. He'll definitely come close, with a return well north of 10% plus a far easier approach.

i know i know you're going to come back & say 30 years. Here's a little bet: let's come back in 30 years. My money says that gob & dmoney will be rich beyond wildest imaginings. But couch potato will still be fretting over his mortgage.

the way i see it, the couch potato devout are like the parent who raises his kids on Do Not Bother from the cradle. Don't bother with schoolwork because your IQ is going to be average, so just aim for a clerical job out of high school. Don't bother going out for sports because you'll never be a competitive athlete. In fact, don't bother trying out for anything in life, because the risk always exists that you might fail.
 

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Great income, that will really help your plan.

Nice mortgage term and rate, well done.

I suggest to focus on your personal debt and mortgage debt. With that income, maximize TFSA every year and contribute to RRSPs.

You're off to a fine start I think.
 

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i know i know you're going to come back & say 30 years. Here's a little bet: let's come back in 30 years. My money says that gob & dmoney will be rich beyond wildest imaginings. But couch potato will still be fretting over his mortgage.
You could be right, but I was thinking of evidence like this (which is comparing index funds to managed funds, but if you assume that managed funds are managed by professionals who work at this full time, how reasonable is it to expect part-time individual investors to do much better on their own?):

http://www.standardandpoors.com/ser...lobwhere=1243657598775&blobheadervalue3=UTF-8

And then there's all the Nobel laureate economists who espouse index funds:

http://www.ifa.com/12steps/step2/
 

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Snowbird

I should have also mentioned that you might want to think twice about putting tax deferred investments into an RRSP

You might want to consider the following but your the best judge as to how practical it would be for you.

With your current plan putting everything into stocks with in your RRSP when you want to buy an interest bearing investment to reduce risk in your portfolio your not going to have much or any RRSP room. So the interest bearing investment will be held outside RRSP being taxed every year.

If you buy a stock or ETF & it increases in value your not taxed on capital gains untill after it is sold if held outside RRSP account.

If held in an RRSP account you will be forced to switch it to a RIFF & have to with draw x amount when your 70 or is it 71 & having to pay tax on it. The tax rate will be higher because it wont be taxed as capital gain plus it will not be deferred as long if you were going to hold the etf or stock longer.

This is someting you might want to consider pay down mortgage & debt fast as possible, emergency money keep in TFSA or maybe consider having no energency fund & being able to borrow against the condo.

Only when mortgage is paid off put money into RRSP. Max out unused portion @ least so your income comes down from the highest tax bracket & do the math how practical it would be to go even into a lower tax bracket or save a little room for the following year or 2. Might be a gamble though if your job is lost. Put refund into TFSA unless you have enough funds to put money in sooner.


I would not buy any taxed deferred investments into the RRSP only interest bearing.

Once the RRSP is topped up remaining investment capital use that to buy stocks.

Your taxes will be lower when you retire on the stocks cashed if held till retirement if held outside an RRSP account.

The amount of money your making & saving you will have no problem catching up to balancing your portfolio to a higher level of stocks to fix income.


In the time between now & when your ready to put money into stocks I would spend some of it doing research on how to invest.
 

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You could be right, but I was thinking of evidence like this (which is comparing index funds to managed funds, but if you assume that managed funds are managed by professionals who work at this full time, how reasonable is it to expect part-time individual investors to do much better on their own?)
Easy - because the professionals are crippled by restrictive rules, unable to use derivatives even for risk control, hobbled by massive size, and worst of all... they are almost all long-only. You take a study that was done scientifically and then blindly try to infer that an individual could not beat a professional when the study in question has zero to do with that. All of this conjecture without even the slightest mention of all of the massive advantages the individual investor has over the professional.

And then there's all the Nobel laureate economists who espouse index funds:
I remember years ago where a bunch of PHD's and a nobel laureate or two went and set up their own investment company with all of their wonderful knowledge. They named the firm "Long Term Capital Management". Care to guess how that worked out?

These are the same type of well-meaning fellows who years ago came up with efficient market theory based on the idea that markets and investors are completely rational. A brief glance at the business news should end that fantasy for you.
 

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I failed in my thinking in my above post. All you would have to do to rebalance latter if stocks were bought in RRSP account would be to sell them & buy them back in a none regestered account & then buy the fixed income inside the RRSP account. What was I thinking before
 

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Easy - because the professionals are crippled by restrictive rules, unable to use derivatives even for risk control, hobbled by massive size, and worst of all... they are almost all long-only. You take a study that was done scientifically and then blindly try to infer that an individual could not beat a professional when the study in question has zero to do with that. All of this conjecture without even the slightest mention of all of the massive advantages the individual investor has over the professional.
Thanks, Lephturn. The ones that want to believe in mediocrity can do so. And the whole finance industry will try to convince you that you can never outperform.
 

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Thanks, Lephturn. The ones that want to believe in mediocrity can do so. And the whole finance industry will try to convince you that you can never outperform.
I think that's an unfair characterization on many levels, but the point is not that one can never outperform; I think even the most ardent proponents of index investing acknowledge that people who buy individual stocks can and often do get triple-digit returns in any given year and tend to outperform indices over periods of 5-10 years, even longer. The point is that as the time horizon increases, the probability of beating those indices decreases, because over time the big gains are usually counterbalanced by signfiicant losses. If you're passionate about investing and are motivated to spend the time on research, learning, etc., your investment of time and education is likely to pay off. But it would be a shame if you spent all that time and in the end your returns weren't remarkably better than those of someone who spends 4 hours per year managing his or her investments. I don't think it has anything to do with settling for mediocrity; it has to do with priorities and probabilities.
 

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There is nothing mediocre about indexing / couch potatoing. Only a small minority of retail investors are aware of strategy, recognize its power and have the discipline to successfully implement it.
 

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There is nothing mediocre about indexing / couch potatoing. Only a small minority of retail investors are aware of strategy, recognize its power and have the discipline to successfully implement it.

lol you're saying that the masses who are not members of the Praetorian Guard with its secret key to couch potato success are destined to fail ?

ooh là. And here we were thinking that couch potato had been invented by a financial industry desperate to capture all the masses who have been permanently turned off old-fashioned mutual funds.

capture em because guaranteed mediocrity - for the masses - sounds better than risking failure.

.

 

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You could be right, but I was thinking of evidence like this (which is comparing index funds to managed funds, but if you assume that managed funds are managed by professionals who work at this full time, how reasonable is it to expect part-time individual investors to do much better on their own?):

http://www.standardandpoors.com/ser...lobwhere=1243657598775&blobheadervalue3=UTF-8

And then there's all the Nobel laureate economists who espouse index funds:

http://www.ifa.com/12steps/step2/
Brad, professionally managed funds have to be treated far differently than a retail investor's. For example, I couldn't dream of doing what I do in my thread were I managing funds and my returns would surely be lower.

I think the statistic of index investing vs. stock picking is what it is because most retail investors are uneducated and uninterested in really taking the time and effort to learn about the market. I have a strong hunch that those that do this have a far greater likelihood of outperforming the market. The number of people that fall in this category are so small, however, that they barely influence the overall statistics.

Almost anyone who is really successful (in anything) probably had to work really hard to get there, perhaps with a little luck thrown in. If one is prepared to make the effort and enjoys learning about the topic, I wouldn't straight away recommend ETFs and steer them away from researching individual stocks.
 
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