[jmart211]

Hey folks,

I am 21 years old, currently on a 16mth internship. I've got about 2.5 years left till graduation. I've been doing lots of reading over the past few months (Rich Dad Poor Dad, The Wealthy Barber, Richest Man in Babylon, Automatic Millionaire...the list goes on).

I have been paying myself first; $600 every payday ($1200/mth) and putting it into my CIBC TFSA.

I opened the account in July and up until now, have just been leaving it as "cash" in the account earning 1.25%. But I want to get more out of it and recently opened up a CIBC Investor's Edge TFSA (just waiting on the papers to go thru) and am hoping to put most of it into some Mutual funds. I have been researching funds and feel I have a good understanding (not the best; but its good).

I'd say I'll be saving around 15,000 over the remainder of my intership; my goal is to put as much as possible on my student loan upon graduation (balance:20,000). I can live with ~$10,000 on it while keeping the rest in long term investments (10yrs+).

I realize mutual funds aren't great if I am only talking 3yrs for the bulk of my money (going towards student loan). But my goal with that money is just to get a better return than the 1.25% i am currently getting. Would a low volatility/risk fund even have a return like that? Or should I be looking at GICs?

Also, I am a noob w/ Investor's Edge; any advice would be great.

 

[Four Pillars]

Hey folks,

I am 21 years old, currently on a 16mth internship. I've got about 2.5 years left till graduation. I've been doing lots of reading over the past few months (Rich Dad Poor Dad, The Wealthy Barber, Richest Man in Babylon, Automatic Millionaire...the list goes on).

I have been paying myself first; $600 every payday ($1200/mth) and putting it into my CIBC TFSA.

I opened the account in July and up until now, have just been leaving it as "cash" in the account earning 1.25%. But I want to get more out of it and recently opened up a CIBC Investor's Edge TFSA (just waiting on the papers to go thru) and am hoping to put most of it into some Mutual funds. I have been researching funds and feel I have a good understanding (not the best; but its good).

I'd say I'll be saving around 15,000 over the remainder of my intership; my goal is to put as much as possible on my student loan upon graduation (balance:20,000). I can live with ~$10,000 on it while keeping the rest in long term investments (10yrs+).

I realize mutual funds aren't great if I am only talking 3yrs for the bulk of my money (going towards student loan). But my goal with that money is just to get a better return than the 1.25% i am currently getting. Would a low volatility/risk fund even have a return like that? Or should I be looking at GICs?

Also, I am a noob w/ Investor's Edge; any advice would be great.

You don't indicate what kind of mutual funds you are looking into - 100% equity? balanced? bond? short term bond?

If it's equity, then you are taking a significant risk.

The question you have to ask yourself it - how important is it to me that my capital is preserved so I can pay off the loans in 3 years? If the answer is "critical" - then you have to play it safe. If you are ambivalent, then perhaps taking more risk is not inappropriate.

 

[Wealthy1Day]

The rule of thumb tends to be that if you need the money within 5 years then you should keep it in safer investments. As unsexy as it sounds, that means leaving it in cash at 1.25% or GICs at a higher rate. You have plenty of years ahead of you to earn greater returns in the stock market (i.e. mutual funds that invest in stocks) over a longer investment term.

However, since this is student debt which is "good" debt and also has preferential tax treatment, I would argue that you can take the risk and invest your money in mutual funds over the next 3 years. It also depends on your risk tolerance over the next 3 years. What's awesome is you have a well thought out plan taking you to graduation. Your goals will shift then and over time. But for now, what situation will you be 3 years from now if you've lost money in your investments?

The worst case scenario, I hope, is that you'll have graduated, working full time making a higher salary, and even if your investments shrink then you will be able to repay your student loan a little longer than you initially planned. But your effective interest rate is lower due to the preferential tax treatment.

When you start considering mutual funds, learn about the 'couch potato strategy'/index funds.

 

[davext]

During the crash, I had most of my money in mutual funds including my savings from internship. The funds I had invested in were mixed but none of them resistant to the crash especially the canadian resource funds when everyone was trying to justify the huge price of oil.

That money all disappeared and I was wondering why did I try so hard to save?? I lost at least a year's worth of savings and honestly felt that I would enjoy gambling at the casino and losing it all than what happened.

I learned that I have to actively monitor my investments and I can't count on my financial advisor to call me or advise me to pull out before all the damage happens.

If I were you, I'd go with ETFs due to the low cost and accessibility. You can pretty much get anything you want with ETFs. If you are just looking for a small return that is higher than 1.25% then I would suggest looking at short term bond ETFS, dividend paying ETFS, as well as REIT ETFS.

I'm holding XSB.TO, and XRE.TO.

 

[jmart211]

Thanks for all the answers guys.

As for risk; I'm still quite young and feel I am in a good position (timewise) to take a few risks. I figured I would break up my $$ in a few different places; maybe something like this:

-10% in a more "aggressive" fund
-40-50% in a more conservative; low risk fund/vehicle
-the remainder in GICs & Cash

Should be noted; I won't be investing this all as a lump sum; it will be coming off my paycheque biweekly.

 

[slacker]

Your investment horizon is extremely short, considering your student repayment loan is only a few years away. Therefore your risk tolerance is extremely low, and cash and GIC's are appropriate.

Here is a page that will you find the best rate for cash/gic:

http://www.bankrate.com/can/rate/depsearch_product_R.asp?params=ON,917,943&product=0

 

[jmart211]

I am young and feel I am in a good position to take some risk (no mortgage, no rent, no car payments etc.).

Putting all my money towards my student loan isn't an absolute necessity, I have a job as soon as I graduate and afterall, the payments a tax-friendly, I'd just like to take a chunk of the principle (shooting for at least $10,000).

I will be getting a raise in the new year, and I expect to build savings of around $18,000 by the end of August 2011. So that leaves about 8000 for a "long term investment".

Looking at GIC rates, on a 3 year term I'd only get around 2.XX%. It seems that most mutual fundds I look at get a better retuyrn than this over the same time frame.

Why not invest the student loan $$$ in a low risk mutual fund aimed at getting >2.XX% and cash out to pay off the loan in 3 years time?