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Discussion Starter #1
Hi everyone, new member to the forum. I have read many of the existing threads and decided to post here to get some feedback to a good problem I have.

1. no debts, car is paid.
2. recurring monthly expenses kept as low as possible include cable (just basic MTS TV), basic phone and electricity, food, spending money, rent costs*.
3. $10K in TFSA (from 2009 and 2010)
4. $11K in RRSPs (still down about $3K from what I paid for them and this was built up since 2001)
5. I would like to have between $10-20K in rainy day funds, cash available on a moment's notice due to life adversity. I currently have about $17K saved (including the money I stuck in the TFSA's to get 1% interest).
6. I feel secure in my job and have a pension plan. I'm in my mid-30s and well educated with lots of good work experience.

The problem is that I am saving a lot of money these days and am not really sure what the best thing to do with it is. I've considered gold, mattress stuffing, donating to my favourite charity but definitely not wasting or throwing away the money. And I am not interested in putting any more money in RRSPs or other stock/mutual funds. GICs don't pay a lot, especially the cashable kind that I would want.

So, what's the best way to deal with this? Where should I put the money?

*I am not too interested in buying property as I appreciate the freedom and privacy afforded by high rise apartment living. I am quiet and live in a clean, quality building with good neighbors. I did own a condo in such a bldg before but in the final analysis found that the property taxes, condo fees and real estate fees really consumed any profit I made in the eventual sale price. Not really a worthwhile exercise other than lining the pockets of RE agents etc. I may go the property route later but do not want this discussion to end up being a rent vs. buy discussion.
 

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From what you describe, a high interest savings account paying about 1% is your only option ... for now.

By the way. The reason you didn't benefit from ownership versus renting was most likely because you didn't give it long enough time. Owning almost always swamps renting, but not always right away.

Good luck to you.
 

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5. I would like to have between $10-20K in rainy day funds, cash available on a moment's notice due to life adversity. I currently have about $17K saved (including the money I stuck in the TFSA's to get 1% interest).

And I am not interested in putting any more money in RRSPs or other stock/mutual funds. GICs don't pay a lot, especially the cashable kind that I would want.
Of the $17K you have saved, I'm certainly in agreement with the $10K maxing your TFSA contributions. However, although I hear that you are not interested in putting any more money in RRSPs or non-registered investments, you also state that GICs don't pay a lot. Neither does $7K sitting in your bank account not working for you.

I understand that you wish to build a $10-20K rainy day fund. You're well over $10K already and only $3K from the high end of your goal. But I'm a proponent of having money work for you versus building an emergency fund. If your retirement planning and personal finances are top notch then you don't need an emergency fund since an LOC during a rough ride will be fine since you have zero debt today.

Your finances are great. Maximize your TFSA (which you're doing) and your RRSP (and defer tax), maintain your strong financial situation including no debt and have your money work for you instead of it just sitting around.
 

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may I ask what prompted your decision to not continue investing inside an RRSP?

we are currently trying to decide if RRSP's are the most tax-efficient way to continue to invest, so I am interested in your thought process.
 

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Discussion Starter #5
Thanks for the responses thus far. I'll keep monitoring this for any further responses.

Regarding the RRSP question, I started the RRSP thing before I had a job that had a pension plan. I've been saving up that money since 2001 over both aggressive and moderate profiles and am dismayed that a full 9 years later I am still $3K behind the 8 ball. There always seems to be some sort of an explanation for why this is and these never benefit me. 9 years of negative growth doesn't inspire me to invest any further and all the stock market and exec bonus nonsense over the past couple of years has me wanting to move that money out of there when it regains value, if it regains value. But that's really off topic for this thread. I just wanted to answer the question that was posed. :)

Regarding the property thing, I might deal with that later but that's not a high priority for me. I'm fairly busy with work and other interests that I'm not interested in the whole upkeep thing and the condo thing seems to feed the real estate and other middlemen, machine. By doing it this way I can instead pocket the cash and then come here for advise on where to put the cash. :)

Good point about my $7K not making anything in the bank. But the difference between that and what I would get in a CSB or GIC is maybe $35 a year? I don't need the $35 that badly to bother to go and stand and wait at the bank and do all sorts of paperwork, have to review my information and profile etc etc. As I said above, I'm a bit busy so the returns have to be really worthwhile for me to bother doing red tape.

Thanks for the replies thus far and any further ones!
 

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And I am not interested in putting any more money in RRSPs or other stock/mutual funds.
This is the part I don't understand. Just because you may have lost some money over the short term, it doesn't mean RRSP's aren't a smart long-term investment. In fact they're just about the smartest long-term investment you can think of. Let's say you buy $10,000 worth of shares in index funds and bonds today, and at the end of the year they're only worth $5,000. You might think you just threw away $5,000, but you're thinking too short-term. The important thing is that you own the shares in those funds, and eventually those shares will gain in value. Maybe not this year, but over the decades you have remaining until you reach retirement, they should grow.

I find the best mentality for long-term investment in stocks and funds is to think in terms of how many shares you own, not what their current value is. The current value is irrelevant; what matters is their value when you're close to retirement age. You're young enough that topping off your RRSPs should be a priority, because they'll have decades to grow before you need them.

There's also nothing to stop you from opening up some new RRSPs and putting them into something other than the stock market if the stock market scares you.
 

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So, what's the best way to deal with this? Where should I put the money?
Congrats on the enviable position.

While you are asking "where you should put your money", I think the more prudent question you need to ask yourself is what do you want to achieve financially.

This is only an assumption, but I would guess that you don't have a concrete plan ahead of you. One that outlines, (i) what you'll want to own (real estate or not, cars etc), (ii) spend $$$ on (vacations, toys etc.), but most importantly (iii) life directions (marriage, children, retirement).

These factors and level of 'quality' you want for them will determine both how MUCH money you'll need, and also WHEN you'll need it. Based on the how much and when, you can then derive what you'll need to do with your money in terms of savings rates, rates or returns etc that will be required. Based on those last two factors, it will be much easier to decide where your money should go.

It may turn out that you could achieve your financial goals by leaving your money in a bank account and incur minimal risk, the only way to know is to set at least a framework or loose plan in place.

Good luck!
 

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Don't confuse rrsp accounts with the riskiness of the investments you can buy in them. If you want less risk then you can buy GICs inside your RRSP if you want.

The fact that your rrsp account has gone down in value has nothing to do with the fact that it is an rrsp account.

If your pension is in good shape then perhaps you are saving too much? But it really depends on your long-term goals.
 

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Discussion Starter #10
Good point about the RRSP account. However, the reason I don't want to put my $7K in there is because that $7K is part of my rainy day fund, which needs to be available to me without penalty on short notice. I have gone through more than one layoff where it took me a year (give or take) to find work again. So even with the LOC (which is racking up debt) available to me, I would prefer to have cash as a starting point and only go to LOC if the cash runs out. It has happened. Putting this money in an RRSP makes it difficult to access.

And really, I'm thinking more of the money I will be saving beyond this ideal rainy day amount. Maybe it could be placed in a RRSP GIC if interest rates should ever improve.
 

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Maybe it could be placed in a RRSP GIC if interest rates should ever improve.
As I think you'll see from reading that article, interest rates usually improve when inflation goes up, so don't be fooled into thinking a higher-rate GIC is saving you more money. I'm old enough to remember when GICs were returning 10%, but inflation was running around 10% at the same time, so you were barely breaking even. The two have to be considered together. Today's 1% interest rates at banks like ING are actually giving you a better real return today than the 2 or 3% rates did a couple of years back. Just remember that interest rates mean nothing in isolation; you have to consider the inflation rate in order to determine if you're actually getting ahead.
 

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Currently you can invest in long term Canadian government bonds with 4-5% return rate with very-low risk (XBB.TO). Basically the risk is lower than holding cash. Hold it in TFSA. Open a tfsa trading account with a low-cost online brokerage (like QuestTrade) and transfer your current 1%-yielding tfsa to that and buy XBB.TO. This could also serve as your emergency funds account. If you need the money you can get it out in a few days.
Use the cash in hand in the same manner in an rrsp trading account (if you are in a medium to high tax bracket).
Also, if you have time besides extra-cash, learn how to diversify your investments in order to optimize your return rate and risk.
 

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Currently you can invest in long term Canadian government bonds with 4-5% return rate with very-low risk (XBB.TO).
I thought that the thinking was that if interest rates rise this year, then ETFs like XBB will be the first to be hit in terms of their share price dropping, because the underlying bond price will drop. So my understanding was that shorter term, maybe laddered, bonds were the way to go for lower bond risk for now until we know where interest rates stabilize.

Do you think that is incorrect?
 

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Currently you can invest in long term Canadian government bonds with 4-5% return rate with very-low risk (XBB.TO).
I often benchmark my fixed income investments against the highest yielding 5-yr. GIC rates.
Typically those are either from Credential or GICBroker.com
GICBroker is showing 3.50%.
Given that, 4% (or even 5%) doesn't excite me a whole lot, esp. since the moment interest rates start going up (mid-to-late 2010) the constituent bonds will experience capital loss.
Is it worth buying into XBB at this time?
I'm open to all opinions.
 

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I thought that the thinking was that if interest rates rise this year, then ETFs like XBB will be the first to be hit in terms of their share price dropping, because the underlying bond price will drop. So my understanding was that shorter term, maybe laddered, bonds were the way to go for lower bond risk for now until we know where interest rates stabilize.

Do you think that is incorrect?
I don't think long term bonds will be affected in any way. Short-term, yes they will. XBB is the longest term.
 

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Osc I believe you know that you must hold bonds to maturity to get the yield you paid for. So yes short term rates can rise fast but you don't have to hold them for very long until you can reset at a higher rate.
 

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Discussion Starter #20
I would max out the RRSP's, and perhaps re-evaluate your current holdings.
The thing that bugs me about RRSPs is that the money is locked in and not easy to access. What if in the future I want to make a major purchase like a new car or a house down payment? At that point I will wish I had of placed the surplus money in something cashable.

Re-evaluate current holdings? Why? On what basis?
 
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