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New young father needs investment help!

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  • Mar 28th, 2011 10:20 am
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Jr. Member
User avatar
Dec 8, 2005
155 posts

New young father needs investment help!

Ok so I'm looking to start planning for the future a bit better and need some advice. I've currently got a mutual fund tfsa with London life primarily focussed on domestic and international equities and precious metals with about $3000 in it. I also just opened an resp through Mackenzie financial and am making monthly contributions starting this month. I didn't do my homework enough on these and found on the five tfsa funds there is an MER averaging 2.8 which feels pretty high and the resp is about 2.4. I feel like I've got to make some changes so I opened a rrsp mutual fund account with td which I will be converting to e series and going 100% equities to start. My risk tolerance is moderately high and I am thunkin ling term, however, I am also saving for a down payment for our first home. The other thing is that I've recently become self-employed and have to consider the tax consequences of how I invest carefully. Hopefully this is enough info for some help. If not let me know. Essentially I was planning to open 3 td eseries accounts (tfsa, resp, rrsp) to bring down MER costs. I havent pulled the trigger on it yet tho, so I'm open to any advice and would love to hear what you guys think. I basically need to maximize growth over the next few years for a home but have to keep my daughters education in mind too. Any and all help is appreciated!

Oh and I've got another $5000 I'm looking to invest immediately since it's just sitting in my savings account...
33 replies
Deal Addict
Oct 1, 2006
3249 posts
4472 upvotes
Montreal
E-series is a good idea however 100% equities is not. If you are savings for a downpayment you should put most of your money in a high interest savings account.
Deal Addict
User avatar
Sep 26, 2007
3960 posts
146 upvotes
SC
that's a lot of info so i'm going to try to summarize so it's easier to see for me and others to try to help you. correct me if i'm missing anything or made a mistake.

investments Now

3K tfsa 5 mutual funds with london life, 2.4% mer
resp mutual funds with Mackenzie , 2.8% mer
5k savings account

profile
moderately high risk tolerance
long term
self employed
investment and downpayment on mortgage
save for retirement (rrsp)
save for daughter (resp)


investments Future

td tfsa e-series 100% equities mutual funds, low mer.
td rrsp
td resp
new house

First thoughts
i'll have to agree with germack and keep your savings for your downpayment very safe.
the move from high mer to low mer makes sense.

what are your allocations going to be?
i assume you have enough income to make everything work here...
"We don't have a soul... We are a soul. We have a body." ~C.S Lewis
Jr. Member
User avatar
Dec 8, 2005
155 posts
Thanks for the summary. Very helpful. My Income right now is a little unsure since I've just recently become self-employed, but its not substantial...at this point I'm anticipating about 45-50k.
Sr. Member
May 5, 2006
991 posts
474 upvotes
I'm no expert, but if that's the extent of your savings and you're recently self-employed, I really feel that you don't have enough in liquid assets (aka 'emergency fund'). I would concentrate on building up cash and guaranteed investments.

Otherwise, a minor emergency could require selling your investments at a non-opportune time (ie. when they're down).
Jr. Member
User avatar
Dec 8, 2005
155 posts
That's what I have to invest with at this point. Emergency fund money I keep in cash so I'm not too worried about that, but definitely something to keep in mind.

Also once these funds are set up I'll be contributing about $750 to them collectively a month. My inclination is to put the bulk of it into the tfsa, but considering I'm now self-employed I'm thinking I should be contributing to my rrsp for tax purposes...
Jr. Member
User avatar
Dec 8, 2005
155 posts
I guess what I really want to know is if I'm on the right track with the td e series accounts or if there might be better alternatives given my particular circumstances. I feel like I have to do something different, but speaking honestly, I could use some reassurance before I pull the trigger on it. I'm definitely going to reconsider my allocations and introduce some more stability with bonds, so thanks for tht so far! An other ideas I'm all ears!
Jr. Member
User avatar
Dec 8, 2005
155 posts
Thanks for the advice wes. You've definitely given me more to think about...unfortunately itnleaves me less sure about what to do lol. So what I'm thinking now is that my primary goal is to buy a home and the tfsa may be the best vehicle for that. I do have term life right now for 250k just for piece of mind, but no disability insurance at the moment. The high MER of my current funds has me worried I'm getting taken for a ride and have me questioning putting more money into them right now. From what you're saying I'm not sure if I should even bother with an rrsp anymore since it was primarily to avoid getting hit with a big tax bill next year...the resp is all equities so I think I'll keep that at smaller monthly contributions for now but does it make sense to just mirror the allocations of my current fund in an e series and save myself the MER? And should I change my tfsa to e series as well? I'm also concerned about how the e series might affect my growth potential since it's all index funds...
Jr. Member
User avatar
Dec 8, 2005
155 posts
Any and all ideas welcome!

Also I checked the eseries bond index fund and there's been almost no growth over the last 3 years...
Banned
Feb 17, 2007
3190 posts
203 upvotes
I think I am a step ahead, I am 26, though turning 27 in 4 months. My son is 15 days away from being 1 year old.

Learning to invest in individual stocks is a life long learning commitment. If you are not up for it, here is something to consider, Buy traditional index funds with minimal fees and hold forever.

Why traditional? Well since index funds was a booming industry, many banks have created excessive indexes to keep up with the demands. You might encounter some index funds that you have no idea what they hold. The last thing you want to buy is an index fund named after me ACC-Major Sure Win index lol.

Some index funds don't even hold stocks, they hold futures and options and swaps etc... They are for short term gambling purpose only, not for investing, so stay away from them especially HNU HOU HGU etc...

Stay away from bond funds because they yield the worst return ever in history. Basically if you have 9 decades worth of data, bonds only out performed stocks in just 1 decade. They are not tax friendly either.

For traditional sake, I believe all you need is just 4 indexes.
1) Canadian Index (TSX)
2) American Index (S&P 500/Dow)
3) International Developed (MSCI EAFE)
4) International Emerging (MSCI Emerging Markets)

It doesn't matter where you are going to buy those indexes from, just try to keep the costs low. Vanguard seems to offer better bang for your bucks, but they are in USD.

Don't even try to chase after the latest hot indexes such as the Global Miner Index or whatever.
There is no need to add other indexes such as REIT or Utility or Telecom
Member
Aug 5, 2010
237 posts
34 upvotes
If you are looking to save on fees, then yes - TD e-eseries are a great choice.

One suggestion - you don't make a ton of money and you are trying to save for a house down payment. I would suggest not worrying about an RESP until you get the house situation resolved (ie you own a house).

There is plenty of time to contribute to the RESP and get the full grants (or close to it).
Mike Holman
Money Smarts Blog - Personal Finance and Investing
Canadian Discount Brokerage Comparison - Compare the fees and benefits
The RESP Book - The simple guide to Registered Education Savings Plans for Canadians
Jr. Member
User avatar
Dec 8, 2005
155 posts
Money Smarts Blog wrote: If you are looking to save on fees, then yes - TD e-eseries are a great choice.

One suggestion - you don't make a ton of money and you are trying to save for a house down payment. I would suggest not worrying about an RESP until you get the house situation resolved (ie you own a house).

There is plenty of time to contribute to the RESP and get the full grants (or close to it).


Ya that's what I'm leaning towards now too. Thanks. So should I be sticking with the e-series idea for a short term tfsa or is there something else i might want to consider?
Member
Aug 5, 2010
237 posts
34 upvotes
josetavera wrote: Ya that's what I'm leaning towards now too. Thanks. So should I be sticking with the e-series idea for a short term tfsa or is there something else i might want to consider?
Is the short term TFSA intended for the house downpayment?

If yes, then I would do what others have said and just keep it very safe. High interest savings account, GICs etc. Most people want to make sure that the money will be there when they need it.

TD e-series is a great low-fee option for investing in equities, but equities are only appropriate for longer investment time horizons.

If you choose to take a higher risk on a short term investment, then you have to be prepared for losing a chunk of your downpayment money.

A very simplified explanation of investment time horizon:

http://www.abcsofinvesting.net/investment-time-horizon
Mike Holman
Money Smarts Blog - Personal Finance and Investing
Canadian Discount Brokerage Comparison - Compare the fees and benefits
The RESP Book - The simple guide to Registered Education Savings Plans for Canadians
Newbie
Feb 21, 2011
76 posts
12 upvotes
Toronto
xlfe wrote: that's a lot of info so i'm going to try to summarize so it's easier to see for me and others to try to help you. correct me if i'm missing anything or made a mistake.

investments Now

3K tfsa 5 mutual funds with london life, 2.4% mer
resp mutual funds with Mackenzie , 2.8% mer
5k savings account

profile
moderately high risk tolerance
long term
self employed
investment and downpayment on mortgage
save for retirement (rrsp)
save for daughter (resp)


investments Future

td tfsa e-series 100% equities mutual funds, low mer.
td rrsp
td resp
new house

First thoughts
i'll have to agree with germack and keep your savings for your downpayment very safe.
the move from high mer to low mer makes sense.

what are your allocations going to be?
i assume you have enough income to make everything work here...

1. YOU HAVE YOUR STUFF ALL OF THE PLACE: Too many financial institutions, too many accounts, and too many products. You need to clear yourself. xlfe is helping you now. If I were you, I will consolidate into one institution with one or two account. At least, keep most of the item in one institution. You are at your beginning stage of investment. Take time to learn.

2. PAY YOURSELF FIRST. I mean RRSP and Home first. Leave the RESP after. Buying RRSP can save from tax significantly. Home is your need and you can expect appreciation from it too. I would put these two on the top of the priority.

3. Your daughter is still young and you have time for the RESP. I would put it after the home although the government grant is very attractive. My daughter is in the first year of the university. The scholarships she got almost can cover her tuition. We just keep her loan in our account (short term investment) and prepare to repay them back in the future. My situation may not be representative. The thing I try to say is how important of the RESP will be. At least it will be not your first priority now.

4. RRSP NEEDS TO BE AGGRESIVE. You need to be aggressive for the RRSP. Generally I agree with ACC major. I am doing this too for myself. Using Index fund for the RRSP. Any index fund with MER higher than 0.7 will not be considered for sure (average MER for index fund is 0.7). You need design your portfolio. You are still young and have time to study and design. Saving for the home needs to be conservative. I would put it in Money market funds or even saving account/GIC.

5. One thing I do not agree with the ACC-Major is the bond. He would not include any bond funds which I like to include some. A rule of thumb is 120 (or 110) - age for the percentage of aggressive portion. If you are 30. You need 10% in a conservative allocation. That is bond (or bond funds).
Deal Fanatic
Jul 1, 2007
8569 posts
1763 upvotes
Jameschen6 wrote:
4. One thing I do not agree with the ACC-Major is the bond. He would not include any bond funds which I like to include some. A rule of thumb is 120 (or 110) - age for the percentage of aggressive portion. If you are 30. You need 10% in a conservative allocation. That is bond (or bond funds).

Why would someone who's 30, with a 30+ year time horizon until retirement, need any bonds at all? If a portfolio with 100% equities will average more over 30 years than one with 90% equities, why choose the latter?
Money Smarts Blog wrote: I agree with the previous posters, especially Thalo. {And} Thalo's advice is spot on.
Banned
Feb 17, 2007
3190 posts
203 upvotes
Thalo wrote: Why would someone who's 30, with a 30+ year time horizon until retirement, need any bonds at all? If a portfolio with 100% equities will average more over 30 years than one with 90% equities, why choose the latter?

You got it. That is what happens when people read too much without thinking.
I read a lot things in my life and i always give those info. some thoughts. Do they make sense?

However, as normally every normal person would do is to play it safe, what they don't know is that safety plays arent safe afterall.
Here is a funny example i read from a well respected book. Condoms arent safe at all, i know someone was wearing a condom and got hit by a bus.
Member
Aug 5, 2010
237 posts
34 upvotes
Thalo wrote: Why would someone who's 30, with a 30+ year time horizon until retirement, need any bonds at all? If a portfolio with 100% equities will average more over 30 years than one with 90% equities, why choose the latter?

Because if that person with 100% (or some high percentage) of equities sells their equities when the market crashes (as some did in 2008), then they will be worse off compared to if they had chosen a less volatile allocation in the first place. Especially if they are now buying back into the stock market.

William Bernstein wrote about this in Four Pillars of Investing - Yes, you want to have more equities, but you also have to be able to not panic with that portfolio. He also recommends that 75% equities be the max - according to his research - the extra 25% equities didn't provide a decent risk-adjusted return.

Bottom line is that there is nothing wrong with having 100% equities as long as you can handle the volatility.
Mike Holman
Money Smarts Blog - Personal Finance and Investing
Canadian Discount Brokerage Comparison - Compare the fees and benefits
The RESP Book - The simple guide to Registered Education Savings Plans for Canadians

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