Personal Finance

Short Term Investment Advise

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  • Mar 19th, 2018 11:29 pm
Newbie
Mar 15, 2018
3 posts

Short Term Investment Advise

I am seeking an honest opinion on a short term fixed investment with a return that at least beats the Govt Inflation figure. My time horizon is 9 months to 1 year. I dont have a background in finance and am struggling to make out a best option
Here is a little background story:
I am a 38y old Ontario (GTA) resident and have a family income of $175000 before taxes. As my current liabilities I have:
(1) Mortgage with TD @2.6% fixed. My term is expiring in Jul 2020. I paid 10% down and borrowed 565K but have been making some lump sum payments in the past and brought my current outstanding to roughly 462K in around 3 years
(2) Car financed at 0.99% with 4 more years to go
I immigrated to Canada in 2013 and had some lifetime savings of 200,000 CAD abroad which I recently brought to Canada. With this money I have following options:
  1. Pay this money towards the downpayment for another freehold Townhouse or condo in the GTA, get additional mortgage (which we may qualify for), pay down the mortgage with Rental income from this new unit.
    I find it too risky looking at the current real estate market and considering this money as my lifetime savings, i want to limit my exposure to a very volatile Real Estate Market.
    Moreover, I also think that the extra earning (assuming a rent around 1600 CAD PM) I will get from this 'new' investment unit, it will count towards my household income and I would be paying more in taxes in a higher tax bracket
  2. Pay down my existing mortgage faster by doing a lump sum payment but there are limitations here
    I could only pay upto 15% of my original amount for a given calendar year
  3. Pay for my car loan but
    Considering its only at 0.99% i can keep it going and invest this money somewhere else (To be determined) where I can easily make more than 0.99%
  4. Don't do anything with this money but invest it mutual funds for long term using a passive investment strategy
Going Old school and with the most comforting option, i have decided to go with #2 (getting rid of the debt), I will pay down a lump sum of 15% of my mortgage (what is the allowed limit w/o penalty) and look for options to park the balance in a short term investment vehicle that gives me a return beating the inflation and is a safe investment. Once this year flips, i will withdraw moeny from this investment and pay another 15% towards my mortgage. The options I have explored for this are:
  1. Savings account- Big 5 dont give anything in Savings, I might have to go with a smaller credit union or an online only bank such as Alterna Savings
  2. Short term GIC that can give me a return north of 2% but couldn't explore the financial institutions offering a decent short term GIC
  3. Invest in short term Canadian Bonds as mutual funds or ETF but not sure whether this is a good fixed income option or there is a chance that I may loose my hard earned money
    Moreover, even if I go with any of these options, the income from these 3 may contribute towards my family earnings and throw us to a higher tax bracket or it's not going to be significant
  4. Park all this money as a GIC in a TFSA account (we have full contribution room in our TFSA baskets) since 2013 and withdraw it next year without paying any taxes on the potential earnings.
    I am not sure about the liabilities or penalties going through this route because once we take out money from TFSA, with our earnings and other expenses, we may not able to re-contribute the withdrawn money anytime soon
There is so much going on in my head on what could be the best option for me to utilize this money that I am tired and don't want to make a bad decision. Could someone provide me some advise here?
I know internet that is not the most appropriate place for asking out for a help like this, but for some unknown reasons and past bad experiences I am reluctant to go a financial advisor for this advise. Any help will be appreciated
6 replies
Deal Addict
User avatar
Mar 9, 2012
4102 posts
2980 upvotes
Kitchener
As for buying a second unit to rent out, keep in mind that you can write off mortgage interests, property taxes, and any related expenses. So income may not be as high as you think.

Personally, if I had $200,000 laying around, and earning as much as you are, why not put money into an RRSP? How much room do you have for RRSP's?
Just guessing, but I'd think for every $50,000 you put into your RRSP, you'd get back $20,000+ as your tax burden must be fairly high, which is a good return.
Also put as much money as you can into a TFSA, obviously and take from there to put into the RRSP.

Might be helpful to know where you migrated from too. And what your plans in Canada are. I know you said your horizon is for 9-12 months, is there a reason for that?

More info needed.
Why can't we all just get along?
Newbie
Mar 15, 2018
3 posts
Thanks for your reply. Here are my answers
buying a second unit to rent out, keep in mind that you can write off mortgage interests, property taxes, and any related expenses. So income may not be as high as you think.
Why can't I do this for my first home (where I am currently living)? Even though I could do all this, I will be further indebted this way and my risk appetite for investment in a single sector is not that great.
why not put money into an RRSP? How much room do you have for RRSP's?
I immigrated to Canada from India in 2013 and I have exhausted my room in RRSP
Also put as much money as you can into a TFSA
This was one of my questions in my original post
Park all this money as a GIC in a TFSA account (we have full contribution room in our TFSA baskets) since 2013 and withdraw it next year without paying any taxes on the potential earnings.
I am not sure about the liabilities or penalties going through this route because once we take out money from TFSA, with our earnings and other expenses, we may not able to re-contribute the withdrawn money anytime soon
And what your plans in Canada are. I know you said your horizon is for 9-12 months, is there a reason for that?
I call Canada my home now and the reason for a short horizon is that in 2019 I will get another opportunity to pay off lump sum payment of 15% towards my mortgage. So that way I will pay close to 85K this year and 85K in 2019. By the time i am ready for my mortgage renewal, my debt will be low and even with a higher Rate of Interest, i am not be much impacted.
Deal Addict
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Mar 9, 2012
4102 posts
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Kitchener
In Canada you cannot write off your principle residence.* (* - if you are self-employed, you can write off part of your interest and expenses, the portion of the house dedicated to your work).

Unsure what else to add. Personally, if interest rates are staying low, you might get more bang for your buck by investing is lower risk opportunities. Obviously nothing is guaranteed in life. If mortgage rates go through the roof though (not likely), then pay it down.
Why can't we all just get along?
Deal Guru
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Apr 4, 2001
11802 posts
620 upvotes
Paying down the mortgage seems to make sense, if you're not sure what you want to do otherwise.

Since rates are on the way up, doing that has a guaranteed return of after-tax income vs. something like a GIC that locks you in and then throws off a small amount of interest to then be taxed at your marginal rate. However, doing the latter would be better than letting it sit as cash for years due to paralysis.

Personally, I think it's a bad time to invest in markets if you have a short time frame for returns. Nothing is behaving "as it should" and I think it has a lot of people concerned and uncertain. You can tell that by the amount of conflicting information out there on the health of the stock/bond markets and the state of the economy - i.e. jobs go way up but retail sales don't? Stock market corrects but bonds and gold don't move much? Not to mention crypto, which hardly anyone knows how to value.
Deal Guru
Aug 5, 2006
10745 posts
7903 upvotes
Global Village
To me #4 is the way to go, calculate your max TFSA contribution limit (it's most likely $32K, see below wiki link) and lock it into a 1-year TFSA GIC, Oaken currently has the best rate at 2.75% as per the link below. With TFSA's after the GIC expires you can withdraw the funds without any penalty, you just have to wait until January of the following year before you can contribute those funds back to a TFSA. So if you lock a 1 year TFSA GIC April 1st and and you remove the funds April 2nd 2019 you have to wait until January 1st 2020 before you can put the funds back into a TFSA.

For the rest I'd go maybe $100K in a regular GIC and the rest in high interest savings accounts like Tangerine, EQ so it's available in case of emergencies.

https://en.wikipedia.org/wiki/Tax-Free_Savings_Account

http://www.globeinvestor.com/servlet/Pa ... ndicator=R
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Tangerine, Meridian, EQ Bank, Simplii, CIBC Investor's Edge
Newbie
Mar 15, 2018
3 posts
thanks, i am going to lock it in TFSA but as regular High savings at tangerine

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