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Maximizing Return on Short Term Investments

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[OP]
Deal Addict
Jul 11, 2008
1949 posts
1476 upvotes

Maximizing Return on Short Term Investments

I have around $120k currently invested in select very conservative mutual funds through RBC. The break down for the investments is...

TFSA - maxed (including the additional $4,500 that the Conservative government has proposed to have the TFSA limit increased by)
RRSP - I've invested just over $25,000 - but I've been contributing to this for the last about ~3 years (current value is around 28k). The rationale behind me not maximizing my RRSP contribution is because my wife and I are planning on buying our first home by the end of this year and as a first time home buyer (I qualify for the HBP whereas my wife will not qualify this year), I did not want to tie up more money in my RRSP than I absolutely needed to (over the last 3 or so years, I've been contributing 7-10k into RRSP each year to lower my income bracket and get a tax return).
Non-registered investments - Currently invested around $50,500

As I mentioned above, my wife and I are planning on purchasing our first home later this year so my risk tolerance is next to nothing for obvious reasons. Both of us do not have any debt, we pay our credit card balances in full and the only other savings I personally have is around $10 k (5k each in both TD and BMO chequing accounts to take advantage of their respective all inclusive/premium plans). My wife has another $50-60 k in her savings as well but we are relatively newly married and have not combined bank accounts yet - we plan to do so soon (her savings are primarily in TFSA - same very conservative portfolio).

Our plan at the moment is to make the 20% downpayment for the home we are planning on purchasing later this year (I'm estimating that on top of the down payment, the addition of closing costs/property taxes/furniture and other costs), that we should be able to do so comfortably with around $150k. The car I'm driving at the moment is also quite old and may need to be replaced within the next few years (I try to maintain it but you never know)...

I was recommended by a financial planner at RBC (who was recommended to me by family) to invest in the very conservative mutual funds portfolio several years ago (he continues to recommend investing in the same portfolio despite knowing that I will most likely be using most of the funds in these investments for our downpayment etc). I have to admit that I didn't research the risks/benefits of mutual funds as much as I should have and over the last few months, I've noticed that my mutual funds investments haven't been doing so well - basically I haven't seen any real growth since around Feb 2015 (haven't lost much value either however). I'm not expecting huge returns (categorize myself as being risk averse in general) but is it realistic to expect 3-5% return on investments without taking huge risks or locking the money into for long periods of time? The FP at RBC told me I should expect around ~5% return on my investments and convinced me that this particular investment portfolio is very low risk (even went as far as to say that when the stock market crashed several years ago - the investments in the very conservative portfolio didn't lose much of its value and showed me some kind of graph to back that up). I know that FP's that work for financial institutions generally tend to sell products that will earn them their commission but I'm unsure with my situation (and short term savings at my current life stage), that shelling out for an independent financial planner is worth it either. I've heard about several recent promotional interest rates (3% etc) for savings account at other banks (as well as high interest GIC accounts for TFSA/RRSP's) which has got me considering possibly switching to some of these no risk/better return products but I was hoping to get some feedback before I make a decision. I should also add that prior to 2015, I was seeing approximately 3-5% return on my RBC investments in this portfolio but the returns just haven't been there so far this year (I'm also aware that for mutual funds, the general rule of thumb is that they are meant for investments that won't need to be cashed out for at least 5 years which is not my situation - I will be the first to admit that I did not know enough about mutual funds before I invested and theres no excuses for that).
15 replies
Deal Fanatic
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Jul 19, 2003
8133 posts
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"risk tolerance is next to nothing for obvious reasons"


"Our plan at the moment is to make the 20% downpayment for the home we are planning on purchasing later this year "


"he continues to recommend investing in the same portfolio despite knowing that I will most likely be using most of the funds in these investments for our downpayment"


Then fire your planners immediately, fast as you can, after you pull everything out.

I think everyone will agree on this.
hi!
Deal Fanatic
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Jul 19, 2003
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And kudos on you doing some research and asking about it. He almost cost you the down payment.
hi!
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Oct 9, 2005
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With less than 6 months before you need a large sum of money for a defined, significant life event (and presumably with little wiggle room in amounts/timing), capital preservation is your #1 priority. That means risk-free mediums should be the only products to consider. So anything with market risk is a no-no.

Tactically, that leaves you with HISAs and short-term GICs (3 or 6 months). Tangerine is offering new clients 2.1% in HISA (registered and non-registered) for 6 months. GIC rates across Canada for 3/6 months are mostly <0.8%.
Intricated
Newbie
May 27, 2015
19 posts
4 upvotes
As a financial advisor, I'd say keep your money in low-risk funds (money-market + bonds) that are easy to liquidate, avoid GICs and A Series that lock your money in as well as too much Equity that could pose a risk.

RBC advisors are lackadaisical at best and disastrous at worst.
Sr. Member
Nov 13, 2007
878 posts
124 upvotes
Toronto
I don't understand your logic. You don't want to take any risk but you're complaining that you're not getting good return. You cannot have both. Pick one.

If you want guarantee 1% return, then go GIC. Almost zero risk. Even with GIC, if the bank goes under, you may still lose it (but that risk is very low). If you want anything higher than that, then you'll need to take some risk. In this case, the possibility of having slightly lower than expected return. I looked at "Very Conservative" portfolio, it's mostly bonds. With Canadian interest going down (twice), it's amazing that the return is not negative yet. And I think that RBC advisor gave you the right advice, to go "very conservative". If you want to be more conservative, ditch the advisor and get GIC.
Deal Addict
Mar 8, 2013
2812 posts
1487 upvotes
1. Some mutual funds charge a fee if you redeem soon after a purchase, so you should ask your advisor about this.
2. in your non-registered holdings, you probably will have taxable capital gains when you sell. Unless you have offsetting capital losses in the same or previous years, that will be an extra cost next April.

I think you should tell your advisor that you will not be putting any new money into equity mutual funds, regardless how conservative they may be advertised to be, and ask the advisor for a withdrawal plan so you can fund your downpayment. You certainly don't want to be selling them all in one day. Your advisor should be motivated to help you if he wants future sales.
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Jul 19, 2003
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superping wrote: I don't understand your logic. You don't want to take any risk but you're complaining that you're not getting good return. You cannot have both. Pick one.

If you want guarantee 1% return, then go GIC. Almost zero risk. Even with GIC, if the bank goes under, you may still lose it (but that risk is very low). If you want anything higher than that, then you'll need to take some risk. In this case, the possibility of having slightly lower than expected return. I looked at "Very Conservative" portfolio, it's mostly bonds. With Canadian interest going down (twice), it's amazing that the return is not negative yet. And I think that RBC advisor gave you the right advice, to go "very conservative". If you want to be more conservative, ditch the advisor and get GIC.
If its this one, its already negative last 3 months and who knows where it will go:
https://www.google.ca/finance?cid=426520962058320

"RBC Select Very Conservative Portfolio"

The "financial planner" is gambling away his down payment.
adilh53 wrote: convinced me that this particular investment portfolio is very low risk (even went as far as to say that when the stock market crashed several years ago - the investments in the very conservative portfolio didn't lose much of its value and showed me some kind of graph to back that up).
Here's why, if you're in the fund that I found above, it starts conveniently right at the end of the last market crash. So I have no data to tell you how it will do during a crash.

How.. convenient!

So, this planner is garbage and has been caught (if this is the fund)

Inception Date
03/09/2009
hi!
Sr. Member
Nov 13, 2007
878 posts
124 upvotes
Toronto
masterhapposai wrote: If its this one, its already negative last 3 months and who knows where it will go:
https://www.google.ca/finance?cid=426520962058320

"RBC Select Very Conservative Portfolio"

The "financial planner" is gambling away his down payment.
If you haven't notice, Op was already holding that fund. He already accepted the risk and enjoyed 5% return, many years earlier. Last year, nobody would have guess that interest rate will go down. Interest already went down. Lost already happened. What's wrong with recommendations to hold? The fund have decent mix. The MER is just a little too high. But OP should already knew this when he bought it, years ago.

On the other hand, if they adviced him to buy actively manage fund with 3%MER or something with say 50% equity mix, then he should fire that advisor.

In a down market, any advisor will advice you to hold, if not convincing you to put in more money. Crappy advisor sale you actively managed sector/risky fund. Then, when the market go down, recommend you to sale and move your money to another risky fund.
Deal Fanatic
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Jul 19, 2003
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superping wrote: If you haven't notice, Op was already holding that fund. He already accepted the risk and enjoyed 5% return, many years earlier. Last year, nobody would have guess that interest rate will go down. Interest already went down. Lost already happened. What's wrong with recommendations to hold? The fund have decent mix. The MER is just a little too high. But OP should already knew this when he bought it, years ago.

On the other hand, if they adviced him to buy actively manage fund with 3%MER or something with say 50% equity mix, then he should fire that advisor.

In a down market, any advisor will advice you to hold, if not convincing you to put in more money. Crappy advisor sale you actively managed sector/risky fund. Then, when the market go down, recommend you to sale and move your money to another risky fund.
Looks like you didn't notice yourself, the part where the OP said he's using the $ in that fund to put a down payment on the house this year.
"Our plan at the moment is to make the 20% downpayment for the home we are planning on purchasing later this year "


"he continues to recommend investing in the same portfolio despite knowing that I will most likely be using most of the funds in these investments for our downpayment"
He has 120k in there. He needs "most of it" to put the down payment. He believes the total costs will be 150k and he needs most of what is in the mutual fund. Granted, its mostly bonds. But, it can still go down a few thousand or more.

And the timeframe is a few months.

Do you still advise to hold?
hi!
Sr. Member
Nov 13, 2007
878 posts
124 upvotes
Toronto
masterhapposai wrote: Looks like you didn't notice yourself, the part where the OP said he's using the $ in that fund to put a down payment on the house this year.



He has 120k in there. He needs "most of it" to put the down payment. He believes the total costs will be 150k and he needs most of what is in the mutual fund. Granted, its mostly bonds. But, it can still go down a few thousand or more.

And the timeframe is a few months.

Do you still advise to hold?
This year, not this month. He is "going to " buy a house, not he already bought a house and it's closing next month. Lol.

My personal recommendation, hold. At least for another month until the dust Settle. Again, at you own risk. It might recover or might take another drop. Lots of panic out there. China melt down. European uncertainty. Dropping oil price. Low commodity demand. Dropping CDN.

If you went for 5% return, then you should already accepted the risk of getting no return in some bad year. Similarly, if you gamble with penny stocks, there is a possibility of winning big. But the risk of losing it all is also high. High return comes with high risk. Low risk, low return. There is no free ride.
Member
Feb 16, 2013
467 posts
64 upvotes
adilh53 wrote: I have around $120k currently invested in select very conservative mutual funds through RBC. The break down for the investments is...

TFSA - maxed (including the additional $4,500 that the Conservative government has proposed to have the TFSA limit increased by)
RRSP - I've invested just over $25,000 - but I've been contributing to this for the last about ~3 years (current value is around 28k). The rationale behind me not maximizing my RRSP contribution is because my wife and I are planning on buying our first home by the end of this year and as a first time home buyer (I qualify for the HBP whereas my wife will not qualify this year), I did not want to tie up more money in my RRSP than I absolutely needed to (over the last 3 or so years, I've been contributing 7-10k into RRSP each year to lower my income bracket and get a tax return).
Non-registered investments - Currently invested around $50,500

As I mentioned above, my wife and I are planning on purchasing our first home later this year so my risk tolerance is next to nothing for obvious reasons. Both of us do not have any debt, we pay our credit card balances in full and the only other savings I personally have is around $10 k (5k each in both TD and BMO chequing accounts to take advantage of their respective all inclusive/premium plans). My wife has another $50-60 k in her savings as well but we are relatively newly married and have not combined bank accounts yet - we plan to do so soon (her savings are primarily in TFSA - same very conservative portfolio).

Our plan at the moment is to make the 20% downpayment for the home we are planning on purchasing later this year (I'm estimating that on top of the down payment, the addition of closing costs/property taxes/furniture and other costs), that we should be able to do so comfortably with around $150k. The car I'm driving at the moment is also quite old and may need to be replaced within the next few years (I try to maintain it but you never know)...

I was recommended by a financial planner at RBC (who was recommended to me by family) to invest in the very conservative mutual funds portfolio several years ago (he continues to recommend investing in the same portfolio despite knowing that I will most likely be using most of the funds in these investments for our downpayment etc). I have to admit that I didn't research the risks/benefits of mutual funds as much as I should have and over the last few months, I've noticed that my mutual funds investments haven't been doing so well - basically I haven't seen any real growth since around Feb 2015 (haven't lost much value either however). I'm not expecting huge returns (categorize myself as being risk averse in general) but is it realistic to expect 3-5% return on investments without taking huge risks or locking the money into for long periods of time? The FP at RBC told me I should expect around ~5% return on my investments and convinced me that this particular investment portfolio is very low risk (even went as far as to say that when the stock market crashed several years ago - the investments in the very conservative portfolio didn't lose much of its value and showed me some kind of graph to back that up). I know that FP's that work for financial institutions generally tend to sell products that will earn them their commission but I'm unsure with my situation (and short term savings at my current life stage), that shelling out for an independent financial planner is worth it either. I've heard about several recent promotional interest rates (3% etc) for savings account at other banks (as well as high interest GIC accounts for TFSA/RRSP's) which has got me considering possibly switching to some of these no risk/better return products but I was hoping to get some feedback before I make a decision. I should also add that prior to 2015, I was seeing approximately 3-5% return on my RBC investments in this portfolio but the returns just haven't been there so far this year (I'm also aware that for mutual funds, the general rule of thumb is that they are meant for investments that won't need to be cashed out for at least 5 years which is not my situation - I will be the first to admit that I did not know enough about mutual funds before I invested and theres no excuses for that).
Its RBc's policy to sell these scrap SELECT series first but if you insist that your risk tolerance is high (you just have to change your answer to series of questions), no one can stop you from buying other funds...you can change mutual funds online with RBC, you don't have to meet that financial planner.....

But you don't have lots of option here if you are buying house in next 6 months.......If your risk tolerance is high you can invest in different etf's but again you have very short time frame....so its upto you..you can either stay put or sell...I don't see big difference from here onward till December....
Deal Addict
Mar 8, 2013
2812 posts
1487 upvotes
superping wrote: This year, not this month. He is "going to " buy a house, not he already bought a house and it's closing next month. Lol.

My personal recommendation, hold. At least for another month until the dust Settle. Again, at you own risk. It might recover or might take another drop. Lots of panic out there. China melt down. European uncertainty. Dropping oil price. Low commodity demand. Dropping CDN ...
Panic is usually good for bonds, and apparently that's what the portfolio holds mostly. But there are risk in bonds also, so I will stick with my advice above - no new mutual fund purchases and ask advisor for withdrawal plan.
[OP]
Deal Addict
Jul 11, 2008
1949 posts
1476 upvotes
Thanks for the feedback guys. Think I'll look into withdrawing the funds from RBC and look at GIC's instead. I just can't justify the extra 2-3% in potential returns over the next few months for the risks (and without being especially knowledgeable about the product).
[OP]
Deal Addict
Jul 11, 2008
1949 posts
1476 upvotes
Intricated wrote: Tactically, that leaves you with HISAs and short-term GICs (3 or 6 months). Tangerine is offering new clients 2.1% in HISA (registered and non-registered) for 6 months. GIC rates across Canada for 3/6 months are mostly <0.8%.
I checked the Tangerine website but couldn't find any information on the 2.1% interest rate on registered and non-registered accounts for new clients. Can you please post the link where I can get more details? I know Tangerine is still offering the 2.5 (and many have called in and gotten 3%) interest on new deposits but I believe this applies to savings accounts only and not to TFSA/RRSP

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