Investment Options (TFSA and what else should I do?)

[seanx]

Hi everyone,

First off, I'm a newbie. I'm 26 year old, only started to save money 1 year ago. Currently I have approx. $15000 in my account, I have 3 bank account with CIBC.
- TFSA: I have about $8,000 in this account. The interest rate is approx. 1.15%. I'm continusly contributing $700/month to this account.
- E-advantage saving account: I have about $7,500 in this account. The interest rate is 1.5% when the balance is $5,000 or more. Each month after I pay off credit card/rent/utilities, I transfer whatever I have left to this account. It can vary from $50 to $200.
- Then I have everything else in my regular chequing account.

I'm currently in an okay financial situation: I have no debt, I'm not planning to buy a house/car within the next 3-5 years. Basically these money are sitting there with no use. I'm considering using these money to invest/make more money.

I talked to my financial advisor in CIBC and she suggested me to buy mutual funds with them, she asked me a bunch of questions and suggested a income portfolio with 5%saving + 75%income + 20%growth. Do you guys think it's a good investment?

I have a little bit of finance background in school but I've never actually practiced. I wanted to learn to buy stock on my own but I don't think I have the ability to do that just yet.

Can you guys give me some suggestions please? Greatly appreciated!

[arc]

I avoid mutual funds at all costs, most under-perform the market. Look into ETF and get a few investing basics books on amazon or your library.

[Spudd]

Normally at your age, you'd look for growth rather than income. One key thing to look at is the MER's on the mutual funds (management fees). If they are > 1%, you'll be paying too much.

You should put everything you have saved into your TFSA since you are being taxed on the interest you make in the e-advantage account. In the TFSA, it grows tax-free. But there are better banks than CIBC for the TFSA - e.g. PC Financial pays 2% on their TFSA accounts.

Depending on your goals, you may or may not want to move some of the money from a plain TFSA savings account into mutual funds or ETF's.

[the-royal-mail]

I don't think you should be aiming to invest when you don't appear to have an emergency savings plan?

[humble_pie]

hello sean & congratulations to you, you seem to be in excellent financial shape.

sometimes it's a good idea for a new investor to stay with a mutual fund advisor at first, although i agree with others in this thread that the choices she has prepared for you are too conservative for most young investors.

some might urge you to abandon your cibc accounts & go directly to etfs, which are exchange-traded funds.

it's true that a somewhat larger portfolio with a value of 25-50k could be economically managed with etfs. However a brand-new investor just embarking on a learning/study program might be best off staying with his advisor for several months while he develops longer-term plans.

how about contributing that extra 2,500 from your advantage account to your tfsa. This will produce a tfsa balance over 10,500. If i were in your place, i would divide this amount between the high-interest savings vehicle you have already chosen and one mutual fund. Just one fund. Not a bond or income fund, because you don't seem to need income, instead you mention you are able to save $700 monthly.

for the mutual fund i'd pick a basic canadian equity fund, or a dividend fund. Whatever you do, please make sure it's a no-load fund & specifically make sure it has no rear-load commission. You want to be able to exit this fund with no penalties.

next comes the learning/study program. There's a reading list for new investors at the top of this Investing section. Libraries have most of the books. Meanwhile, do read the business sections of leading newspapers & don't forget to hang here in the forum.

wishing you a lifetime of success.

[seanx]

Normally at your age, you'd look for growth rather than income. One key thing to look at is the MER's on the mutual funds (management fees). If they are > 1%, you'll be paying too much.

You should put everything you have saved into your TFSA since you are being taxed on the interest you make in the e-advantage account. In the TFSA, it grows tax-free. But there are better banks than CIBC for the TFSA - e.g. PC Financial pays 2% on their TFSA accounts.

Depending on your goals, you may or may not want to move some of the money from a plain TFSA savings account into mutual funds or ETF's.

Thank you Spudd. I agree with you idea of 'look for growth rather than income', I brought this up to my financial adviser, she said because it's my first time trying to invest, she suggested me to start with something low. From that I can tell I probably won't be getting much from this.

My goal is to make money while I'm still single with no debt. Thanks for your advice, you mentioned ETF, I need to study more about it.

[seanx]

I don't think you should be aiming to invest when you don't appear to have an emergency savings plan?

I'm planning to leave $5000 in the e-advantage account to earn interest, also as emergency saving money, so that should leaves me $8000+$2500 = $10500.

[seanx]

hello sean & congratulations to you, you seem to be in excellent financial shape.

sometimes it's a good idea for a new investor to stay with a mutual fund advisor at first, although i agree with others in this thread that the choices she has prepared for you are too conservative for most young investors.

some might urge you to abandon your cibc accounts & go directly to etfs, which are exchange-traded funds.

it's true that a somewhat larger portfolio with a value of 25-50k could be economically managed with etfs. However a brand-new investor just embarking on a learning/study program might be best off staying with his advisor for several months while he develops longer-term plans.

how about contributing that extra 2,500 from your advantage account to your tfsa. This will produce a tfsa balance over 10,500. If i were in your place, i would divide this amount between the high-interest savings vehicle you have already chosen and one mutual fund. Just one fund. Not a bond or income fund, because you don't seem to need income, instead you mention you are able to save $700 monthly.

for the mutual fund i'd pick a basic canadian equity fund, or a dividend fund. Whatever you do, please make sure it's a no-load fund & specifically make sure it has no rear-load commission. You want to be able to exit this fund with no penalties.

next comes the learning/study program. There's a reading list for new investors at the top of this Investing section. Libraries have most of the books. Meanwhile, do read the business sections of leading newspapers & don't forget to hang here in the forum.

wishing you a lifetime of success.

Thank you very much humble_pie. I agree that the choices she prepared for me were too conservative but you are right, until I have more knowledge in investment I may stay with the advisor for several months.

I logged into my CRA and my 2012 TFSA contribution room on Jan 1, 2012 is $14,700. I only started to make contribution to TFSA in 2011. I’m not quite sure what does this amount mean to me. Would you please help me out? Thanks so much in advance. I currently have $8500 in TFSA (sorry I told the wrong amount earlier in my thread), I’m also continuously contributing $350 on 15th and 31st of every month, so from now until the end of 2012, I will be contributing $350 * 15 = $5,250. Only this will make my end-of-year TFSA amount to be $13,750. If I contributing that $2500 from e-advantage account to TFSA, that will make it $16,250 at the end of the year, would it be over my contribution room?

My advisor at the bank mentioned that I can transfer all of my current TFSA amount into a TFSA mutual fund, and then open a regular mutual fund with the rest $2500. Why does that sound wrong to me? I know the portfolio she prepared for me should be very low risk, but convert them all sounds something is wrong.

By you mean only chose one fund, do you mean not to go with the portfolio she offered but to open something like Investors’ Edge and do it myself? Thank you so much humble_pie, I do need more knowledge, this is a great forum, I’ll be here for a while.

[boipinoi604]

I disagree with people basing their invesment style on age.
It should be based on our investment horizon, risk tolerance and goals.
I think your financial advisor did a good job setting up allocation of 75/25 just to get you started.

[Young&Ambitious]

Age can be very relevant. If you're on the verge of retirement, holding a risky portfolio could wipe out a material amount of your savings with little to no time to recoup the losses.

However, the OP seems to have a long horizon given his young age. SeanX you will find there are a number of young people on here also beginning our investment journeys

Given your portfolio amount and the monthly contribution I would recommend the TD e-series low MER funds. From a cost perspective it will be cheaper than mutual funds and is likely to return a similar or better (after MER) return. I would suggest reading books (there's a recommended list on the forum called the Eight with Weight) and some sites such as Million Dollar Journey and Canadian Couch Potato.

I also second throwing the emergency fund into a TFSA account so your interest accumulates tax-free.