Last edited by CJOttawa; 2012-05-30 at 06:08 PM.
Based on the limited info plus your age, I'm guessing that you aren't in a high tax bracket, which makes the TFSA a priority.
Originally Posted by seanx
Note that if you think your income will be higher, resulting in a higher tax bracket later - saving the RRSP tax deduction for when more taxes will be refunded may make sense. A search of CMF will find other threads that discuss RRSP versus TFSA advantages.
For the "tax free mutual funds" - I'm not sure if the advisor made it clear but it is the registered account that holds the investment, not the investment that makes for tax free (i.e. a TFSA) or tax deferred (i.e. RRSP) status. The investment itself can only influence the type of tax applied such as capital gains (CG) or dividends for example.
For more details of the way investment taxes work in a taxable account, check out the sticky named "How Investment Taxes Work" in the Taxation section of CMF or other sources.
As for the do CIBC MFs make sense - bear in mind that the recommendation is likely limited to CIBC products, as well as what will pay the advisor/bank the most. Without details such as the MF's management expense ration (MER) that is charged each year or what the MF is or what it invests in or what effort you are willing to make, it is difficult to figure this out.
At this point your options are:
a) leave the money where it is while learning/researching. This means taxes will continue to be paid but means the final choice will be understood and reduces the risk of regretting buying the CIBC MFs.
b) stop paying tax now without committing to the CIBC MF. Use a savings account type TFSA to avoid taxes plus make a small amount. When you have researched/learned enough to be sure of what was recommended, request a transfer to whatever TFSA account/investment is decided on. Note that multiple TFSAs are allowed, the critical part is the individual's contribution limit, not which TFSA the money went to.
c) ask what the restrictions are if you decide on another investment. For example, is there a 60 holding period to avoid a penalty for changing investments? If you are okay with the restrictions and want to be invested, then do what the advisor has recommended, learn what you can and decide if it still makes sense based on a more complete understanding. The risk is you might decide you overpaid but depending on how fast the learning happens, this may not be a long time.
The big thing is don't let the financial institutions intimidate you with "the market is complicated". Investing is no different than saying deciding to buy a car. The range of cars available plus the buying process seems overwhelming but if you learn what you can at your pace - before long, it won't seem so difficult.
Originally Posted by seanx
Rule #1: the bank advisor is merely a MF salesman. Their goal is to get you to invest as much of your cash as possible into their high-MER MFs! The sooner you do that, the sooner they get to start collecting fees from that money!
By leaving the balance in cash (TFSA cash balances pay 1-2% depending) you are saving yourself these fees which IMO only add value to the bank's bottom line, not yours.
Personally I think you should spend more time here and less time with the "advisor" - they're there for their own bottom line, not yours.
To echo a few points that have already been made.:
- Maximizing TFSA vs. RRSP depends partly on if you expect your income to increase, and on whether or you will not this money before retirement.
- Decide how much risk you are willing to take.
- Be sure you understand about MERs and know the MERs of what you are buying if you are getting MFs.
- If you are buying MFs, for your current situation I'd take a long look at TDs e-series funds which offer low MERs comparable to ETFS. (I say that despite the fact that i am currently losing money on my Canadian Index Fund )
They don't get much love around here since they don't necessarily do better than inflation, but just putting money in a high interest TFSA savings account until you decide what you want to do is not a bad short term strategy.