# Investment Advice Needed



## Nasha (Nov 14, 2013)

Hello,

I recently came across this forum, and have been quite impressed by the investment knowledge of the members here. I was hoping if you guys can guide me. 

I am in my mid 20's, earning approx. $65k annually with decent potential of growth. I dont have much savings, and recently bought a car with the savings I had. So essentially I am starting from scratch...

I bank with RBC and recently opened an RRSP and a TFSA account... and will be putting in the bare minimum of $25 bi-weekly into the Canadian Dividend MF in both RRSP and TFSA account so approx $100/month. I am putting in another $250/month into an OMERS AVC account. I still have room of approx. another $200/month to invest and I am not sure where to invest that money. I prefer something which RBC offers.

I am looking at long-term time frame, and dont necessarily mind investing in relatively risky investments/securities. 

Any advice would be appreciated. 

Thanks.


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## james4beach (Nov 15, 2012)

Others will have different opinions, but I think it's a good idea for everyone to have a bit of an emergency fund (something in cash, like a high interest savings account). For an emergency you can't dip into a stock based account such as the mutual fund you're talking about.

So before venturing into stocks/mutual funds, I would strongly recommend that you build up at least some kind of emergency fund in cash. At least a few months worth of living expenses.

After the cash emergency fund is established, then it's sensible to start taking on more risks. If you're telling me you insist on riskier securities and you want to stick with RBC, then you're probably best off with the "RBC Canadian Index Fund" at 0.72% MER. It's not the cheapest index fund around, but it's not too bad from RBC. A basic balanced portfolio would be
50% RBC Canadian Short-Term Income Fund or RBC Bond Fund
50% RBC Canadian Index Fund

But personally I would strongly recommend substituting GICs for the first one because 1.22% MER is really too much to pay for the fixed income side. RBC investments offers some pretty good rates on GICs, last I checked, around 2.6% on the 5 year GIC


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## JamJam23 (Nov 8, 2013)

http://canadiancouchpotato.com/recommended-index-funds/

Look under "RBC Asset Management" it lists a few index funds offered by RBC. They have a decent MER.


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## OnlyMyOpinion (Sep 1, 2013)

Our first point would be to say we are impressed you are taking a pro-active approach in mid-20's to learn and plan your financial future - you are already a success!

Every post will have different ideas, that is the value we find here, you can sift through and find things you hadn't considered and then decide what makes sense for you. 

We agree with the idea of building up an emergency fund. As plans change you may end up utilizing it for a home down-payment, or a vacation, etc., but the point is that it is not part of your long term retirement or long term savings, preserves capital from short term loss or dips, and is more liquid.
You may want to consider using your TSFA or a % of it for your emergency fund since interest income in it does not incur tax that you would otherwise incur with GIC, strip bond, or high interest saving acc interest, etc.

It is also a good idea to get into the habit of understanding where your money goes each month, and setting targets for saving, food, housing, etc. They will change as the priorities of your life change, no worries. It would appear that you are setting aside about 15% of your annual take home (assuming $45.5k/yr take home and $6.6k/yr of savings noted in your post). This is a good target as that is not counting the payroll amount that must be coming off for your OMERS pension (not the AVC amount).

We assume the voluntary contributions you make to your OMERS DB pension are an additional contribution amount that you could choose to direct to your own RRSP if you wanted to? (we're personally not sure of this). In the future you may want to look at the balance between these and whether you want to 'beef up' your RRSP contributions at the expense of your AVC contributions. You'll consider the difference between a pension (effectively an annuity) vs an RRSP/RRIF at retirement, the impact on a surviving spouse, plans for leaving an estate, etc. But hey, this is years into the future and the point right now is that you are saving.

Cheers!


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## Nasha (Nov 14, 2013)

Thank you for the replies. 

James - I agree with what you are saying. After feeding the hungry wolf at the door (rent/utility bills/car insurance/AVC and MF bi-weekly deductions) and putting aside money for food, I should be left with $1200 as per my conservative estimate. The idea is to put $200 out of $1200 into investments such as MF's, and use the remaining to build up the emergency fund.

I consider the OMERS AVC as a relatively balanced fund with low risk. Hence I was planning on investing the other amount in slightly more risky investments with better potential of growth/capital gains. I looked at the Canadian Index Fund you suggested, and it has a lot of duplication with the Canadian Dividend Fund in which I am already investing. Would you recommend any other fund? 

JamJam - Thank you for the link. I am inclining towards the US Index fund. 

OnlyMyOpinion - Thank you for the advice and encouraging words, appreciate it. You are right, the investments amount to approx. 15%-16% of the net cash inflow. And yes, the contributions into the AVC are on top of what I am already paying into OMERS DB Pension Plan (deducted at source). I personally would like to put in the maximum into the AVC (which for me is $250), but maybe down the line I may be able to put in more in the RRSP. AVC is also a bit similar to an RRSP in terms of tax credits, and I can move the into an RRSP later on too. 

As I understand, MF's are fairly liquid. Is that not true? And in my particular case, would you recommend me to go with GIC's? The interest rate on redeemable GIC's is a bit low, no? 

RBC has two other funds which are a bit intriguing... the Global Resources fund and the North American Value fund. Any thoughts on that? 

Thank you.


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## the-royal-mail (Dec 11, 2009)

Welcome to the forum.

It is good to hear you will be keeping an emergency fund, separate from investing funds. GICs and HISA are good to store those.

I understand why you want to stay with RBC, but not on why you are insisting on going with MFs. You realize those are set up to make money for them, not you right? I've been in RBC MFs for 12 years and have made about 1% with them over that time. I've hunted around and analyzed the fund performance, tried index funds etc but it has all been a huge waste of time. Inflation and fees (even with index funds) have eaten away at most of my returns. They are SOMEWHAT liquid but read the fine print carefully. They insist that you fill in an "investor profile" and will refuse any web based trade that doesn't align. You'll have to call to make the trade and if they suspect you of things like "market timing" and "frequent trading" they'll charge a fee for that too. I feel MFs are a waste of time and money.

I know it will be more work but I think you would be better served to open up a brokerage and buy your own stocks. You can even buy ETFs if you like, there is way more selection and you have control over what you do. I am in the process now of setting this up and started with a free brokerage practice account through online banking. The fees are $9.99 per trade if you have more than $50K in assets with them. I did this a few weeks ago and have done some practice trades, made some mistakes and had the assistance of a friend to set up. You could probably learn many of those same things by posting here if you were to go along with something like that.

Again, this won't be the easier solution but I feel it could be a better one for you in the long run.


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## Rusty O'Toole (Feb 1, 2012)

Why can't you dip into your stock fund in an emergency? What kind of emergency are we talking about?

I have never kept any kind of emergency fund as such. I have credit cards I can use for quick cash. Stock market investments, GICs, etc can be liquidated in 3 days or less if necessary.

I also have insurance. I have never had an emergency that I couldn't cover with the cash I had in the bank ( a few thousand dollars at most), or credit cards, or a line of credit withdrawal.

There is no need to keep large sums of money idle.


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## eulogy (Oct 29, 2011)

What's with the dividend MF? Why don't you just pick up Canadian equities fund as it pays a decent dividend anyway (if that's your thing)? My advice, keep saving and come up with a desired portfolio Can, US, International equities and fixed income that you're happy with... and then follow the plan. It's not really that complicated, it's just how well you follow your plan.


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## OnlyMyOpinion (Sep 1, 2013)

Nasha said:


> As I understand, MF's are fairly liquid. Is that not true? And in my particular case, would you recommend me to go with GIC's? The interest rate on redeemable GIC's is a bit low, no?
> RBC has two other funds which are a bit intriguing... the Global Resources fund and the North American Value fund. Any thoughts on that?


You are correct, MF's are liquid but rise and drop in value, so not appropriate if you need the cash and don't want to be forced to sell at a low value or loss. Comments on GIC's and strips in TSFA were only meant to remind that interest-bearing investments are best kept in a sheltered account. 
Yes GIC rates are low and may not fit your needs. But they could be suitable if a person requires no risk of capital loss because they will need the money shortly (upon maturity) or have a low tolerance for risk, or form part of their overall portfolio balance. 

Not going to 'recommend' what anyone should be investing in however since each person's circumstances are different, only offer comments and discussion - it looks like you're getting lots of those 

We think a person should have some 'cash' set aside, but again everyone is different. We would not want to use our credit card for emergency funds because then we'd face the issue of paying it off right away. We just let our no-fee chequing account grow to provide our emergency cash of ~2 mos expenses. Need to be disciplined though that you don't spend unnecessarily just because you've money in your account.

Like an earlier post, we also had some funds with RBC but later moved to on-line self-directed accounts. Too much value was going to MER's and too much hassle to change investments. For example the Global Resources fund you mention has a 2.3% Mer, add 2% for inflation and the fund needs to deliver 8.3% to give you 4%. The MER is just too large a % when there are ETF's out there as an alternative. 

There are lots of 'coach potato' etf portfolio fans, 'own the stock' and drip fans, and some that go for mainly capital gains. There is the balance of 'growing assets' and 'preserving capital'. With time, we suspect you'll want to investigate them all.


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## Sampson (Apr 3, 2009)

What are you saving for? seems like abackward question, butt his is the most important to define before invest any money. why? It moght turn out that you need money within 5 years and should shelter that from equity risk. if the time horizon is longer, say retirement, then those monie should be invested in products that give the highest returns over the long term. Lastly, understand that a poartfolio need balance, whether invested for retirement or not, even young people should have some allocations to bonds, cash, and other low correlative asset classes. wPortfolios can be rebalanced to maximize returns.


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## GoldStone (Mar 6, 2011)

RBC Canadian Dividend is a good fund. It beat S&P/TSX Total Return over 5, 15 and 20 year periods. 15 and 20 year beats are impressive.

The fund lost by a hair over 10 years, but an ETF would have done the same after MER.

http://www.theglobeandmail.com/globe-investor/funds-and-etfs/funds/summary/?id=18182

On the other hand, the MER is 1.78%. That's expensive. Using the rule of 72:

72 / 1.78 = 40

In 40 years, RBC will take half of your money. As an RBC shareholder, I'm happy to see that. Are you?

Take your time to figure out what to do. The important thing is to save. It doesn't really matter what you invest in until you have at least 50K.


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## Nasha (Nov 14, 2013)

Thank you everyone for the replies - really appreciate it. 

To be honest, I am a bit overwhelmed by all the different options available out there. 

Not too long ago I opened a brokerage account too, which is not with RBC, and have put $1000 in it but I cant seem to decide where to invest it. Initially I was thinking of playing an option but not sure if thats such a great idea.

I wanted to start an RRSP and TFSA, and as I understand people invest the money sitting in their registered accounts in MF's/GIC's etc. (please correct me if I am wrong)... hence I went the MF route. So at the moment and as part of my recently formulated savings/investment plan, I now have the Canadian Dividend Fund in my RRSP ($25 bi-weekly), and Canadian Dividend, US Index, International Index and NA Value fund in my TFSA ($25 bi-weekly into each of them as well). Apart from this, I will also be putting in $250/month into the OMERS AVC account. OMERS essentially invests in equities, bonds and real-estate. The fund has a relatively low risk, and has also been doing well since inception.

I hope I wasnt too naive in selecting the portfolio. 

Thank you once again for your kindness in knowledge sharing - I am certainly looking forward to learning more from you guys. Any other advice is more than welcome.

P.S. Out of curiosity, OnlyMyOpinion when you say "we", do you mean the members over here or you and your significant other, or just you? Thanks!


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## My Own Advisor (Sep 24, 2012)

Good salary for mid-20's Nasha.

Since you're just starting out, keep the bare minimum of $25 bi-weekly going into the Canadian Dividend MF in both RRSP and TFSA accounts.

Next, get some books and get reading 

I suggest these:

Millionaire Teacher by Andrew Hallam,
The Behavior Gap by Carl Richards,
The Wealthy Barber Returns by David Chilton
The MoneySense Guide to the Perfect Portfolio by Dan Bortolotti.

Here are some others that I've enjoyed:
http://www.myownadvisor.ca/books/

After you've read those, for that $75 investment, you'll likely understand how to invest and what to invest in that could save you thousands upon thousands of dollars. Don't worry too much about what you have invested in now, but over the next year or so you can really be confident in your investment plan or change it and right the ship.

In the meantime, other than your savings above, build up a small emergency fund or rainy day fund for up to $5,000 and of course, have some fun. You're in your 20s, live it and enjoy it


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## Nasha (Nov 14, 2013)

Thank you, and that is a very useful website. I read about the top-ranked credit cards on the website, and converted my Visa gold card into the Esso visa card since I recently got a car and having the Esso credit card makes more sense because of the associated benefits. I only got the gold card because of rental insurance, which I no longer require.

I have noted down the books - thank you for the suggestion. I was definitely enjoying life, but then studying for few designations got in the way. No complaints though... God has been very kind to me.


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