# What should I do now?



## Dawson (Jul 13, 2011)

This is a great board, with lots of solid advice!

If anyone has the time I would appreciate some comments on what you think I should be doing for planning/investing.

My current situation is as follows: 

Assets: 
~ 25k Manulife RRSP (evenly diversified with a slightly aggressive strategy)
~ 90k Company Stock (vesting evenly over 4yrs) current vested $20k
~ 600k Cottage Property (no mortgage)
~ $300k Loft ($240k mortgage)
~ $22k Vehicle (fully owned)

Liabilities:
~ $240k mortgage

Whats triggering my post is for my age (27) I have a very healthy annual earnings (average $140k/yr) which will top $200k this year (one off banner year). I am very stable in my job. I will also likely receive another $75k in company stock this year based on my performance(again vesting evenly every quarter over 4 years).

I'm trying to decide what my investment strategy should be and where I should be putting it. I do have a healthy acceptance for risk (I understand I am young and single and afford to take a loss).

Any thoughts from others based on their life experiences?

After reading some of the posts from this board there is a great amount of solid advice. Looking forward to any comments on where I stand!

Thanks!!


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## andrewf (Mar 1, 2010)

My advice would be to sell the company stock you own as soon as you can and reinvest it more broadly. You already take on more than enough risk with your income being dependent on its fortunes, so it is not sensible to own a great deal of its equity as well.

As far as what investment strategy you should follow, you might want to think about your total balance sheet, including your human capital. Moshe Milevsky has a book called 'Are You a Stock or a Bond?' The answer to that question helps you to think about how you should invest your financial assets. It sounds to me that your income is somewhat risky/volatile, so it may be more sensible to hold a more conservative portfolio with more bonds than someone your age might typically consider.

More info here:
http://www.qwema.ca/index.php/video-library/are-you-a-stock-or-a-bond/

Overall, though, it sounds like you're doing well enough on your own. You ought to be able to afford to max your RRSP contributions and accelerate the paydown of the mortgage on your primary residence.


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## Abha (Jun 26, 2011)

Why sell all the company stock? He indicated he is in a stable job.

Sell 2/3rd of it and keep 1/3rd if you like the company and have faith/confidence in it.


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## atrp2biz (Sep 22, 2010)

Abha said:


> Why sell all the company stock? He indicated he is in a stable job.
> 
> Sell 2/3rd of it and keep 1/3rd if you like the company and have faith/confidence in it.


Only 22% is vested. I would sell that 22% though and diversify, as suggested by andrewf.


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## MoneyGal (Apr 24, 2009)

Abha said:


> Why sell all the company stock? He indicated he is in a stable job.


Ask anyone who worked at Lehman Bros whether they should have diversified away from company stock. Or ask current RIM employees.


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## Dawson (Jul 13, 2011)

Thanks for the feedback thus far. Yes 22% roughly has vested and we're operating very close to a 52week high so it would be a good time to sell. 

My income will remain fairly consistent at/above the $140k/year mark so overall not as risky as the original post may seem. This year is a strong year for our company and that's why its well above the usual.


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## Abha (Jun 26, 2011)

MoneyGal said:


> Ask anyone who worked at Lehman Bros whether they should have diversified away from company stock. Or ask current RIM employees.


There's two sides to that argument as well. Imagine Apple employees selling their shares at $100, $200, $300 etc.

Yes you don't want all your eggs in one basket but to get rid of ALL your company stock isn't the wisest move either.


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## Square Root (Jan 30, 2010)

First of all congratulations on doing so well at such a young age. Conventional wisdom would have you sell your employers stock ASAP to diversify. Hard to argue with this. In my case though I kept options and stock and stock units as long as I could without diversifying. Worked out very well for me. My net worth is well into 8 figures. Retired 5years. I would say at your age if you think the company has good prospects and your job is secure maybe you want to ride it for a while. This would especially be true if the company encouraged share ownership through loans or other means.


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## Sherlock (Apr 18, 2010)

Yet another 20-something making 6 figures  Mind letting us know what you do?


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## andrewf (Mar 1, 2010)

He's going to have exposure to the company's equity since the shares are not immediately vested. I don't see the harm in diversifying. Having 75%+ of your investable assets invested in one company seems unduly risky.


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## andrewf (Mar 1, 2010)

Dawson said:


> My income will remain fairly consistent at/above the $140k/year mark so overall not as risky as the original post may seem. This year is a strong year for our company and that's why its well above the usual.


Would it be easy to get a job at another company that pays similarly? Is your job vulnerable to changes in economic conditions?


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## KaeJS (Sep 28, 2010)

I'll jump on the diversification bandwagon.

Sell your 20% that is vested.

No need to have 90k in one company, regardless if they are your employer.


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## MoneyGal (Apr 24, 2009)

Abha said:


> There's two sides to that argument as well. Imagine Apple employees selling their shares at $100, $200, $300 etc.
> 
> Yes you don't want all your eggs in one basket but to get rid of ALL your company stock isn't the wisest move either.


1. This is the EXACT argument that Nortel employees used to use (I knew a lot of them). 

2. He can only sell 22% in any case; I don't see anyone suggesting he sell "all" his company stock. 

The point is that he is already highly exposed to the overall fortunes of the company through his employment. Some significant proportion of his holistic personal balance sheet (human capital and financial capital) needs to be diversified away from that concentrated risk. I understand it might play out. It also might not. There are more than a handful of ex-Nortel employees who could serve as cautionary examples, and there are other companies I could bring into the discussion, such as Bre-X.


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## Toronto.gal (Jan 8, 2010)

You reminded me of Confederation Life MoneyGal [though I don't think it was a public company].

http://en.wikipedia.org/wiki/Confederation_Life


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## MoneyGal (Apr 24, 2009)

The interesting thing about Con Life is that anyone who bought a life annuity from them was completely protected - all the policies were transferred to solvent companies.


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## Helianthus (Oct 19, 2010)

Totally off topic, but did you receive some type of inheritance/gift? Assuming you went to school (probable given your salary), you started working around 22/23? At 5 years of work experience, you would need to net your average salary of $140K with zero other expenditures to be in your current financial position. Regardless of the answer, your current situation is quite impressive for your age. 

If I were in your shoes, I would max my RRSP and TFSA contributions while aggressively paying down the mortgage. I'd also start slowly building a non-registered portfolio, consisting of dividend paying stocks and ETFs. While your tolerance for risk is high, you probably lack the expertise at this stage to be picking specific higher risk stocks.


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## Dawson (Jul 13, 2011)

Thank you again for all the responses! Very constructive feedback and I appreciate all of it.

To answer a couple questions that were asked: 

- I am a consultant with a computer software company (NetSuite) NYSE: "N"

- Yes it would be easy for me to move to another similar company and retain and likely slightly increase the average $140k earnings

- I do feel that our company has a good amount of growth left to be achieved over the next 1-2 years

- There was a partial inheritance that assisted me in owning my cottage property outright but otherwise I have saved for everything else. I started working when I was 17 and continued working during my time at university.



It seems to be the consensus is I should be selling the stock I currently have vested and topping up my RRSP, followed by TFSA, followed by either increasing my mortgage payment or investing in non-registered investments at that point.

I suppose its important to note my mortgage is variable at 2.05%.

Anyone disagree with the approach above?

Thank you!


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## andrewf (Mar 1, 2010)

Sounds like a solid plan.

Since your human capital is also your most valuable asset, you might want to look into disability insurance.


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## MoneyGal (Apr 24, 2009)

andrewf said:


> Since your human capital is also your most valuable asset


I have no idea if I can take any credit for you saying this, but nonetheless it, uh, gives me warm fuzzies.


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## CanadianCapitalist (Mar 31, 2009)

I've made the mistake of holding too much exposure to one company myself. When I first started out I worked for a small start-up and stock options were a part of the package. Long story short, the company got acquired, the vested options were worth significant $$$s and greedily I hung on to them expecting even more gains. Again long story short, things got bad, the stock tanked, company got acquired, new employer laid off a big chunk of the workforce, including yours truly.

OP has 20K in company stock and a portfolio of 45K. That's a very risky allocation. The risk isn't that portfolio can go down in value. After all, OP can afford to take the risk because his portfolio is just a fraction of his net worth. The risk lies in OP experiencing a steep loss and giving up on investing. It's easy to say that one is young and can take risk. Quite another to experience a loss and keep investing. Not many investors can do that. I personally know many people who lost a big chunk of their portfolio and stopped investing in stocks altogether. And it's not just personal anecdotes. I recall a recent report that pointed out that young American investors are giving up on stock investing.


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## brad (May 22, 2009)

I think the only question that hasn't really been discussed yet is:

What are you investing for?

Everyone makes different assumptions about what "investing" means: for some people it means earning as much as possible as quickly as possible so you can retire early. For others it means socking away money for conventional retirement starting at age 65. For others it means earning your livelihood right now from your investment portfolio (i.e., your job becomes managing your investments).

Each of those goals has a different time horizon and a different approach to asset allocation.


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## cannon_fodder (Apr 3, 2009)

CanadianCapitalist said:


> The risk lies in OP experiencing a steep loss and giving up on investing. It's easy to say that one is young and can take risk. Quite another to experience a loss and keep investing. Not many investors can do that. I personally know many people who lost a big chunk of their portfolio and stopped investing in stocks altogether. And it's not just personal anecdotes. I recall a recent report that pointed out that young American investors are giving up on stock investing.


That is a great point... I'll definitely remember that one.


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## Dawson (Jul 13, 2011)

Great question.

I definitely know I am ahead of the curve as far as where someone my age is typically financially.

My goal is strictly investing for retirement. My goal is certainly to be retiring much earlier then the standard age 65.

However, my definition of retirement isn't sitting on my behind all day doing nothing either. Rather, working at what I want at the pace I want. I fully intend to have a supplemental income from a side hobby/job in my later years, but I want to be financially protected so I am free to do what I want as I want to.

Hopefully that helps clarify!


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## Elbyron (Apr 3, 2009)

Since your mortgage is only 2.05% and you're willing to take on some risk in your investments, I think you're better off investing your excess money rather than paying down the mortgage. If mortgage rates were ever to spike to some rate that's higher than your expected investment return, you could always sell some of the investments to make a lump-sum payment each year.

Definitely invest via maxing out your RRSP, then TFSA, then non-registered. As for what to invest in: you need to decide your own risk tolerance but everyone should have some combination of stocks, bonds, and cash. I'm close to the same age, and while I don't have your income or savings, my investment allocation is fairly high-risk. I've only got about 2% in bonds, 1% cash (varies), and the rest is more or less equally divided between small cap, med cap, large cap, and foreign stock. As I get older and closer to retirement I'll gradually shift more into bonds. I don't try to pick and choose stocks (I'm much to lazy to do the research), so it's all invested via index funds. For now it's with TD's eSeries, but once I get more money to invest (like around 100k) it will become more economical to buy ETFs.


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## blin10 (Jun 27, 2011)

i don't understand why people are so into rrsp and all that... the guy makes 140g's a years, just invest for 7-8 years into some 5-6% solid dividend companies, and bank 60-70g's a year for the rest of your life... why lock up your money until you 60+ years of age, you might not even make it that far...


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## Sampson (Apr 3, 2009)

blin10 said:


> into some 5-6% solid dividend companies


Something like YLO? 3 years ago people would have called this a 5-6% solid yielding company.



blin10 said:


> why lock up your money until you 60+ years of age, you might not even make it that far...


Who says money is locked in until you are >60 yrs old? You can take it out whenever you want.


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## financialnoob (Feb 26, 2011)

blin10 said:


> i don't understand why people are so into rrsp and all that... the guy makes 140g's a years, just invest for 7-8 years into some 5-6% solid dividend companies, and bank 60-70g's a year for the rest of your life... why lock up your money until you 60+ years of age, you might not even make it that far...


The tax deferral is a big factor, especially with the OP in the highest tax bracket so the return would be significant. If the OP re-invests that tax return, it makes a huge difference. Depending on where the OP lives, they could be getting back 45% of whatever they put into the RRSP which they could use to invest as well.


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## Causalien (Apr 4, 2009)

Sell all your vested stocks.
Sell call options on the rest of the unvested stock with expiration after the vesting time. 

This is because of a personal rule of mine. Never invest in the same sector as my work. I added the call selling because Tech stocks are inherently unstable and are usually a one shot pony until the next invention comes a long. Whatever will replace cloud computing will destroy your company stock.

For the rest. Do not invest in RRSP as prediction of demographic indicates that when you retire, there will be less people working as a % of population, so your tax will be higher than now. Thus destroying any benefit of RRSP.

Open accounts for your whole family and stuff your money into their TFSA account by gifting them (if you can trust them). Do you want to own places all over the world when you retire? Or are you fine with renting when you go to another country? Because you'll need more millions if that's the case, otherwise, you are fine as you are now and you will only need stable fixed income investments for the rest of your money.


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## Eclectic12 (Oct 20, 2010)

MoneyGal said:


> The interesting thing about Con Life is that anyone who bought a life annuity from them was completely protected - all the policies were transferred to solvent companies.


The other interesting part is that the companies scooping up the assets could have saved Confed but declined.

The more skeptical thought it was to get a discount and the more pragmatic thought it was to prevent having to pay twice (once for a doomed bailout and once when Confed expired).


Cheers


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