# Investing after Graduation



## younginvestor (Jan 27, 2011)

Hey Guys,

So I've just finished school in the last year and was recently promoted to my first career position. I've been investing since I was 18 in RRSPs and have somewhere around 9,000 or so in RRSPs in secured GIC's. I am debt free as my parents though ahead and had an RESP setup for me soon after I was born. I am looking to start investing and finding a good way to have my money working for me. I have very good credit as I've had a credit card since I was 18 and have never had a late payment and always pay the full amount due. These are the accounts I have right now:

Ally Bank Savings Account 2% interest
CTFS Savings Account 2% interest
(I switch between the two when interest levels change)

PC Financial Checking for day to day banking
Peach Hills Trust RRSP
Effort Trust RRSP
ScotiaBank RRSP
BMO Group RRSP Plan (6% of my wage invested to maximize employers contributions)
E-Trade Employee Purchase Plan (up to 10% of wage can be invested.... so far have almost doubled the money I invested in this plan)

I am currently living with my parents and actively looking for a home to purchase but want to start maximizing TFSA as I haven't invested at all in them, and have excess contribution room from previous years RRSPs.

Furthermore I will be needing a mortgage and line of credit, but don't know what banks to consider or where to even start. Would it be better to target the large banks, or credit unions, or through a mortgage advisor at a third party?

I have limited expenses (Cell phone, gas, car insurance etc) at the moment and feel like I'm not helping myself to become financially successful in the future.

How else can I utilize my money better to work for me?


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

Welcome to the forum. Word is getting around about CMF. We've had a lot of new posters lately. Again, welcome.

Anyway, you are doing remarkably well. I think you're doing just fine and don't necessarily need any advice from us. The only thing I would suggest is to save as much as possible for the down payment while you can, being as you said you wanted to get into real estate. Of course, I would also urge you not to rush into something. If you're any kind of an office or computer worker, chances are you'll have to move quite a few times in the coming years. RE will really limit your options. Find yourself a suitable apartment and save save save. There will always be time to get into RE later when you're more established and have lots of money in the bank for your down payment. In your case I would say you should save enough to avoid the CMHC fee, but NOT at the expense of a proper emergency fund structure. Good luck!


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## peterk (May 16, 2010)

Well first I would save more so that you have a good 20-25% downpayment. Stay with your parents another year if they won't drive you crazy 

Not really answering your question, but if you graduated in april, and have been working ~ 8 months, you should really consider holding off on deducting any RRSP contributions on your upcoming tax return. Wait until next year when you have a full year's salary to deduct it against. This will probably be the only time in your life you'll get a 10%+ (depending on province and income) guaranteed return on your investment. Consider putting it in your TFSA for 2011 instead...


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## younginvestor (Jan 27, 2011)

Ok, I started the new position effective Jan 1st. Before Jan 1st, I was working part-time, so my income wasn't very high. So I should invest in the RRSP as of March 2nd. Put all the other cash into TFSA rather than a savings account?


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## peterk (May 16, 2010)

You can invest in your RRSP, but when it comes time to do your 2010 taxes you should not claim your RRSP contributions in 2010, and wait until next year (which you can do). So if your marginal rate is only 20% for 2010, and 31% for 2011, if you wait to claim your RRSPs until 2011 you'd have an extra (310-200 = $110) on a $1000 contribution. Pretty good return just for waiting an extra year. 

It might be a prudent idea to focus on maxing the 15k limit on your TFSA first though. It's much more flexible especially for us young people, and especially if you can't predict where you'll be working, and what your housing situation will be beyond a couple years...


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

Why the big rush for an RRSP? If you don't need the money generated by the tax refund in March/April, put your money in a TFSA instead. Far more flexible.


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## younginvestor (Jan 27, 2011)

Ya, thinking the TFSA is my best bet at this point as I wouldn't be saving more than 10-15K per year at this point. 

Just dropped 5K into my CTFS TFSA to get it started.

Still can't quite wrap my head around the renting idea as I'm pretty confident that the majority of my future employment will be within Toronto and the GTA. I'm not a fan of renting as I may as well just stay at home and save the money I would have spent on the monthly rent.


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## Sherlock (Apr 18, 2010)

If your savings account is earning you 2% interest and inflation is 2%, you're actually earning nothing. You need to start investing in mutual funds. A great place to start is to open a mutual fund TFSA with ING, it is probably the simplest way to setup a MF TFSA, you can do it all online.


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## KaeJS (Sep 28, 2010)

Sherlock said:


> If your savings account is earning you 2% interest and inflation is 2%, you're actually earning nothing. You need to start investing in mutual funds. A great place to start is to open a mutual fund TFSA with ING, it is probably the simplest way to setup a MF TFSA, you can do it all online.


*EXACTLY.*

You need to get yourself some Mutual Funds at the least. Who cares if they take a 1.5% MER from you. It can add up, but its a lot better than not investing in them at all.

I have my full 15k TFSA invested in the "TD Monthly Income Fund".
They pay a healthy monthly dividend and their growth is not bad considering they're an income fund. They made 9.8% last year.

They were paying $0.0434/share every month as a dividend last year. If you're interested, I can let you know on Monday what the dividend will be for 2011 (if they even changed it)

The current price is $16.40/share. If you have $5,000 and its $16.40 per share, you'll get 304.878 shares. Assuming they pay the same dividend, you'd make $13.23 (for the first month) plus any capital appreciation, and then higher dividends in later months should you choose to use a DRIP (dividend re-investment plan) which you should.

This is just an example of one of the many things you can do.

Remember, Mutual Funds take a small fee, but you can enter money in or take money out at any time (usually without fees or charges).


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## younginvestor (Jan 27, 2011)

I held off putting money into my TFSA... had to wait for money to transfer around.... I know little to nothing about mutual funds, but did some research on TD's monthly income fund. Read about a 24% loss and some other nasty sounding things... I'm guessing that was a limited problem during the recent market drops.... How consistent have the returns been for it? Also, does anyone have any information on the CIBC Monthly Income Fund? I've read good thing about both these funds.


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## KaeJS (Sep 28, 2010)

younginvestor said:


> I held off putting money into my TFSA... had to wait for money to transfer around.... I know little to nothing about mutual funds, but did some research on TD's monthly income fund. Read about a 24% loss and some other nasty sounding things... I'm guessing that was a limited problem during the recent market drops.... How consistent have the returns been for it? Also, does anyone have any information on the CIBC Monthly Income Fund? I've read good thing about both these funds.


You dont really need to know much about mutual funds. Thats why you pay the fee. Mutual funds are basically stocks, bonds, cash, assets, commodities and other securities that are all pooled together in order to make a single "fund". This fund has a NAV (Net asset value) which is the same as a stock price ( basically ). This NAV is calculated and available at the end of every week day. The price will only fluctuate once per day, unlike stocks.

As for that 24% drop. I havent heard about it. However, pretty much every security on the planet dropped 2 years ago in the recession. That may have been the drop. But since then, the fund has recovered and surpassed its original price from the drop in the recession.

The dividend payment will always be there and will always continue to get larger as the fund/share price grows, so they are stable.

Here is a graph, along with historical and technical data on the TD Monthly Income Fund.

http://www.theglobeandmail.com/globe-investor/funds-and-etfs/funds/summary/?id=51243&cid=TD Asset Management Inc.

Here is the same stuff about the CIBC Monthly Income Fund

http://www.theglobeandmail.com/globe-investor/funds-and-etfs/funds/summary/?id=51342&cid=CIBC Securities Inc.

There is not much difference between the TD and CIBC Monthly Income fund. They both invest in primarily the same companies (Canadian Banks, Suncor, some Gold, etc). They both pay a dividend, blah blah. They perform almost identically.


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## Sherlock (Apr 18, 2010)

If you know little about mutual funds I would recommend a balanced index fund. A balanced fund is basically a fund that holds many different types of investments (canadian stocks, US stocks, international stocks, bonds, etc) all in one fund, so you can achieve diversification by just having the one fund. These are automatically rebalanced by the bank so you don't have to worry about that, you just put your money in there and forget about it. Most banks offer one, or you can go with something like ING's streetwise funds. These funds are no load, which means you can put in more money or take out money as often as you like with no fee.


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## Eclectic12 (Oct 20, 2010)

KaeJS said:


> *EXACTLY.*
> 
> You need to get yourself some Mutual Funds at the least. Who cares if they take a 1.5% MER from you. It can add up, but its a lot better than not investing in them at all.
> 
> ...


If younginvestor do not know much about mutual funds, it is important to highlight that part of the selection process is to determine what (if any) fees and charges for moving money will be. Then too, in the wrong brokerage TFSA, there can be additional fees.

This is not a lot of work to check up on but is better than a costly assumption.

I'd sure the TD fund is not an expensive one but I've had an employer try to get me to signup for a fund with a 3.5% MER and a crazy penalty (don't remember how much) for transfers or sales within three years.


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## w0nger (Mar 15, 2010)

May i ask why you're thinking about a monthly income fund? why aren't you looking at growth funds? at your young age, i'd by investing only in equity markets with long term growth. better to pay capital gains than dividend/interest taxes. if you really just wanna dump money in and forget it, then setup a couch potatoe portfolio. in the future, if you do get into investing, then you can use your couch potatoe as your benchmark. good luck!


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## Sherlock (Apr 18, 2010)

Well he did mention he may want some of that money in a few years for a house downpayment. In that case wouldn't it be best to invest in something that pays high dividends?


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## w0nger (Mar 15, 2010)

ah right... forgot about that... in a few years? with such a short time frame, investing in anything other than GICs or a Savings accounts is risky... especially if he knows the exact time he'll need the principal... IMO, i'd go for GICs and not even bother with Mutual Funds... it's just not a long enough time frame to get the returns that you're looking for, for the amount of risk you're putting the principal up against...


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## Sherlock (Apr 18, 2010)

I disagree! A few years is not too short a time frame to invest in MFs. And in the unlikely scenario his funds lose money, he can just wait an extra year or whatever to buy the house.


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## Plugging Along (Jan 3, 2011)

Sherlock said:


> I disagree! A few years is not too short a time frame to invest in MFs. And in the unlikely scenario his funds lose money, he can just wait an extra year or whatever to buy the house.


I hae to disagree with your disagreeing. The OP said he is actively looking for a house, I'm assuming this is a purchase with in 2-3 years. Anything under a 5 years for investing in anything other than safer investments, like GICS, money markets etc. If the OP is too concerned about losing a big chunk of his investment, and is willing to hold on if necessary, then this would be alright.

Imagine if he invested in 2006, and wanted to buy a house in 2008. He would have had up to 60% less. If he was willing to hang on, and not sell in panick (like some many did), then he would have been okay in 2010. 

The fact that he was concerned with a 24% loss on the the MF, indicates that he's not willing to take this risk.


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## KaeJS (Sep 28, 2010)

Plugging Along said:


> I hae to disagree with your disagreeing. The OP said he is actively looking for a house, I'm assuming this is a purchase with in 2-3 years. Anything under a 5 years for investing in anything other than safer investments, like GICS, money markets etc. If the OP is too concerned about losing a big chunk of his investment, and is willing to hold on if necessary, then this would be alright.
> 
> Imagine if he invested in 2006, and wanted to buy a house in 2008. He would have had up to 60% less. If he was willing to hang on, and not sell in panick (like some many did), then he would have been okay in 2010.
> 
> The fact that he was concerned with a 24% loss on the the MF, indicates that he's not willing to take this risk.


There is definitely some risk.

But, what the hell? That's part of the game.

If I were the original poster, I would take my chances, invest my money, and hope that in 3 years it hasn't tanked.

What happens if he invests his money and because of the returns in two years, he is able to get a house sooner? 

Think of it that way 

But yes, if you're going by the "textbook practice" then a 2-3 year time horizon is small. Realistically, though, you should be fine if you were to invest in mutual funds. Just make sure you invest in something that is diversified, and try to keep it Canadian based.


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## Sherlock (Apr 18, 2010)

KaeJS said:


> What happens if he invests his money and because of the returns in two years, he is able to get a house sooner?
> 
> Think of it that way


I like the way you think! And that's a far more likely scenario.

OP is living with his parents so he has no need to buy a house by a specific deadline. In the unlikely event his mutual funds lose money, he can simply put off buying a house until his investments recover.


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