# Where do I start?



## Mandy101 (Dec 7, 2009)

I'm 30 years old and would like to start investing to grow what I have accumulated in assets at this time. Below is what my financial picture looks like at this time:

$38K in a savings accounts
$5 K TFSA
$3K in RRSP
I own a rental property with my brother and father. My brother and I took out a mortgage in our names and my father took out another mortgage in his name. The rent coming in covers the mortgage for my brother and I. At the end of each year we pay our father back for his portion of the mortgage for the year.

I bring in 60K a year plus up to $6K in overtime pay.

I have no other debts.

Where should I start? I would like to be a little aggressive in my approach as I realize I am behind in investing my money.

Help!


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## MoneyGal (Apr 24, 2009)

You are so not behind. You are in an enviable position at 30 years old!!

It's hard for us to know where you should start when we don't know where you want to end up. 

What are your financial goals for the short to medium terms? 

Have you earmarked your current savings for a specific purpose (buy a principal residence, retirement, other)? 

How stable is your job (how "bond-like" is your income from working)?


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## MoneyGal (Apr 24, 2009)

Oh - and do you have RRSP room? Any particular reason you have not used an RRSP for investing?


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## Mandy101 (Dec 7, 2009)

Thanks Moneygal!

Basically since I am unattached my next big expense in the future (2 year window) would be getting married and buying a principal residence. Other than that I guess I am saving for long term - ie early retirement.

I didn't invest in RRSP over the years b/c in my family its sort of the trend to invest in real estate instead. However over the past 3 years we haven't really been actively looking at real estate. My last and only real estate purchase was the rental home that I own jointly with my family.

My job is pretty stable - nobody has been laid off/downsized due to economy over the last couple of years.


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## 72camaross (Apr 26, 2010)

Mandy, I also am starting out, only 25 though. You are WAY ahead of me from what I can tell. I look forward to following your progess closely! I will have to start my own "Where do I start" thread soon, once I get my finances straightened out. 

Good luck!


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## Armi (Feb 23, 2010)

Sell your rental home before the correction.

Invest the money either in Preferred if you want a stable income, 

OR

Buy commodities, stay cautious, 1 year window.

This "economical recovery" is all on drugs, its fake, stay cautious and use it to gain money but get out when all hell breaks loose.


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## Cal (Jun 17, 2009)

Only sell your rental property if you need/want to lock in some profits. If you and your family have plans to eventually use it or have a long term outlook for it. Then don't rush to sell just because the RE market may very well be overbought.

I would max out the RRSP.

Not sure about preferreds or commodities for a beginner. I might lean towards a low MER balanced mutual fund or ETF for simplicities sake, and to stay somewhat diversified.

Not sure how leveraged the property is (ie, what % of the property value is still mortgaged). 

I am hesitant to own property w anyone, as even though you do get 50% of the profits, you are potentially on the hook for 100% of the liability.

Edit - Max out your TFSA too!


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

Should some of her RRSP funds be invested in dividends? In the opinions of readers, what % should go to dividends? At the age of the OP I bet she has a boatload of unused contribution room showing on her notice of assessement.

To the OP, I am surprised to see that no one other than Cal at the very end recommended that you max out your TFSA. Do that for sure.

Also, if I were you I would take $20K of that cash you have and set it aside for a rainy day. Don't put it in RRSPs or other locked-in investments. See some of the other threads for discussion about rainy day funds. In your case, with property ownership you may need it someday.

How's your car? New or old? You might want to put down $15K as a down payment on a new car, now that you have all this cash. If your car is still good, then put the rest of your cash in the RRSP and get a tax refund in early 2011. Use that refund to max out your $5K TFSA allowance for 2011.

My opinion only.


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## steve41 (Apr 18, 2009)

Mandy.... can you define 'bring in' better. I.e. is that 66K salary gross or net? Can you quantify those mortgage-related pmts to your Dad?

Also.... it would be better to detail the property (rental income, value of property- your share)


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## kyahgirl (Jan 21, 2010)

*where to start*

Hi, I am going to offer my opinion as another novice investor. Please take it in that context. 

I think you should be proud of what you've accomplished so far and I also applaud that fact that you're even thinking of the future/investing/wealthbuilding. The smartest thing to do is get started young like you are.

I agree with the previous suggestions to max out your tax protected investments. However, as you age, keep an eye on the RRSP because if it is too large, eventually when the rules that govern RRSPs force you to take out a certain amount of money, it could interfere with your right to all of the OAS and CPA that you've earned in all your years of working your butt off. 

The other thing that I'm doing is reading very widely on investing related topics because nothing beats an education. The more I read the more I realize there is to know. Investing is a HUGE topic and very interesting but there is a lot to learn that can't come from forums, blogs, or tips (although I keep an eye on quite a few of those too!)

For a good broad but basic understanding of investing vehicles in Canada read Gail Bebee's book, No Hype-The Straight Goods on Investing your Money. Rob Carrick's Guide to What's Good, Bad, and Downright awful in Canadian Investments Today is a recent publication and (in my opinion) very useful for someone new to investing.

Again this is just my opinion but at this point in time, I think a new investor
should spend some time on learning rather than jumping right in because there is such upheaval and volatility right now, its not going hurt to sit on the sidelines for a while. I'm 20 years older than you and still feel that's the right thing...you have a lot more time on your side. In fact, the biggest thing I've done this year is take all my money out of the mutual funds. Some I've put in ETFs using the couch potato approach, my kids RESPS are in TD e-funds but rest is waiting in near cash so I can take advantage of opportunites that arise and buy some real estate when prices come down a bit more. 

As for other books, I have a huge list I've read and and even longer list yet to read. Some, in my thinking are mandatory like:
Benjamin Graham, The Intelligent Investor
Danielle Park, Juggling Dynamite
Burton Malkiel, A Random Walk down Wall Street
Jeremy Siegel, Stocks for the Long Run
David Swensen, Unconvential Success
James K. Galbraith, The Great Crash 1929
James K. Galbratih, A Short History of Financial Euphoria
I have a huge list of books yet to read including some on real estate investing, economics, tax planning and dividend investing. 
There are a lot of helpful informative sites to follow on things like DRIP investing and general topics. The price of a subscription to Canadian Moneysaver is also worth it to me. 
Good luck to you.
I don't post much, mostly just read and learn but I'll be wishing you the best!


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

kyahgirl said:


> However, as you age, keep an eye on the RRSP because if it is too large, eventually when the rules that govern RRSPs force you to take out a certain amount of money, it could interfere with your right to all of the OAS and CPA that you've earned in all your years of working your butt off.


What???

I've never heard of this. Please explain.

And what's CPA?


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## FrugalTrader (Oct 13, 2008)

Royal, here is an article summarizing some of the clawbacks on seniors.


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## kyahgirl (Jan 21, 2010)

the-royal-mail said:


> What???
> 
> I've never heard of this. Please explain.
> 
> And what's CPA?



I apologize for the error...CPA is CPP. I was in a hurry when I made my earlier post and didn't explain myself very well. The article that Frugal Trader linked is better at explaining things. 
The thing to keep in mind is that RRSPs are governed by strict rules, which our fearless leaders tweak and change regularly, so you have to calculate the tax implications of your RRSP in retirement and decide how much it will matter in your overall financial picture. I never used to consider the impact of taxes on my savings but now that I've been getting educated I have a better idea about the importance of planning your tax strategy in concert with the investment strategy. 
Sorry if I caused any confusion.


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## Four Pillars (Apr 5, 2009)

I don't know of any CPP clawbacks based on income (or any other reason) - does anyone know of any?

The OAS and GIS clawbacks are real but the effect on most retirees isn't all that significant.

GIS is for very, very low income families - if you are in that situation it is very likely that you won't have money for RRSP contributions or if you do - you shouldn't make RRSP contributions. Put that money in TFSA or even open account. This is the only situation I can think of where it is very clear that RRSP contributions are a bad thing.

OAS - I don't know the exact income figures but the clawback starts at something like $65k income and ends around $105k? You need to make some good coin in retirement for this to affect you. Keep in mind that you can split income in retirement so a couple would have to earn $130k to start getting clawed back and over $200k to lose the OAS completely.

Personally I would rather make $105k and lose the OAS (which is only $6k) than make $65k and get the full OAS.


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## MoneyGal (Apr 24, 2009)

CPP is taxed as ordinary income. The "clawback" is simply that you "lose" more of your CPP income as your other income increases (and your tax rate increases). 

OAS and GIS are clawed back. However - and this is an important point, to me at least - receiving OAS and GIS has *nothing to do* with having worked in Canada. 

Eligibility is based on age, current and past residency in Canada - whether you ever earned a dime here, or not. 

OAS is funded from general tax revenues, not individual contributions from workers or any other segment of the population.


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

Thanks for the explanations. So I guess OAS clawbacks happen when you have $65K gross annual retirement income? Wow. I don't anticipate having that sort of income at that time. This must be designed to affect the rich. As for GIS, not sure if I'll be considered low income a retirement or not. Do you know at what thresholds this kicks in and knocks off?

As for CPP benefits being taxable, that just sux. </vent>


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## MoneyGal (Apr 24, 2009)

Well, your CPP contributions are tax-deductible during your working life, so it is reasonable that the income they generate is taxable. 

I can't remember the cutoff rates etc. for CPP and OAS but as it happens I need to figure this out for work today or tomorrow, so (unless someone else comes along and posts this info for you) stay tuned and I'll come back with the info. (I had this memorized once upon a time, but no more.)


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## OhGreatGuru (May 24, 2009)

The Government web site seems to make this complicated, because eligiblity for GIS is calculated differently than the OAS clawback. As of the moment, if your yearly income, not including your OAS pension, exceeds $15,671.99 for a single person, you do not qualify for the Guaranteed Income Supplement. See http://www.servicecanada.gc.ca/eng/isp/oas/oasrates.shtml
as a starting point for details. There is a calculator page for GIS benefits, depending on your income. Also see this page:
http://www.servicecanada.gc.ca/eng/isp/pub/oas/gismain.shtml

GIS is dependent on not only your income, but combined income in the case of couples.


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## MoneyGal (Apr 24, 2009)

OK, this is not necessarily any clearer than the government's web site, but here goes:

OAS and GIS payment rates are at http://www.servicecanada.gc.ca/eng/isp/oas/oasrates.shtml

For the current quarter max OAS = $516.96/month. Though reset quarterly, call it $6,204/yr
Max GIS for a single person = $652.51/month. Though reset quarterly, call it $7,830/yr

CPP payment rates are at http://www.servicecanada.gc.ca/eng/isp/pub/factsheets/rates.shtml

Max CPP = $934.17 or $11,210 but the GIS clawback is normally* based on the prior year's income. Max CPP in 2009 was $10,905.

GIS is reduced by $1 for every $2 of other income.** CPP counts but OAS doesn't. So:

Full OAS for 2010.......$6,204
Full GIS for 2010...........7,830
Full CPP for 2010......._11,210_
Subtotal.....................$25,244
Less GIS clawback..._ 5,453_ (half of 2009 CPP)
Income.......................$19,791

* The GIS income test normally uses prior year's income. If current year's income is expected to be lower, you can ask that the test use an estimate of current year's income. All GIS is clawed back if other income => $15,672.

** Excluded from test are OAS/GIS, federal/provincial family allowance, social assistance payments based on income or means test, and up to $500 of employment income and C/QPP death benefits.


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## dilbert789 (Apr 20, 2010)

To try to get the topic back on track... 

I'm no where near an expert but I would start dumping some of your savings into your RRSP. Max that out so that you can take advantage of the tax savings there.


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## steve41 (Apr 18, 2009)

Another thing re the OAS clawback threshold..... the $65K limit before clawback starts will change each year according to inflation. By the time you are 65... the $65K limit will be well over $150K.


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## andrewf (Mar 1, 2010)

It should double every 35 years, assuming the BoC sticks to its 2% target.


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## davext (Apr 11, 2010)

Don't put your money into RRSPs. You're not making enough money to bennefit as much. 

Add more into your TFSA. Open 2 discount brokerage accounts, one for your $10K in TFSA and one for your other cash savings. 

Learn about which stocks you should put your money into. 

When you make money from your normal non-registered account from buying stocks, then you can consider buying RRSPs because you're at the very edge of the next tax bracket right now.


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## Sampson (Apr 3, 2009)

davext said:


> Open 2 discount brokerage accounts, one for your $10K in TFSA and one for your other cash savings.


Can you please explain why this is advantageous to opening a TFSA and cash/non-registered account at the same institution?


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## MoneyGal (Apr 24, 2009)

davext said:


> Don't put your money into RRSPs. You're not making enough money to bennefit as much.


Some proof for this assertion, please?


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## andrewf (Mar 1, 2010)

MoneyGal said:


> Some proof for this assertion, please?


Thanks. I was going to call him on it, too.


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## Cal (Jun 17, 2009)

Not sure as I have always claimed the RRSP contribution annually.

But if the OP did put $ into an RRSP, and let it compound tax free. Are they forced to claim the contribution against that years taxes, or could they wait to claim the contribution?


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## MoneyGal (Apr 24, 2009)

You don't ever have to claim the contribution, AFAIK. Certainly you can carry it forward with no time limit. (You might have to claim it just before collapsing it, but I honestly don't know the answer to that question.)


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## Cal (Jun 17, 2009)

In that case I would definitely use the RRSP for tax free compounding interest, and use the contribution/tax credit when necessary to reduce taxes.


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## Sampson (Apr 3, 2009)

MoneyGal said:


> Some proof for this assertion, please?


I think she/he meant that at current income levels, it might be wise to bank the credits and take them later when income is higher.

I don't recall the OP ever stating income though...


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## MoneyGal (Apr 24, 2009)

OP said they earned $66K last year.


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## Mandy101 (Dec 7, 2009)

Hey guys 

Sorry I haven't responded to all these great suggestions and ideas.

Here are some answers to your questions:

I bring in $70K gross.
I already have a vehicle which still has $7,600 to be paid off (at 1% interest rate).
My brother and I actually pay my Dad back in cash at the end of the year for his share of the mortgage payment during the year. Is this wise?

I do have $5K in TFSA currently but its just sitting in my bank account. I am able to contribute another $5K to TFSA before end of 2010. My plan for this was to buy high credibility shares that pay dividends (which I'm researching at this time).

My $3K RRSP is also just sitting in my bank account (ie earning next to nothing).

Does this generate any more suggestions? I'm just starting out - any info would be really appreciated!


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