# Best short term investment option for newbie



## RustyRanger (Feb 29, 2012)

I'm 23 and I'm starting a new job next week. It's the first well paying job I've had, so I'm looking to save as much as I can. I've always been a saver, but I've only ever used general savings accounts. I'm looking to lock away my money and earn as much interest as I possibly can.

I'll be making approximately $3,200 a month gross. I've got no debt to my name. All bills/rent total $812 per month. Factor in food and gas and that's all I spend my money on. I'm hoping to save approximately 40-50% of my income over the next 12 months.

I'm looking for a short term investment that will net me the most bang for my buck. I do have plans to meet with a financial advisor, but I figured I'd get some ideas first.

I'm in NS if that makes any difference. Thanks for any help!


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

Slow down.

Who is this financial advisor you want to meet with?

Being a saver is great. Locking away money IMO is not so great. Won't you need the money for moving expenses, furniture, new car, new clothes etc as you get started in life? What about paying back student loans and the like? Do you have any debt?

We're not in the era of getting a lot of bang for your buck. And yes, I know there are some exceptions to the rule. But for the average person with your profile, you should not go in with too many expectations these days.

My recommendation to get started is to start a TFSA. Cash balances pay around 1%.

You might also want to build yourself a nest egg in case something happens (job loss etc). Hope for the best, plan for the worst.


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## slacker (Mar 8, 2010)

1. Be very careful with "financial advisor". All financial advisor who work for the major banks (Royal, BMO, Scotia, TD, etc) are not there to help you. Their job is to advise you to buy the products that will make them the most money.

2. The investment vehicle that are available for 1 year term is extremely limited, and will net you a very small return (think in the 1.5% to 2.5% range). Is there a particular reason, why this has to be a short term investment? What is this money for? (buy a car? vacation? downpayment for a house? retirement? etc)

But to answer your question, the highest yielding investment available for such a short term is at best high interest savings account or GIC. If you shop around, you can get as high a return as 2% return. Keep in mind that after inflation, you're still looking at a negative return here.

Whatever you do, don't let the advisor tell you to buy an expensive 2.75% mutual fund that will yield the bank a risk free 2.75% return every year. Heck, the don't even have to put up any capital.


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## sisco (Oct 18, 2011)

Ally.ca offers High Interest Savings Account (HISA) which can be opened as a Tax Free Savings Account (TFSA) that currently pays 2% interest. You can open an account via their website. Short-term, it's tough to beat.


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## Toronto.gal (Jan 8, 2010)

You need more than ideas before you meet an advisor and came to the right place, as you will find lots of good information here if you care to search and read. 

I would recommend you read a couple of basic books first. If you're a beginner, start with: The Lazy Investor and One Up On Wall Street. You may find that you won't need an advisor after all.

Good luck on the new job & welcome to the forum!


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## RustyRanger (Feb 29, 2012)

the-royal-mail said:


> Slow down.
> 
> Who is this financial advisor you want to meet with?


I guess I have lots to learn. I just assumed meeting with a financial advisor would be a good step to saving the right way. But it sounds like they're more salespeople than advisors. Thanks for that tip, I'll hold off on meeting with one.

I mean locking away my money in the sense that I want to put it somewhere and not touch it. However, a TFSA is more appealing than an RRSP just in case I do need to access it.

As far as moving expenses, cars, etc. As I stated I'd like to do a one year plan for now. So buying a new car, house, etc. is not in my one year forecast. The main reason I want to save is because there is a chance of moving cross country after about a year and I want to have as much saved as possible. This could also be part of a down payment on a future house (years away).

I have a reserve fund for emergencies and for my dogs in case anything happens.

I'm considering Ally, as they have a good interest rate on their TFSA.

Thanks for the advice everyone.


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## GreenAvenue (Dec 28, 2011)

1. Cancel financial advisor
2a. Fill TFSA till max
2b. Save the rest for emergenecy in savings account till $12000 at least

3. start to read up on investing on your own, saves you the advisor commisions. Good luck


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## RustyRanger (Feb 29, 2012)

slacker said:


> 1. Be very careful with "financial advisor". All financial advisor who work for the major banks (Royal, BMO, Scotia, TD, etc) are not there to help you. Their job is to advise you to buy the products that will make them the most money.
> 
> 2. The investment vehicle that are available for 1 year term is extremely limited, and will net you a very small return (think in the 1.5% to 2.5% range). Is there a particular reason, why this has to be a short term investment? What is this money for? (buy a car? vacation? downpayment for a house? retirement? etc)
> 
> ...


Thanks for the advice, I'll put that idea away for now. I should have known advisors were more salespeople than anything, seems everyone has something to sell you these days.

It's not for anything too specific. It's just that I might be moving to BC next year and I want as much savings as I can possibly have to ease not the only the possible move, but the transition between jobs. I'm hoping to simply get transfered but it's hard to say. This money will also hopefully be part of a down payment for a house a few years in advance.


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## RustyRanger (Feb 29, 2012)

GreenAvenue said:


> 1. Cancel financial advisor
> 2a. Fill TFSA till max
> 2b. Save the rest for emergenecy in savings account till $12000 at least
> 
> 3. start to read up on investing on your own, saves you the advisor commisions. Good luck


1. That seems to be a common piece of advice around here, I will definitely cancel that! Thanks

2a. Again seems to be a common piece of advice, I think this is going to be my plan.
2b. Would any savings account do?

3. I stayed up until 3 am last night reading and here I am again! I'm definitely interested in doing my homework and reading anything I can. It's confusing as I'm definitely new to this, but it's also exciting.

Question about the TFSA. I was reading that generally you can save up to $5,000 per year. But if you havn't had one before you can save up to $15,000 the first year or something along those lines. If so, should I still max out my TFSA THEN start adding to my general savings account?


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## Toronto.gal (Jan 8, 2010)

Lots of information on this website.

http://www.taxtips.ca/tfsa.htm


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## FrankP (Feb 29, 2012)

I just saw an ad in Money Sense from Canadian Direct Financial (Canadian Western Bank) for a 3% TFSA. Looking into this myself right now.

http://canadiandirectfinancial.com


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## Ethan (Aug 8, 2010)

the-royal-mail said:


> My recommendation to get started is to start a TFSA. Cash balances pay around 1%.


I don't understand this line of thinking.

You say you make $3,200/month, and you want to invest half of that. If you were to put $1,600/month into a TFSA on the first of each month (starting January 1), earning 1% interest compounded monthly, you would contribute $19,200 over that time. The value would grow to $19,304.32 tax free. This means that you will have earend $104.32 in interest over that time. With annual earnings of $38,400 in Nova Scotia your marginal tax rate is 29.95%, so your tax savings are a measly $31.24.

Now, lets factor in inflation. 2011 CPI was 2.5%. Let's assume 2012 CPI is the same amount. Your $19,304.32 TFSA will purchase $18,834.48 worth of goods on January 1, 2013, in January 1, 2012 dollars. You will have effectively turned $19,200 into $18,834.48.

TFSA interest - 1%
Inflation - (2.5%)
Investment return (1.5%)

Unless you absolutely need those funds 1 year from now and couldn't stomach a loss, there are a myriad of other investment options that could reasonably be expected to return a greater amount. Your first post indicated you would like to earn "as much interest as you possibly can" which makes me think a high interest TFSA is not your best investment option.

If you're uncomfortable with any amount of risk then by all means open up a high interest TFSA, just know that you are going to lose purchasing power. Stocks, bonds, and real estate have higher volatility than high interest savings accounts, but over time they provide a better return.


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## RustyRanger (Feb 29, 2012)

Ethan said:


> I don't understand this line of thinking.
> 
> You say you make $3,200/month, and you want to invest half of that. If you were to put $1,600/month into a TFSA on the first of each month (starting January 1), earning 1% interest compounded monthly, you would contribute $19,200 over that time. The value would grow to $19,304.32 tax free. This means that you will have earend $104.32 in interest over that time. With annual earnings of $38,400 in Nova Scotia your marginal tax rate is 29.95%, so your tax savings are a measly $31.24.
> 
> ...


Wow, great post. And written in "plain english" so I understood it. Thanks a lot.

My way of thinking is this: I'm brand new to any kind of substancial saving. My idea of saving money in the past was putting $50 a pay into a general savings account. With a higher income, I know I have more options. With that comes greater risk, potentially.

It's not that I'm afraid of risk. I'm just so new to all of this I'm not sure which way to go. I feel like taking one year to build up a good amount of savings as well as learning as much as I can about investing and other options will be my best bet. Then after the one year, I'll have a good amount of funds to "play around with" if I want to dip into stocks, etc. And I'll hopefully have the knowledge to do so comfortable and wisely.

Not sure if that makes sense, but that's just kind of where my head is at right now.


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

Sure, but the OP is talking about a short term investment option, not over time.

I also told him to gear down his expectations and slow down, wrt the comment about "as much interest as possible". 

BTW there's nothing that says investments provide automatic better returns. Most average people do not have the desire or knowledge to be able to get good returns when you consider the extent of their investing is making an appt with the nice people at the bank. I have years of experience with this approach and have many % in losses to show for it, which far exceed inflation.

Besides, purchasing power is another topic altogether. That is what it is, regardless of how you invest or don't invest your money. By losing money on your investments, you are losing principal that you do not lose when you get 1% interest. Plus you were paying fees, which most people do not pay on savings deposits in TFSAs.


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

Rusty, please do not quote every single reply. It's sufficient to just address the person by name if need be.


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## jcgd (Oct 30, 2011)

By post #6 we all knew that ^ was coming.


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## slacker (Mar 8, 2010)

jcgd said:


> By post #6 we all knew that ^ was coming.


LOL *high five*


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