# Young investors strategy



## Compounding1 (May 13, 2012)

Hi all,

I'm looking for input on what I'm doing and maybe thoughts on what I could change regarding my financial plan I've made myself. I honestly am not sure what my long term goals are aside from (preferably) retiring early (55ish?) and purchasing a house. As of now, on my income, I can't afford the monthly payments on a house so I have been saving my money while I look for better career opportunities. Original plan was to keep putting in RSP for Home buyers plan but I've been changing as I go.

Anyways, here is my financials:

-I'm 23, university/college grad and working full time for a year and a half
-No more school debt or loans, cards paid off monthly
-Income is $2200 a month :/
-I budget to spend about $1000 a month on gas, insurance, food, cheap rent (lucky I know) and the rest I've been trying hard to save towards ... well I'm not sure yet. Can't see buying a house for another 5 years at least.
-I have ~18k saved up now. Around 11k is in my RSP in indexed funds and bonds (have been low lately so was buying more)
-I have 3k in cash right now (1k I am going to use towards a correspondance course while I work)
-The rest is in my TFSA in dividend paying canadian stocks.

I want to keep renting until I can afford a 25% down payment and that might take some time unless I find a better job. Are my investments a good spot for this sort of saving? I'm beginning to think they're more long term...

Because my income is so low, I have been thinking more and more about continuing to put towards my TFSA picking up more stocks and ignore my RSP since my tax bracket will more than likely be higher in the future, thus higher returns if I wait to contribute. Doing this though would mean I would have to take out of my TFSA for a down payment (either way I don't pay tax I guess). Suggestions on this area would be appreciated too!

Am I (and my financial plan) on the right track?

Thanks


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

Wow. Hard to find too much wrong here. Good job. I think you've got it figured out. Just stay away from the shell games that some people like to promote and I think you'll be fine. Cheap rent is good, take advantage of that while it lasts.


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## KaeJS (Sep 28, 2010)

You're doing a great job. Keep an eye out for career opportunities. I make $2000/month, so yes, we do have low incomes.

Where do you live? (Province/City?)

How is it that you can keep your expenses so low?

I am in a similar situation as you at 22 years old, yet I spend $1000/month, not including rent.


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## Sherlock (Apr 18, 2010)

KaeJS said:


> I am in a similar situation as you at 22 years old, yet I spend $1000/month, not including rent.


In my own case, I've had to stop hanging out with people who like to do things that cost a lot of money. This has resulted in a decrease in my social life, but I think it's worth it.


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## Compounding1 (May 13, 2012)

KaeJS said:


> You're doing a great job. Keep an eye out for career opportunities. I make $2000/month, so yes, we do have low incomes.
> 
> Where do you live? (Province/City?)
> 
> ...


I live in Ontario, GTA.

I buy groceries to make meals, try to limit eating out. I've stopped going to the bars as much and prefer to go to friends houses as that's cheaper if I want to do something. GF and I do cheap things, use airmiles for movies and stuff like that when we want to go out, or just budget in entertainment (Mint app is awesome) but shes busy moving too and can't afford to do much either. Rent I'm lucky, small bedroom apartment split with roommates so we only pay around $200 each! Gas and insurance are what take up most of my money, but even then I only pay $150 a month for insurance on my car which I think is cheap for my age/area.



Sherlock said:


> In my own case, I've had to stop hanging out with people who like to do things that cost a lot of money. This has resulted in a decrease in my social life, but I think it's worth it.


I've done this too. I drink a lot less these days and my wallet and health thank me! And I work weekends and stuff sometimes so I don't have time to always do stuff anymore which helps with the saving too


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## BigGuy (Feb 11, 2012)

Sherlock said:


> In my own case, I've had to stop hanging out with people who like to do things that cost a lot of money. This has resulted in a decrease in my social life, but I think it's worth it.


Don't let it disrupt your social life too much as it is a very important aspect of your general (and mental) health. Obviously we don't know specifics on how much your friends spend on a night out, but don't give up _everything_ just to save some money, we all need to reward ourselves even a little bit. Everything else sounds like you are on track to me though.


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## 44545 (Feb 14, 2012)

Compounding1,

You are doing very well for yourself! Keep it up and do please continue with the index fund investing; it far safer and more profitable than speculating on individual stocks. You didn't mention asset allocation (percentages of bonds, equities, international, sector funds etc). Not to derail this thread, an allocation plan should be a top priority for the money you have invested.

You hit the nail on the head on the TFSA: THE consideration vis-a-vis RRSP versus TFSA is the difference in your marginal tax rate at contribution time versus withdrawal. Some comparisons here:
http://worthwhile.typepad.com/worth.../the-basic-arithmetic-of-rrsps-and-tfsas.html

TL;DR: TFSA would be a great idea if you're in a low tax bracket now and will be in a higher one later, which it sounds like the case for you.

The New York Times put out an interesting "Rent vs. Buy" calculator you might find useful: http://www.nytimes.com/interactive/business/buy-rent-calculator.html


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## Young&Ambitious (Aug 11, 2010)

If you get to a point where you've run out of TFSA space and are still growing in your career (meaning lower tax bracket) you can contribute to your RRSP but NOT declare it. You declare the contributed amount (excluding any gains made since the time of contribution, so principal only here) and deduct it on your tax return where you reach that point where you are in a higher tax bracket.


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## MoneyGal (Apr 24, 2009)

CJOttawa said:


> The New York Times put out an interesting "Rent vs. Buy" calculator you might find useful: http://www.nytimes.com/interactive/business/buy-rent-calculator.html


Mortgage interest is tax-deductible in the U.S., which means this calculator is not representative of the situation in Canada (and also skews the calculation towards buying).


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## CanadianCapitalist (Mar 31, 2009)

Young&Ambitious said:


> If you get to a point where you've run out of TFSA space and are still growing in your career (meaning lower tax bracket) you can contribute to your RRSP but NOT declare it. You declare the contributed amount (excluding any gains made since the time of contribution, so principal only here) and deduct it on your tax return where you reach that point where you are in a higher tax bracket.


That's not correct. You have to declare any RRSP contributions. You do have the choice of not deducting it and carrying forward contributions to future years.


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## Compounding1 (May 13, 2012)

CJOttawa said:


> Compounding1,
> 
> You are doing very well for yourself! Keep it up and do please continue with the index fund investing; it far safer and more profitable than speculating on individual stocks. You didn't mention asset allocation (percentages of bonds, equities, international, sector funds etc). Not to derail this thread, an allocation plan should be a top priority for the money you have invested.
> 
> ...


Well I agree with you there regarding picking stocks, but the stocks I have been picking have been blue chip companies with a long history of paying dividends, and I haven't been worrying too much about the short term up and downs with them (unless I'm buying). BNS and BCE for example, when I see them get lower I buy. I wasn't sure about doing an index fund in my TFSA so i went with this approach. I just started my TFSA recently so I do have lots of room in it whereas I only have 4k left this year in my RRSP. And yes I plan on focusing on my TFSA until I can get a better paying job.

My asset allocation for my RSP index funds are 25% in each bonds, Canadian equity's, international equity's and US equity's. Basically took the strategy from the book Millionaire teacher with my bond allocation being around my age. I think my bonds are slightly lower though right now as I've been buying up equities since they've been dropping quite a bit lately. Does this allocation seem alright?


Thanks again for input everyone.


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## 44545 (Feb 14, 2012)

Bond percentage as a function of your age is a good approach, based on the reading I've done.

FYI, I have a few shares of Canadian, large-cap (ie "blue chip") stocks but I've gone direct and DRIP them outside of a registered account. That's my "play" money for investing. Those account for less than 15% of my asset allocation and I don't include it in my allocation strategy, beyond keeping it under 15%.


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## Young&Ambitious (Aug 11, 2010)

CanadianCapitalist said:


> That's not correct. You have to declare any RRSP contributions. You do have the choice of not deducting it and carrying forward contributions to future years.


Yes you are right, I should be more clear with my wording, thanks CanadianCapitalist


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## riseofamillionaire (Feb 23, 2012)

Compounding1 said:


> Hi all,
> 
> I'm looking for input on what I'm doing and maybe thoughts on what I could change regarding my financial plan I've made myself. I honestly am not sure what my long term goals are aside from (preferably) retiring early (55ish?) and purchasing a house. As of now, on my income, I can't afford the monthly payments on a house so I have been saving my money while I look for better career opportunities. Original plan was to keep putting in RSP for Home buyers plan but I've been changing as I go.
> 
> ...


You got your **** together. Good idea to add to TFSA now and wait till you have a higher income to add to RSP aggressively. Good luck!


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## Financial Cents (Jul 22, 2010)

Well done Compounding1.

I follow a similar strategy: owning blue chip companies with a long history of paying dividends. The way I see it, when the market tanks, it's time to buy more. I like when stocks go on sale. Also own BNS and BCE.

Focusing on your TFSA is a smart move. Well done again.

Millionaire Teacher is an outstanding book. I follow every post on his blog, and it's on my blogroll for a great reason.

Continued success to you.


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