# Late Starter...Help me with a Plan



## snowbird (Jun 14, 2012)

I've learned so much from reading this forum the past couple weeks and need your opinions on what to do in my situation.
I am a 35-year old recent immigrant and have worked here for about 4 years, I am in a stable employment and make $106K/year. Here is a snapshot of my current finances:

RRSP - $24,126 in mutual funds at RBC (Canadian equity fund, currently $4K below book value)
TFSA - $0 (withdrew all $15K saved this year for down-payment on mortgage)
Sunlife Non-reg savings - $18,430 (in funds...60% equities, 40%bonds and money mkt fund...8.6% return in 3 years) 
Company stock account - $14,700
Cash (in Rbc Direct Investing) - $30,500 - was planning to invest long term in index funds 
HISA - $2,000
Mortgage - $347,000 
LOC - $4,000 

I have struggled to get my head around a plan and have started to panic because i don't think i've saved enough and dot know how best to grow my money. Here is my plan for 2012-3:

-Sell MF and put funds in RDI to purchase etfs (which ones though?)
-Move non-reg savings next year to TFSA into RDI (What to invest in? - Tier 3)
-RRSP Contribution room of ~$20K in 2012, (invest in what?) 
-Have $5K added to HISA (TIER 1 savings)
-Pay off LOC

What do you think? Should i take a loss on the MF now or just leave it? 

Am i starting out too late, will i ever catch up? 
Sorry this is so long!


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## OhGreatGuru (May 24, 2009)

No, you are not starting out too late. I sense some beginner incipient panic, but you have a good job, a good income, and your indebtedness (nearly all mortgage) is not unusal for your age.

Some quick thoughts:
You are too focused on what instruments you should invest in. Instead of thinking about whether you shoudl be investing at all, as opposed to paying down debt while maintaining adequate savings.

You have $65K in unregistered cash/investments, (counting the stock) but have a $347K mortgage and $4K in a LOC. There are numerous threads on the topic of "Should I invest or pay down my mortgage?" Read some of them. The vast majority of opinion is that paying down debt is the best "investment" for most people. So decide how much you need as a "safety reserve" and direct the rest to paying debt.

Your "safety reserve" should be fairly liquid and non-volatile, so you don't want to invest it in the markets anyway.

SunLife Mutual Funds will probably have high MERs compared to many other alternatives. So look to dispose of those.

Keep your RRSP for long-term investment. RBC CDN Equity Fund is a closet indexer, like a lot of big corporate equity funds. Switch it for RBC CDN Index fund at an MER of under 1% while you think about whether you want to move your money elsewhere, or come up with a different asset allocation. The RBC Equity Fund is down now because the market is down, but so is the Index fund, so you don't really lose in moving it.

Holding a lot of stock in the company you work for is not good risk management. If things go sour you can lose both your job and your savings. The usual advice is to sell it periodically so you don't have too much savings tied up in it.


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## Spudd (Oct 11, 2011)

I agree with most of what OhGreatGuru said, except for the Sun Life part. If the Sun Life funds are in a group plan through your employer, the MER's might be reasonable. I have my work retirement plan through Sun Life and the MER's are all around 0.5%, quite reasonable.


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## OhGreatGuru (May 24, 2009)

Yes, I should have added the qualification that Spudd mentions. Furthermore I just looked up a number of their balanced funds and even their A series MERs are not as bad as I thought, compared to a lot of other "managed" balanced funds.


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## snowbird (Jun 14, 2012)

Thanks for the responses. Yes, you are correct OhGreatGuru, i woke one day and realised its only 5 years to go before i turn 40 *gasp*:distress: and i am starting to freak out because i always wanted to retire at 50!

So how does this sound:

1. Dispose of the company shares as soon as there is some uptick in the market (fingers crossed) and put this in a cash reserve as ~ 6 months of monthly expenses (Leave this in a HISA or GIC?).
2. Keep the Sunlife non-reg investments (as both you and Spudd commented, the MER's aren't bad) for savings towards a goal (currently grad school tuition next year)
3. Max TFSA and RRSP and move all other cash towards paying down mortgage (although - i'm locked in for 3 years at 2.79%, so is it prudent to still accelerate payments in those 3 years?)
4. Any bonus/Tax refund/Salary Increases goes towards paying down debt 

Also, I am holding U$20,000 in cash in the RDI account as i was looking to purchase a US ETF (to diversify) as a long term saving plan but now that i am working out a plan like the above, should i convert this to CAD and apply funds as above or is there any merit to holding US stocks long term (in RRSP or TFSA)

I wish i would have found this forum 5 years ago *sigh* I'm afraid i spent way too much than i needed to in the beginning but i am living frugally now and reading up as much as i can in order to escape the rat race ASAP. It is now SAVE, SAVE, SAVE for me:encouragement:

Your opinions are welcome and most appreciated!


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## MoneyGal (Apr 24, 2009)

You are not on track to retire at 50 based on your current age, your current indebtedness, your current assets and your plan to attend grad school (unless you are going to do so while working). BUT! As has been said earlier in this thread, you aren't in bad shape. If you reframe your retirement goal to age 60+ and focus on reducing indebtedness while building savings, you will be fine. This will mean continuing to live frugally, which can bring a lot of joy in and of itself.


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## steve41 (Apr 18, 2009)

I made some assumptions as follows

- 3% market going forward
- 25 yr mort at 4%
- 25K reg, 50K nonreg ( 60% taxed at cg rate)
- 4% 25 year mortgage 
- 2% inflation. retire at 50
- die broke at 95
- reduced CPP expect by 50%
- lifestyle reduction at retiring 70%

Result.... doable ($30K lifestyle pre age 50, $21k after)

To beef it up, if I knew the RE value, I could have added a downsizing/outright sale or reverse mortgage strategy.

Let me know if I missed anything drastic.

For those of you who are curious.... this took me 10 minutes including posting it.

The plan

Steve


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## OhGreatGuru (May 24, 2009)

_...So how does this sound:

1. Dispose of the company shares as soon as there is some uptick in the market (fingers crossed) and put this in a cash reserve as ~ 6 months of monthly expenses (Leave this in a HISA or GIC?).
2. Keep the Sunlife non-reg investments (as both you and Spudd commented, the MER's aren't bad) for savings towards a goal (currently grad school tuition next year)
3. Max TFSA and RRSP and ..._


Sounds pretty good. 
a) 60/40 balanced mutual fund is too high in equity for a short-term savings plan;
b) If you like the Sun Life funds can you transfer some or all of them to TFSA's? (Recognizing there may be a realized capital gain tax hit if you do.)


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## Sampson (Apr 3, 2009)

steve41 said:


> For those of you who are curious.... this took me 10 minutes including posting it.


What is the likelihood of the mortgage rate staying at 4% for 25 years?


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## Oldroe (Sep 18, 2009)

These funds are likely back load meaning penalty's to get out early. Check before you move.


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## steve41 (Apr 18, 2009)

Sampson said:


> What is the likelihood of the mortgage rate staying at 4% for 25 years?


 You could say that about the 3% market as well. I could adjust the 2 rates upwards at some future time, but didn't.


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## Sampson (Apr 3, 2009)

Now that I look back at it, you have 1% real returns going forward? You must be a bigger bear than some of the famous CMF bears.


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## steve41 (Apr 18, 2009)

Sampson said:


> Now that I look back at it, you have 1% real returns going forward? You must be a bigger bear than some of the famous CMF bears.


 Also, you might guess (correctly) that I am not in the 'biz'. (Except for the s/w biz, of course)


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## Soils4Peace (Mar 14, 2010)

Is there an options market for your company shares? You could
Write covere calls on them till they finally get called away.


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## lonewolf (Jun 12, 2012)

I would start with the money management of your budget.

Liz Weston recomends 50/30/20 budget, but also recomends starting to save as soon as possible.


50% of after tax money on Needs the things you need to spend money on or else you end up in the grave i.e., food, shelter, clothing & transportation for job. ( shelter can be anything from a card board box to a castle)

30% of your after tax income for having fun i.e., entertainment , vacation etc

20% of your after tax income for saving & investing


By only having 50% of after tax income for needs it allows you to take money from income for having fun & put it to needs & savings if salary should drop. If salary drops to much I would reduce percentage of money for having fun.

The most important thing is to save @ least 20% of your income. You will most likely be miles ahead of someone that chases after large returns but saves very little.

Best


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## kcowan (Jul 1, 2010)

In Vancouver, the average family has to commit 84% of their family income to shelter for the average SFH. Add in the other needs and the total reaches well above 110%.

Yes the insanity continues...


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## snowbird (Jun 14, 2012)

Thanks to everyone for your inputs. I am doing a lot of reading, revising my plans and adjusting accordingly.

I have 2 quick questions

- if i were to transfer the RRSP Balance invested in a Canadian equity MF to a different investment vehicle (say an ETF) at a loss, would i be able to claim a capital loss and then apply this to potential capital gains from selling my shares in the company i work for?
- how does one buy a US holding in an RRSP since contributions are in CAD?. I was thinking of buying VTI or some other US exposure from the proceeds of the MF

Thanks so much for your time.


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## Spudd (Oct 11, 2011)

1) RRSP's are tax-sheltered, that means that neither capital gains nor capital losses apply within an RRSP. So if you change investments at a loss, there's no paperwork involved. You also can't use a capital loss in an RRSP to counteract a capital gain outside an RRSP. 

2) Your broker will convert the currency for you when you buy a US issue in your RRSP. The exchange fee can be somewhat high, so if you're planning to do it with a large amount of money it can be worth looking into something called "Norbert's Gambit". I won't get into the details because I think it varies by broker and stuff, but if you Google it or search this board you should be able to find information.


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## snowbird (Jun 14, 2012)

Thanks for the feedback guys. 
So far so good...RRSP maxed for 2011. TFSA funds set aside for 2013. Next - cancel debt 

I am wondering if i should cancel my credit cards and or/line of credit. 

Line of credit $5,[email protected] 7%....current balance is $2K, to be paid off by Aug 31
2 CCs, each with $4K limit...current combined balance is $800 on both...to be paid off by end of Aug.

Once these are paid off, i will only have mortgage debt. I want to pay for everything using cash and i really don't need any credit.

So, do you think i should close these accounts or keep them or ask for smaller credit limits. What are the implications of closing them on credit score, etc


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## mind_business (Sep 24, 2011)

Not sure why you're wanting to reduce CC's, and close your LOC??? Aside from a large mortgage, hard to avoid in Calgary, you don't seem to have a problem with debt control. Used responsibly, a LOC and CC's are very useful. 

If you don't mind me asking, what is your goal with your mortgage? Are you content with minimum payments, or do you have a plan to actively pay it off with larger payments? How long does your plan require to pay it off completely?


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## Spudd (Oct 11, 2011)

I would keep at least one credit card for online shopping. The only reason to get rid of credit is if you feel you can't trust yourself with it. If that's the case then by all means get rid of it.


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

If you can't trust yourself with credit cards why not freeze them in a block of ice? That can be your first step.

But yes, it's best not to cancel them all outright. Freeze maybe one or two (to be kept for emergencies, online shopping, hotels, car rentals, flights etc) and ditch the rest. 

It's also risky to not have a credit card in your wallet in case you need it when you're out travelling and need it for hotels etc. Hopefully you can learn to control your habit of abusing the credit card as it can be a very useful thing if used responsibly.


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## cuppycake (Apr 10, 2012)

+1 to not cancelling the credit card

You should keep at least one to continue building your credit. If you're concerned about managing it, you can do this:
Assign a small bill to be pre-authorized to your credit card. E.g. A cell phone bill (mine is regularly $45/month)
Have automatic payments to the credit card from your bank account.
You build credit without having to do much management at all.


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## peterk (May 16, 2010)

snowbird said:


> So far so good...RRSP maxed for 2011. TFSA funds set aside for 2013. Next - cancel debt


Just to double check here. You say you've got $28k into RRSPs? If you've made nearly your current salary at the same company for the last 4 years your RRSP limit should be around 70k. RRSP room rolls over every year. You should check your 2011 notice of assessment to see if you have any past, unused contribution room still.


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## snowbird (Jun 14, 2012)

I have always been pretty responsible with credit but since buying my place i cannot seem to stop spending on the apartment and every time i carry a CC or CL balance, i feel so terrified and go into serious panic mode until its paid off. :distress: Even the mortgage scares the heck out of me. I come from a place where we had to pay cash for everything. 

So I guess i will keep the CC and CL and probably not carry the CC on me (except when traveling) until i have learned to live on the budget i just made. I'm super excited about my budget and will post it in my dairy to track my progress.

@MB - I am on a bi-weekly payment schedule and my plan also includes making an annual pre-payment of ~$30,000 so my goal is to be mortgage-free in 10years. The plan is to concentrate on maximizing reg. savings and throw all extra cash at the mortgage going forward.

@peterk - My salary started at $70k in 2008, and i've had annual increases to bring me to $106k. My total room to feb 2013 is $44k and i just last week added $16k to the $28K bring me to the max. Bear in mind the Pension adjustment which is ~7% of base salary.


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## snowbird (Jun 14, 2012)

Hello 

I'm looking for advice, please bear with me as these may seem like 'no-brainer questions to you'

I'm reading/and hearing that bonds are not currently a viable investment vehicle in this market, so should i just be putting everything in equities? How else can i diversify and include some fixed income. Do i even need to at my age (35)?

Also, i have some bond fund holdings in a non-reg account with Sunlife through work. Should i be getting rid of these now?

here is what i am currently thinking of buying:

TFSA ($5K) - CDZ
RRSP (U$15k) - VTI
RRSP (C$24.5K) - VEA and VWO (Do you think i should convert to USD first)

What do you think?


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## 44545 (Feb 14, 2012)

snowbird said:


> Hello
> 
> I'm looking for advice, please bear with me as these may seem like 'no-brainer questions to you'
> 
> ...


Start here:
http://canadiancouchpotato.com/2012/07/30/comparing-the-costs-of-index-funds-and-etfs/

TL;DR: You should be looking at index mutual funds (TD e-series or other low MER) until your portfolio grows large enough that trading commissions on ETFs wouldn't overwhelm the returns. (from the above-linked article, the breakpoint at $29 trading commissions is an $84,000 portfolio, which you're well under)

Model portfolios: http://canadiancouchpotato.com/model-portfolios/
...and here: http://canadiancouchpotato.com/recommended-index-funds/

My gut reaction to your statement about holding a bond fund with Sun Life is "I wouldn't hold an investment product with an insurance company" but I have no data to back that up. (anybody?)

Full disclosure: my portfolio is based on the TD e-Series Couch Potato model and does have a bond fund component.


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## blin10 (Jun 27, 2011)

you should put all the money towards mortgage (get a heloc), every penny you have put it to your heloc (if you need money you can easily transfer them back online with few clicks).. if your mortgage is around 3-4% that's like getting 5-6% (because it's tax free) return with 0 risk


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## snowbird (Jun 14, 2012)

Thanks for the links CJ. I'd be paying $9.99/per trade at RBC and i will trading infrequently, couch potato/hold strategy for now. Do you think there are still other low MER-funds out there that beat ETF? I don't bank at TD so i guess TD e-series are out. 

blin - Are you saying no RRSP or TFSA at all until mortgage is paid off? I'm putting all non-reg investments towards the mortgage but planning on keeping RRSP and TFSA. I wouldn't be comfortable with no cash and having to rely on bank loan.

thanks for your comments


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## blin10 (Jun 27, 2011)

" I wouldn't be comfortable with no cash and having to rely on bank loan." whenever you need cash you can easily transfer funds back to saving account without any fees in 10 seconds online... your heloc will be just like any other account when you login online... and about rrsp/tfsa/etc *in my opinion* it's a waste based on time value, I want my money right now not when i'm 60 (you might not even make it that far)


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## snowbird (Jun 14, 2012)

I came across an article that said 'not more than 15% can be held in foreign stocks, including US. I'd never heard this before so maybe its a really old rule?

Thanks


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## Spudd (Oct 11, 2011)

Yeah, that's a really old rule.


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## snowbird (Jun 14, 2012)

thanks Spudd


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