# Starting Over



## startingover (Jun 16, 2011)

I'm 30 years old and I'm just about to be discharged from bankruptcy (owned a business it went south and I had no choice) 

I'm currently making pretty good money 88k a year and I essentially have no debt. I'm looking at the is as a clean slate to start over and do it right but I'm not really sure how to go about it. I had a meeting with an investment person at my bank and I was really disappointed they basically brushed me off because I had gone bankrupt.... His advise was to start a TFSA but I understand I can only put 5k a year into this, great idea but I can do more! 

So what should I do to make sure I can retire comfortably? I've been doing lots of reading on the internet and my head is spinning. It will be a few years before I can buy a house (need to rebuild my credit) but I would like to plan for purchasing one. I can comfortably invest $1500 a month and I would like to retire as early as possible... 

Ideas?


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## marina628 (Dec 14, 2010)

Max the RSP you can always use it down the road to help with the home purchase .


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## Karen (Jul 24, 2010)

I'm sure you know this, but just in case you don't, you can put $15,000 in your TFSA this year, assuming you've never had one before. After that, as you've said, you're limited to $5000 a year.


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## Jungle (Feb 17, 2010)

TD "E-series funds". Very low MER and no commission to make contributions. Max out your TFSA and RRSP. Do a portfolio here under model portfolios :

www.canadiancouchpotato.com


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## I'm Howard (Oct 13, 2010)

http://www.fiscalagents.com

This is a great site that will allow you to play games with numbers.

Income Properties on HGTV, Buy a House , let some one pay ff the mortgage.


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## financialnoob (Feb 26, 2011)

As Karen pointed out, you can put more in the TFSA for the previous years. It's not a ton, but for someone starting out at $0, it's a good place to start. Based on the $1,500/month, you would be able to contribute in the TFSA (if you started today) and not max it out until late next year. Assuming you have nothing in RRSPs, that would be a solid start.

Do you have a lot of RRSP room from previous years that you didn't contribute to? If so, based on your salary, you might be able to max your RRSP, then use the tax return to fund your TFSA contributions. You could contribute around $15K to your RRSP, get around $5K back, and use that towards your TFSA. The extra $3K from your $1,500/month investing fund could go towards maxing out your RRSP and/or TFSA.

The TFSA can be used to fund your future house payment. You can also look into the Home Buyers Program which allows you to borrow up to $25K from your RRSP provided you haven't owned a new home in 5 years, which could fit your scenario. 

As for what to invest in with your RRSP/TFSA, that's a bit trickier. I'd read up on coach potato and do that with your RRSPs which will be the majority of your investment room. The TFSA room isn't as much, but allows for some gambling since any gains are tax-free. I'd be more aggressive with a portion of that if you're looking at earlier retirement, but you have to balance that with the future home purchase.

I'd open the TFSA anyways if you haven't done so already, as it's a very good, flexible tool that is free to open anyways.


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

For $1500 a month @ 1-2% interest, you might be able to make a few dollars ($200 a year perhaps) by investing that into a GIC. Check your bank's website for their current GIC rates. Besides that I don't know what else to suggest. The markets basically suck right now. You could shelter the GIC in RRSP if you don't think you'll need it for anything else.


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## KaeJS (Sep 28, 2010)

the-royal-mail said:


> *The markets basically suck right now. *


Not for someone starting at $0.

The markets only suck for _us_ because we are in them.

The markets are in this guys favour right now. The markets have dipped, the US has stopped pouring out bad news (for now) and Greece got their package of 120B euros from Germany and France.

Not saying it won't go lower, cause nobody knows. But if I were starting at $0, I might view this as a good opportunity. But of course, nobody knows.


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## KaeJS (Sep 28, 2010)

startingover said:


> I'm *30 years old* and I'm just about to be discharged from bankruptcy (owned a business it went south and I had no choice)
> 
> I'm currently making pretty good money *88k a year *and I essentially have *no debt*. I'm looking at the is as a clean slate to start over and do it right but I'm not really sure how to go about it. I had a meeting with an investment person at my bank and I was really disappointed they basically *brushed me off* because I had gone bankrupt?


30 years old making 88k/year with no debt?

Um. I wouldn't have brushed you off. Sure, you claimed bankruptcy, but you had a business. It's not as if you racked up $200k of consumer debt and had nothing to show for it except a big screen tv and 14 pairs of shoes.

This would have been a great opportunity for the investment advisor to create a relationship with you and start you off small in the right direction.

I would have advised the same thing he did (TFSA) but at 88k/year with no debt and the fact that you have a few years to go before you will be able to buy a house, there is certainly some degree of investing that can and should be done.

Let it be known that a TFSA is not like the "kiddies pool" of investments. A TFSA is the _best_ investment for any investor. It is Tax Free, what else could you ask for?

I would hook up my TFSA to a safe mutual fund or ETF with a low MER and a low beta that is more of an income fund than an equity fund. Because you do want to buy a house in a few years, you don't want to be swinging off the ropes and watching your value change drastically everyday.

I really love the BMO Monthly Income Fund, it has a 3 year beta of 0.85 (which means it is not as volatile/risky as the market) and the MER is 1.51 (this is a little bit high, but nothing to worry about too much). It pays out a 9% yield, which is FANTASTIC. The 52 week high and low is 7.79-8.31 (so as you can see, it doesn't fluctuate much at all.)

It pays out 6cents per share every month, so if you have 100 shares, which would cost you about $800 to invest, you would return $6/month, plus capital appreciation (which is almost nonexistant)

It would preserve your capital investment (which is what you want since you want to buy a house) and it will give you that little bit of kick every month to grow your investment in a safer environment. Completely managed so you wouldnt have to worry about it.

You can check it out here:
http://quote.morningstar.ca/quicktakes/fund/f_ca.aspx?t=F0CAN05MBV&region=can&culture=en-CA

and here:
https://secure.globeadvisor.com/gi/db/gaf.fund_pro?fundname=BMO+Monthly+Income

Edit:

Oh, and welcome to the forum!


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## Jon_Snow (May 20, 2009)

That BMO fund looks almost too good to be true. Surely there must be some downside to investing in that.

If I didn't have 100k locked away in a GIC for another 8 months I could drop over 200k in that fund tommorrow and start realizing some huge monthly payouts.

Why would anyone bother with stocks over something like this?


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## KaeJS (Sep 28, 2010)

Look at the price history.

it is quite stable. The biggest fluctuation in the past 10 years has been from $6-$10.

But of course, past performance is not indicative of future performance.


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## donald (Apr 18, 2011)

You could open up a non registerd investment acct along side a tfsa and rrsp.


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## Henry (Jul 12, 2009)

KaeJS: 

BMO Monthly Income's distribution yield of 9% does not mean that the underlying securities that portfolio holds is yielding 9%. Using an estimate, the underlying securities that portfolio holds is yielding around 3% to 4%. The large difference in the two yields consists of return of capital. BMO Monthly Income is returning the investor's own capital, making the distribution yield to look very high. Thus, BMO Montly Income's distribution yield is very confusing to the regular investor.

OP:
Maximizing your RRSP sounds like a good ideal. TFSA is very good as well. Hats to TD e-series as possible core positions.


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## KaeJS (Sep 28, 2010)

Correct.

It essentially "eats away at itself". But that's what makes it stable. The fund is able to produce about as much as it pays out for the most part.


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## Henry (Jul 12, 2009)

KaeJS:

There is quite a bit large gap between what BMO Monthly Income receives from its underlying securities and what it pays out to the shareholders of the fund. In today's environment, the underlying securities yield at most 4% to 5%, but BMO Monthly Income distribut 9%. There is a 4% to 5% difference. On top of 9% yield, there is a 1.51% MER for management fees and trailing commissions. I am still not able to understand why BMO chose a 9% distribution yield for BMO Monthly Income, when there is no way that the underlying securities can support such a large distribution and MER.


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## KaeJS (Sep 28, 2010)

It is simply a fund that maintains or preserves capital while dealing out some income every month.

The holdings are about 50% bonds and 50% equity (something close to that, anyway) and as we all know, stocks and bonds move in opposite directions.

The fund is only for people who aren't looking for capital appreciation.
They're basically grabbing the bonds that are yielding higher %'s, as well as using the equity to keep the share price slightly increasing. Most of the equity is Bank stocks, anyway, so yes. You are right, there is also a 3%ish payout from the equity stocks.

I think its a great idea. Get some bonds for the yield, and some equity so you don't eat the share price up too much, while also taking the small yields from the equity. Sounds good to me as long as you keep in mind that you are exposed to a falling NAV as soon as your equities start to go sour and bonds don't play "catch up". If the bonds remain the same and the stocks begin to fall (like right now) the NAV is going to decrease and the 9% yield is also going to help decrease it as well.


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## Sampson (Apr 3, 2009)

KaeJS said:


> It is simply a fund that maintains or preserves capital while dealing out some income every month.


The problem with this (not necessarily a problem depending on your financial situation) is that when you actually go to sell your holdings, your cost basis will have been reduced and you will pay more capital gains tax.

So if you consider tax implications, these monthly income funds may not be as 'advantageous' as they first appear.


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## KaeJS (Sep 28, 2010)

Sampson, they are not that tax friendly.

However, that is why I suggested earlier in the thread he put it into his TFSA...


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## Henry (Jul 12, 2009)

KaeJS:

Bond yields are extremely low right now. 

According to CanadianFixedIncome.ca,

10 Year Canadian Treasury Yield: 2.94%
30 Year Canadian Treasury Yield: 3.39%

10 Year Ontario Yield: 3.71%
30 Year Ontario Yield: 4.22%

Corporate yields are a bit higher, but they are still very low in comparison with historic rates.

I have been wondering if stocks and bonds will fall together due to historically low yields. It has happened before during late 1970s to early 1980s.


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## Sampson (Apr 3, 2009)

Its not only the tax implications. There is also risk of change in the payout. The majority of cash used to payout the distributions is really not derived from trading of the underlying equities, nor dividends, nor interest income from the bond holdings - it comes because the funds are open.

So if these products become out of favor and new funds stop coming in, the managers will inevitably HAVE to cut the distribution. Money doesn't come from thin air and as mentioned before, the numbers just don't add up to 8-10%.


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## KaeJS (Sep 28, 2010)

^ That is when you cash out and put your money elsewhere. 

I've got absolutely no argument for that, Sampson.


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## Henry (Jul 12, 2009)

Sampson:

I agree with you on that point.


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## Sampson (Apr 3, 2009)

KaeJS said:


> ^ That is when you cash out and put your money elsewhere.


I've owned these products in the past, they aren't terrible, but they do have inherent risks. The saving grace for the present is that they are extremely popular, and I would expect them to continue to be, with so many people both retirees and not looking for steady income.


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## kcowan (Jul 1, 2010)

KaeJS said:


> ^ That is when you cash out and put your money elsewhere.
> 
> I've got absolutely no argument for that, Sampson.


But if there are no buyers at that time, won't the value of the shares accelerate downward?


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## Sampson (Apr 3, 2009)

The value shouldn't decrease, because nothing has happened to the underlying holdings, however, the distribution would probably get slashed to the real payout of the holdings, I'm guessing somewhere in the 3-6% mark.

(The top debt holdings seem to be government coupons at upwards to 8%, so I'm guessing they probably hold a lot of corporate debt with reasonable interest rates)


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