# Seeking Advice for Short Term Plans



## Barwelle (Feb 23, 2011)

Hey everyone, I've been lurking around this site and a few personal financial blogs and now I wish to get a little more involved, as well as see what you folks have to say about my situation. I have some travelling in mind, as well as investing in property/house in a few years, so I want to run my plan by you and see what you say.


*Where I stand:*

I am a college-educated 21-year-old Albertan, living at home currently so expenses are low. I have no debt, no kids, a full time job, a reliable car with many miles ahead.

$12,000 saved up in a HISA (for travel... more on that later)
$3,000 in the every-day banking account
$9,000 in a managed investment account, which is all in mutual funds (this is left-over education savings, but not in an RESP or anything)
That leaves me with about $24,000 of cash/investments.

*The Upcoming Year*

Next summer, I plan to take an extended break from working to backpack Europe for 3-6 months... I'm expecting this to cost me up to $15,000. Afterwards, get back to work, live with my parents if possible, and continue to put away money.

$25,000 - the conservative amount of money I expect to be left with after taxes and expenses for the next year up until my trip
($15,000) for the trip

So I end up with $34,000 worth of cash and investments when I come back home (being conservative).

*The Five Year Plan*

In 5 years (3.5 yrs from my trip's end, when I'll be 26) I aim to own property... whether it be farmland or a rental home or condo. If I buy a house, I will either live in it and rent a room or two out, or I will rent a room elsewhere for myself and rent out the entire house so that the mortgage interest is tax deductible... whichever way works out better with the numbers.

I would also like to have $5,000 set aside by this point strictly for retirement... I want to have a start on this, even though it's not much.

*How do I get there?*

The advice I am seeking is: What to do with my money until then. I will be holding $15,000 for one year in a savings account earning 1.5% interest... I'm guessing that is the best use of that money because I don't want to lose it, and the best one-year GIC's I can find out there only give 0.25% more interest. Is there another option?

Then I'll be making the $25,000 over the next year, plus the $9000 in the investment account, plus whatever money I make after the trip for the down payment on my property. I will be holding this money until I buy the place, so for no more than 5 years. What to do with this?

I could throw it all into the managed investment account, but I don't like how little control over it I have, and the high MER on it. I have been looking into TD e-series funds, and investing in those indexes with 20-30% in the Cdn bond index and the rest spread over Cdn, US, and Global equity indexes until the time comes to put my down-payment. But is 5 years too short of a time-frame to be worth the risk to do this at all? Maybe I would be better off going, say, 50% bonds? Or put some in long-term GIC's?

I plan on doing this with the retirement fund in a once I have enough of it saved up to make it worth while, then eventually move into ETFs and possibly individually investing in stocks and bonds if I'm comfortable enough with it. (but that's light-years away.)

The general consensus from people I've asked already is to leave it to the pro's... i.e., throw it all (trip savings, down payment, & retirement) in the managed fund and let them deal with it... but like many people on this forum, I am more hands-on than that.

So... thoughts? Suggestions? Need clarification? Are some of my facts wrong? What would you do? I very much appreciate everyone's input.


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

Looks pretty good - sounds like a lot of fun times are ahead of you.

I wouldn't get too focused on a 5 year plan. Nobody expects you to have this at your age. Just have fun and follow the rest of your general plan and be prepared to make some minor changes to this as you go along.

I personally think you are doing very well. I didn't have anywhere near that kind of money when I was your age.

Good luck.


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## Barwelle (Feb 23, 2011)

the-royal-mail said:


> I personally think you are doing very well. I didn't have anywhere near that kind of money when I was your age.
> Good luck.


It's a combination of living cheaply, working through college to pay for it, and an insurance payout from a car accident.

I'm mostly just looking for advice on what to do with the money I'm saving up for buying land or a house, whether it's 3, 5, 7, or 9 years from now... I just picked 5 because it seemed like I could save enough to do it by then.

Should I have put this in the general personal finance talk section?


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## Four Pillars (Apr 5, 2009)

For the $15k with a one year time horizon - the savings account is perfect. Perhaps you can shop around for a better rate? Not sure if that is worthwhile.

I would do the same for the $25k + $9k that is needed within five years. Five years is not a long time if you are going to get into equities. It's also possible that it ends up being quite a bit less than five years.

If you really want to have some equity exposure, I would keep that allocation small. I'm thinking maybe 25% maximum.


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## Barwelle (Feb 23, 2011)

Thanks for the advice.

The best HISA rate I've seen is 2.0% at Ally. That is a $75 difference over one year, the length of time I'll have this in savings. For now, it's not worth it to me, but when I settle down a bit and have more responsibilities, I'll take another look around and get the best rate for an emergency fund in cash.

Canadian Tire has a 3.5% TFSA savings account, but I'm sure that won't last.

Whatever I do, I feel like I will put at least a portion of it into equities. I want to get experience and get used to managing my finances beyond cashing a cheque in the bank and paying bills, even if it's through something as simple as index funds.

Would you simply put much of it into bonds and GIC's? Or leave it all as cash?


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## Taxsaver (Jun 7, 2009)

I wish I had been serious like you when I was your age. I'm 45 and lagging far behind, financially speaking. I just got out of debt last year after a decade in debt. But things are going great for me, and the best is to come. I am very grateful to all those here in this forum who supported me. 

2010 was the first time of my life that I have more than $1,000 in my bank account.  

Congratulations.


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## Four Pillars (Apr 5, 2009)

Barwelle said:


> Whatever I do, I feel like I will put at least a portion of it into equities. I want to get experience and get used to managing my finances beyond cashing a cheque in the bank and paying bills, even if it's through something as simple as index funds.


Good idea to get started with some equities. Doing is the best way to learn!




Barwelle said:


> Would you simply put much of it into bonds and GIC's? Or leave it all as cash?


Hard to say - personally I would probably just leave it as cash. However, if you know for sure that at least some of the money won't get used for a specific time period (let's say five years), it might be worthwhile to lock into a GIC and get a higher rate, if one is available.

As your arithmetic example shows, it's possible to do a lot of effort trying to maximize your return and not get much extra in return.

If you are interested in learning more about managing your money, I would focus more on the equity side. One suggestion is to figure out what allocation you want to have your money and then put the cash portion in some easy vehicle (HISA) and then don't spend any more time on it. Spend your time on the equity portion - researching brokerages/setting up an account/learning more about investing etc.


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## tinypotato (Jul 27, 2010)

Congratulations on having goals and a good start to achieving them. It's great to see that you plan to travel a bit and see the world.

I think your idea of putting "some" into equities is a good idea. An index fund would be perfect for this. Apart from potentially higher gains, the experience and ability to know how you "react" to ups-and-downs in the market will serve you very well in the future.

I'm not a big fan of bond funds at this point in time; rates appear to be at an all time low, so there's not much wiggle room left. Given your relatively young age, stick with equities for some experience and a high-rate savings account for the travel fund.


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## Barwelle (Feb 23, 2011)

Taxsaver said:


> I wish I had been serious like you when I was your age. I'm 45 and lagging far behind, financially speaking. I just got out of debt last year after a decade in debt. But things are going great for me, and the best is to come. I am very grateful to all those here in this forum who supported me.
> 
> 2010 was the first time of my life that I have more than $1,000 in my bank account.
> 
> Congratulations.


Thanks! I know that I'm young and have lots of time ahead of me, but I also that somewhere down the line I'm going to make a big purchase so I decided to start saving and planning early instead of potentially missing a good opportunity, and then having to wait to get what I want. 

You know what though, you could have done far worse by age 45. I wouldn't doubt that there are loads of people out there in their 50's and 60's who are going to get a shock when they realize that their lifestyle is not sustainable on OAS and CPP.



Four Pillars said:


> If you are interested in learning more about managing your money, I would focus more on the equity side. One suggestion is to figure out what allocation you want to have your money and then put the cash portion in some easy vehicle (HISA) and then don't spend any more time on it. Spend your time on the equity portion - researching brokerages/setting up an account/learning more about investing etc.


Not a bad idea. The returns on fixed income would be so low that it wouldn't be worth all the effort, especially since I don't have loads of money to play with anyway.



tinypotato said:


> I think your idea of putting "some" into equities is a good idea. An index fund would be perfect for this. Apart from potentially higher gains, the experience and ability to know how you "react" to ups-and-downs in the market will serve you very well in the future.
> 
> I'm not a big fan of bond funds at this point in time; rates appear to be at an all time low, so there's not much wiggle room left. Given your relatively young age, stick with equities for some experience and a high-rate savings account for the travel fund.


Yep, I'm indexing it for now, then later on I'll look into trading ETFs.

I'm toying with the idea of starting a retirement fund... It feels crazy because I'm 21 but I wouldn't even notice 5% of my money disappearing into a retirement account. Right now I'm thinking about opening a TD e-series account for this and investing in equities only, then a TFSA Waterhouse account to put some of my travel funds into equities, with the rest in ING savings... still figuring it out though.

I'm a little confused with what's going on with the economy so I don't know if it's the best time to get in on equities though. From what I can tell, the markets (north american markets, anyway) have risen to close to the pre-recession level but there is still talk about unemployment and housing bubbles and such... but then there's also talk about rising prices, and gas is going up... There is much to learn.


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