# Looking for Advice - 30 w/ extra cash on hand



## ichmadvice (Mar 10, 2011)

Hello,


I am needing some advice about my current financial situation. Here are the details:


- 30 years old
- married, no kids
- My Income: ~180k/year
- Wife's Income: 50k/year

Assets
-------
House Value - $420k
My RRSP - $82k
Wife's RRSP - $24k
TSFA's - ~$15k each (No room available)
Cash: $115k (Sitting in ING & Ally)


Debts
-------
Mortgage - $122k @ 3.00% (Open + variable)


* My income is at its high levels and should remain at this level for 5 more years. At this point It could remain at this level, or I could have to take a different line of work and would most likely be earning a more average salary.


My question is, what can we do to take full advantage of a high income situation that might run out after a few years. I have been aggressively paying down the mortgage up until now, but I am not sure what I should do after that? My RRSP's are invested in TD's e-index funds. Would it make sense to invest in similar funds outside of my RRSP, or should I consider putting my investments somewhere else? (PHN?) 

I am generally not very optimistic about investing, but I also know I can't just keep my money in "high interest" savings accounts for the rest of my life. 

Any advice?

I have a feeling I might get suggestions to see a financial planner about this, how can I find a fee only high quality financial planner? I prefer the index/hands off style of investing, so I am not sure what advice they will help me with. I have an accountant that provides advice on the tax side of things.

Thanks taking the time to read this.


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

Welcome to the forum!

Wow you are doing exceptionally well. My recommendation would be to use your cash to pay off the mortgage. Esp since you say your high income could run out in a few years. Now is the time to pay that off. Once that is done, please consider structuring your finances as I describe in my sig file. You already have $15K x 2 in TFSAs which qualify as tier 1 or 2 but not both. And you already have RRSPs that qualify for tier 3. 

Priorities:

1. pay off mortgage
2. establish tier 2 savings
3. beef up your RRSPs

As well, is there anything else specific that you might want in the next 5 years, such as a new car, baby, trip or other capital purchase? If so, consider saving a 4th tier if you know now what you want.

Can you keep us posted on your progress every month or so? I would be interested.


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## newfoundlander61 (Feb 6, 2011)

Pay off that mortgage. We did this with our home last april and what a feeling. Then use the normal mortgage payment your use to paying and top up the RRSP.


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## Montrealer (Sep 13, 2010)

Wow, at 30! Your doing awesome. 

My advice to you:

1) Pay off your mortgage
2) Top off your RSSP's, savings and other investment accounts
3) Invest in a business or buy a revenue property

My advice is and has always been to invest in real estate at a young age and hold on to it until retirement, you will come to a point where you will probably hand it over to your kids or sell it off and live your retirement years with no worries. 

GOOD LUCK!


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## mcu (Dec 6, 2009)

Congrats on doing great so far! Curious as what line of work you are in.


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## MikeT (Feb 16, 2010)

CFL? 35 would be about that age... Salary's about right too.


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## Sampson (Apr 3, 2009)

Unless you are deducting mortgage interest or planning something for your cash, pay off the mortgage right away. Why pay the bank to borrow money @ 3% when they only give you < 2% back.


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## ichmadvice (Mar 10, 2011)

First thank you for the well wishings. Also, I'm a software developer and run a number of side businesses. I know these posts can make people curious, but I'd rather not expand on this anymore.

I agree that paying off the mortgage makes the most sense, and I'm really happy that I will be able to do so completely sometime this year. 

My question then moves onto what to do next now that I have a paid off mortgage. With our income I can expect to save a minimum of $50k per year and potentially upwards of $100k depending on how things go. With an outlook of this for the next 5 years, where would you put your savings/investments?


I know the end decision is mine based on risk & goals, but am hoping to get a good push into some good directions. (index-e's from TD? PHN funds? Is there a Vanguard in Canada? Others?)


I've been a long time lurker of a bunch of Canadian Personal Finance forums and this seems like a great community to actually join in on the discussions.


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## Cal (Jun 17, 2009)

Montrealer said:


> Wow, at 30! Your doing awesome.
> 
> My advice to you:
> 
> ...


I agree that you are doing great!

And agree to Pay off your mortgage. (why owe money at 3%, and have similar investments earning 2%-and paying taxes on the 2%)
Definitely top up your RRSPS.
And I would probably add some more non registered investments. You already have a 420K home, create a little more non RE equity, before taking on more.


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## Financial Cents (Jul 22, 2010)

You are doing AMAZING!

Congrats!

Similar advice:

1) Pay off your mortgage - be debt free!
2) Top off your RRSPs - shelter tax and get the tax-breaks!
3) Start investing in some Canadian banks, life insurance companies and REITs. They pay you to own them and for the latter, you don't have to worry about tenants!!

Good luck!


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## GeniusBoy27 (Jun 11, 2010)

First off, you're doing great.

I think there's a whole bunch of different pathways you can go down, and that you have to opportunity to choose them. However, I always believe context is important -- do you plan to have kids? How do you feel about owning real estate and gaining passive income that way? How willing are you to take risks in the stock market?

I think any way you go, you'll do fine, but you need to definite your risk tolerance, you long-term airms/goals, and the time frame in which you want to achieve it. Only then, can a clearer road map be built with the factoring of risk involved to achieve it.


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## Sampson (Apr 3, 2009)

ichmadvice said:


> My question then moves onto what to do next now that I have a paid off mortgage. With our income I can expect to save a minimum of $50k per year and potentially upwards of $100k depending on how things go. With an outlook of this for the next 5 years, where would you put your savings/investments?
> 
> I know the end decision is mine based on risk & goals, but am hoping to get a good push into some good directions. (index-e's from TD? PHN funds? Is there a Vanguard in Canada? Others?)


Google or search within this forum Canadian Couch Potato. With that much savings, you should be investing using ETFs rather than mutual funds. Use the KISS principle, allocate into CAD, US, and INT'L equity, then add some bonds and cash. % of each based on your goals and comfort level. Assume the equity allocations can drop by 30-50% in value, and close to that for bonds. Decide how much hurt in your portfolio you think you can take.

Maybe make 1-2 trades per month to rebalance your allocations.

Good luck, sounds like you're in a very good position.


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

A well designed portfolio with a Reinvestment program only needs visiting once a year, multiple monthly trades, that is gambling.


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## Sampson (Apr 3, 2009)

I'm Howard said:


> A well designed portfolio with a Reinvestment program only needs visiting once a year, multiple monthly trades, that is gambling.


Not if the OP has > $100k to deploy. It is called dollar cost averaging. While I am not a full proponent of this strategy, since it has been shown to work only when underlying markets are rising, it is a good strategy for novice investors to keep them learning.

The OP should have $4k per month to invest. Easily enough to continually top up his investments and maintain reasonable fee loads.


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## Causalien (Apr 4, 2009)

I manage my money differently from most people since I seek maximum return, so some of my ideas will be weird.

The 114k in mortgae is peanuts since you can pay it off in any of the 5 years. So instead of paying it off, its' better to be putting those money to use.

Within this year, QE2 will end and Canadian interest rate will go up, but you are still only at a 3% interest rate, so paying off that 3% is destroying a good thing, in fact I suggest get a HELOC out of the house (manulife one comes to mind), establish it as an investment loan and put all that equity in bank's preferred at 5% or more. This gives you some maneuver room with a liquid asset to do the next thing.

Once QE2 stops, bond rate should start to rise until a QE3 is announced, I suggest then to switch some of the preferred into bonds and low risk debt securities. If a QE3 is announced, sell once the prices go up. If a QE3 is not announced, you can then hold this to maturity. This should happen in 2012

2013 is a neutral year and QE3 should be well underway here. I would put as much as possible of my money into RRSP (actually I'd do this since year 1) because of your high income, then invest everything in the US stock market as long as QE3 is still in effect. At the same time, Canadian housing collapse should have begun and interest rate will rise to more average levels. This is a good time to pay off your mortgage and your HELOC for investment. I suggest using your preferred to pay for the HELOC and try to allocate percentage based on how close the interest rate is to 5%. Since most of the preferred above 5% are bank stocks. I suggest getting out of the banks now since they will eventually be hit by the housing problem.

2014 will be when Canadian housing collapse is in full swing. This is a good time to start moving the money back into Canada and start buying the REIT that are surviving. Wait until Canadian REIT have fallen at least 50% before buying. Now we should be fully focused on paying off the house mortgage. 

2015 Year of reckoning as you should be able to retire off of what you have. Lock everything into any safe security you can find at 5% as you reach $1mil in net asset. The longer the term the better. Then you have the luxury of spending everything you earn as income from any job.

This is assuming that you can guarantee the income you mentioned for sustained 5 years. I only lasted 2 years.


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## ichmadvice (Mar 10, 2011)

GeniusBoy27 said:


> First off, you're doing great.
> 
> I think there's a whole bunch of different pathways you can go down, and that you have to opportunity to choose them. However, I always believe context is important -- do you plan to have kids? How do you feel about owning real estate and gaining passive income that way? How willing are you to take risks in the stock market?



Thank you. We are hoping to have a kid or two in the next couple of years here. I'd be alright owning real estate if I thought it had much upside potential, but at least here in Alberta everything is already pretty pricey. Not very bullish on it I guess. 

I'm thinking the actual solution for me will be to pay off the mortgage asap and to always to top up the RRSP's. Plus I will start to invest in index funds, probably td e-index or phn. I think it might be hard to find really positive investments these days, but hopefully broad diversified index fund holding has a chance to grow.


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## Sampson (Apr 3, 2009)

The wonderful thing about having the mortgage paid off before you have children is that it gives your family the option of having a stay at home parent if you choose to do so. If you or your wife choose not to stay home, then that is great too, but at least with no mortgage, you have the flexibility.


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## GeniusBoy27 (Jun 11, 2010)

I totally agree with Sampson. It's a great option to have.


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## Phoenix (Jun 6, 2009)

My priority would be to first put maximum in a spousal RRSP.
Your high Tax margin/her low tax margin. Especially if she stays at home after having kids. You can withdraw after 3 years.. input 46% tax refund/withdrawal 20%.

Whether u pay off your mortgage or invest depends on what your yield could be. With your assets, you won't be defaulting on mortgage payments or paying off your principal

Preferred shares now paying 5% before tax plus div tax credit. Pay all expenses from your income, use spouse income for investing will result in lower tax rate.


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