# Student with 50k in mutual fund with no idea what he's doing



## Still_A_Student (Aug 1, 2013)

Hi guys,

As the title says, I'm a University student and my parents have put money into fund for myself. 
To be honest, I had little interest in my mutual funds because I figured I shouldnt touch anything since I don't know anything... Same goes for my parents and they put it all in BMO SelectClass Growth Portfolio and was wondering if we're doing something horrible?

I tried reading other threads and I can't really make out some of these numbers I found. 

BMO SelectClass Growth Portfolio:
MER: 2.58%
1YR Chg: 10.73%
3YR Rtn: 7.59%
YTD Chg: 7.86%

I don't need the money right now but I wanted to slowly start learning what these numbers mean/what I am putting my money into for when I graduate... I guess I'll go pick up that Investing for Dummies book!

EDIT: Wow thank you guys for the resourceful posts! 

The original cost of my fund was 48k to be exact and it is now at 54k after 1~2 years (I'm not exactly sure).
I also had 5k put into TSFA for the same fund and it is now at 5.6k

I am 21 years old currently but I will be in school for 4 more years and will be incurring debt with the student loans from now on. So I will need to pay off my debt after graduation. I just felt that I have been too ignorant where my money is invested at and would like to start learning! 


Oh and my parents have little interest because they are very conservative in terms of investments. They believe that there is nothing we can do and the best thing to do is to leave it risk-free with BMO haha...

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EDIT #2: Because it takes a while for my post to be validated and there is a lot of confusion lol... So as someone pointed out I am indeed entering professional school with projected tuition cost of 80K+. That doesn't include the supply cost and rent that I have to pay on campus. Also I will have 0 income from now on as I stopped my part-time job. I am not sure if I will be approved for government student loan (still pending, doubtful) but I will get a LOC from bank most likely.

I wasn't planning on using the loan to invest anyways (I don't like taking risk with money when I don't know anything really...) I was just asking questions about the fund I have now.


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## liquidfinance (Jan 28, 2011)

MER is your management expense Ratio. This effectively means that your return is being held back by 2.58% every year or to put it another way you are paying $1290 to the fund managers on an annual basis for them to manage this product for you. 

The MER will eat away your rate of return. This is what your 1yr change, 3yr and year to date change represent. So year to date your fund is up 7.86%

Something to consider if you like this fund would be to build it using a couple of ETF products. You can buy these commission free from a discount broker such as questrade.

Looking on Morning star the allocation of your funds are intended to be 80% Stock 20% Bonds

The bonds are then roughly 60% Canada and 20% US with the remaining 10% Japan, Luxembourg, UK, France, Cayman Islands, Mexico, Ireland & Germany.

Stocks are 70% North America, 16% Europe, 14% Asia roughly

Due to the weighting of fixed income in North America i'm not sure there is much protection by having these other holdings. The fund is heavily weighted to North America. For the examples included I have only used North American Bond holdings. 

In terms of ETF's we could buy

XIC - Canadian Capped Composite - MER 0.27%
IVV - US S&P 500 MER 0.07% ( US$) Or Currency hedged XSP MER 0.22%

There isn't a great choice with iShares for European or Asia without looking to the US offerings. Here we Can get 

IEV - Ishares Europe ETF MER 0.60%
AAXJ - MSCI Asia Ex Japan 0.67%
EWJ - MSCI Japan MER 0.51% if you wanted to obtain the exposure to Japan. 

Fixed Income
XBB - Candian Bond MER 0.33%
XIG - US Corporate Bond MER 0.31%


So the above holding would give you roughly the same portfolio but with a combined fee of roughly 0.35% instead of BMO at 2.58% That is quite a significant saving.


Neither you or your parents have done anything horrible but a little reading on your part a discount brokerage and some time could build you a similar product and save you a lot of money.


The sample portfolio using the products listed would also provide a yield of roughly 3% or $1471
The YTD return of this portfolio is roughly 7.6% excluding dividend payments.


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## J Watts (Jul 19, 2012)

That's a huge MER for what you're investing in (if you don't know, see here).

With this fund you're investing in 75% equity/20% bond/5% cash. And to make it even worse, this fund only invests in other BMO funds, not directly in any companies. If you want this same exposure and risk, look into the Couch Potato.


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## humble_pie (Jun 7, 2009)

lucky you, in that the parents have seen fit to offload 50k onto you - perhaps for tax reasons - without ensuring that you know how to take care of it.

& hearty congratulations to you at the same time, for grasping that you do have both a freedom & a responsibility for those funds, also for understanding so quickly that you have some studying to do.

i knew that various cmf members would appear & start counselling you to change your BMO growth fund, buy something else instead, do this, do that.

but i for one don't believe you should change anything at this moment. There's no use jumping from the frying pan into the fire. In the very short term, this fund is doing you no harm.

yes, it's costing you north of 3% per annum, or $1500 a year, or $4.11 per day to manage (the 3% is arrived at by including the commission costs which the fund charges for buying & selling its own portfolio. These are never included in any stated MER. They are only divulged in the financial notes to every fund's annual audited statements.)

however, i believe you should carry on paying $4.11 per day a little while longer, while learning enough to develop a sound financial plan for yourself.

the critical issue is not dumping-this-fund-or-buying-any-other-product. The critical issue is gaining enough knowledge to plan well for your financial well-being. The financial tools you should be acquiring now are going to permit you to adjust your financial plan according to life's events. According to how graduation, employment, travel, marriage, mortgage, children, changing jobs, possiby changing careers, middle age, etc loom up & stream through your life.

after Dummies, there's a reading list here called Eight with Weight. It's posted as a sticky at the top of this section. Browsing here in cmf forum does yield lots of nuggets, if you can stand the chaos. Please come back with questions!

speaking of questions, could you let us know why you don't need the money right now, but you will need it when you graduate? i ask because this is the opposite of most student profiles. Will you need the funds immediately upon graduation to buy a business or open a professional practice? if so, this would mean conservative investments in the meantime, not a growth fund ...

once again, hearty congratulations for starting out on the right foot.


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## leeder (Jan 28, 2012)

@ still a student: honestly, you're not in bad shape. Your parents were wise to invest for you. Like hp said, what you need to do first is to arm yourself with investing knowledge.

In terms of your current mutual fund, it's actually quite well diversified. The MER is too high, however. After you have done some reading and still want to change your investment, you can consider some of the lower MER funds that BMO has, such as the BMO Canadian, US, and international equity etf funds. They have lower MERs than what you have right now. If you decide to open up your own discount brokerage account, you should consider buying ETFs. There are many websites and posts in this forum about low cost ETFs. I encourage you to read them.


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## james4beach (Nov 15, 2012)

humble_pie said:


> speaking of questions, could you let us know why you don't need the money right now, but you will need it when you graduate? i ask because this is the opposite of most student profiles. Will you need the funds immediately upon graduation to buy a business or open a professional practice? if so, this would mean conservative investments in the meantime, not a growth fund ...


I agree with humble_pie, take it slow and learn a lot before jumping into anything new. And what he asks above is a key question... what is the money needed for?


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

Very nice gift from your parents!

How much has the money grown since the account was started?

At least move it into a TFSA if it's growing as those numbers suggest. This will give you tax free growth.


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## Eclectic12 (Oct 20, 2010)

the-royal-mail said:


> ... At least move it into a TFSA if it's growing as those numbers suggest. This will give you tax free growth.


That's a good point.

Though depending on age, the OP might not qualify for a TFSA just yet as they need to be Canadian resident and 18 or older. 
http://www.tfsa.gc.ca/

Note that the TFSA contribution room starts Jan 1 the year a Canadian resident turns 18 but the TFSA account itself can't be opened until one's 18th or 19th birthday. Apparently in certain provinces or territories, one has to be 19 to enter into a contract, such as opening a TFSA.
http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/tfsa-celi/lgbl-eng.html


Cheers


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## Eclectic12 (Oct 20, 2010)

I noticed that you say "had little interest" ... have you have the fund for years? 

I'm assuming it's a non-registered account so are you aware of the bookkeeping as well as the tax implications?

If not checkout the CFM Taxation section sticky, "How Investment Taxes Work".

Or here is what seems to be a reasonable link:
http://www.fbc.ca/knowledge-centre/calculating-tax-payable-mutual-fund-income


Quoting from the BMO MF web site:



> Take the time to understand how taxes affect your investments. Taxes determine how much goes into your pocket after the government takes its share of investment profits. Consider these essential tax facts.
> 
> •You could be liable for capital gains income taxes when you realize a profit on fund units.
> •Fund distributions are taxable. How much tax you pay will depend on the type of fund distribution and your marginal tax rate.
> •Investment growth is sheltered from tax inside a registered investment such as an RSP, RIF, RESP or TFSA.



Cheers


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## Still_A_Student (Aug 1, 2013)

Wow thank you guys for the resourceful posts! 

The original cost of my fund was 48k to be exact and it is now at 54k after 2~3 years(?)
I also had 5k put into TSFA for the same fund and it is now at 5.6k

I am 21 years old currently but I will be in school for 4 more years and will be incurring debt with the student loans from now on. So I will need to pay off my debt after graduation. I just felt that I have been too ignorant where my money is invested at and would like to start learning! 


Oh and my parents have little interest because they are very conservative in terms of investments. They believe that there is nothing we can do and the best thing to do is to leave it risk-free with BMO haha...


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## humble_pie (Jun 7, 2009)

Still_A_Student said:


> EDIT ... The original cost of my fund was 48k to be exact and it is now at 54k after 1~2 years (I'm not exactly sure).
> 
> I also had 5k put into TSFA for the same fund and it is now at 5.6k
> 
> I am 21 years old currently but I will be in school for 4 more years and *will be incurring debt with the student loans from now on*. So I will need to pay off my debt after graduation ... my parents have little interest because they are very conservative in terms of investments.




actually i don't think your parents are conservative at all. I think they are smart as foxes.

they know to divert some capital into your hands where its income will probably not be taxed at all, given that student incomes are typically below the tax threshhold.

then they know to encourage taxpayer-funded interest-free student loans so that their gifted investment funds can grow throughout the student's career, while his publicly-subsidized indebtedness does not increase by one centime.

but that raises a question. How are you able to obtain a taxpayer-funded student loan, given your substantial personal assets of $59,600? generally these loans are supposed to be reserved for needy students, at least that is what taxpayers are told.


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## peterk (May 16, 2010)

humble_pie said:


> but that raises a question. How are you able to obtain a taxpayer-funded student loan, given your substantial personal assets of $59,600? generally these loans are supposed to be reserved for needy students, at least that is what taxpayers are told.


Indeed - Unless the money isn't actually transferred to your name... or perhaps you have no income at all and tuition bills of 20k+ per year? 

For your reference OP - One year as a student I had: about 35k before tax income, 15-20k saved up the month before tuition was due, 12k in tuition bills for the year - OSAP was denied. 

I don't see how the government is going to give you very much (if anything) of an interest subsidized loan with that amount of liquid assets on the books.


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## J Watts (Jul 19, 2012)

humble_pie said:


> but that raises a question. How are you able to obtain a taxpayer-funded student loan, given your substantial personal assets of $59,600? generally these loans are supposed to be reserved for needy students, at least that is what taxpayers are told.


Here we go again...


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## humble_pie (Jun 7, 2009)

watts unfortunately the rich student loan cheats are taking funds away from truly needy students.

the program is funded by taxpayers in order to help disadvantaged canadian youths obtain post-secondary education, not to finance investment portfolios for rich students. 

watts elsewhere in this forum you've said your income is well north of $50k; you don't need your student loan for any legitimate student expense; the sole purpose of your interest-free loan is to fund an investment portfolio & harvest income dollars at taxpayers' expense.

btw the deal in this thread was probably cooked up by a scheming BMO financial planner
that bank ought to rein in its agents severely, it probably does not want a scandal on its hands.


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## KrissyFair (Jul 8, 2013)

@Humble just before you get too upset, consider that the OP said 'student loans' and not specifically 'OSAP'. Lots of banks give student loans.

I think the REAL question for STill_A_Student is why incur student loans now only to pay them off with these funds later if you could just finance the studies with these funds now? It would save a lot of tax hassle for the next four years, not to mention the worry about what to do with the investments while they're waiting to be used to pay off the loans.


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## humble_pie (Jun 7, 2009)

not upset in the least. I know a few good investigative journos. There's nothing that makes em happier than the scent of a fresh new scandal that nobody knows about.

the fact that the rich students are flocking so brazenly to the public forums these days, asking for "advice" so they can run their interest-free portfolios more profitably, shows that this a bubble just waiting to be exposed.

the journos did a good job with canadian senators recently, can't wait for em to pick up the rich student loan story.




KrissyFair said:


> I think the REAL question for STill_A_Student is why incur student loans now only to pay them off with these funds later if you could just finance the studies with these funds now? It would save a lot of tax hassle for the next four years, not to mention the worry about what to do with the investments while they're waiting to be used to pay off the loans.



KR it's unlike you to miss the point but it's possible that you might have. The goal of the opportunistic student-loan borrowers is to borrow funds allegedly for their education. The funds are then used to run an interest-free investment portfolio throughout all of the student years.

the rich students don't need the monies from student loans to finance their education. They or their parents or both can easily afford to finance their education. The student in this thread already owns enough capital to carry him through to graduation. But he wants to borrow the money interest-free in order to run an investment portfolio on the side.

to be fair, this particular student may not understand what is going on. But his parents probably do. Certainly the financial planner who schemed up the scenario does understand. Perfectly.

as for the provinces, student loans in quebec are closely tied to student financial need. I would imagine that's true in every province. Aren't banks subsidized for their student loans, as well.


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## peterk (May 16, 2010)

If there is no dishonesty in the application process (I think this is the biggest problem), and the loan is granted, then any argument that you're taking from the tax-payer doesn't hold water in my eyes. The exact same could be said for using a RRSP, trust, or planning where your dividend stocks are held to minimize taxes. You can't claim the moral high-ground for one situation but not the other.

I'd like your opinion HP on if I was one of those "bubble" students:

4 years ago I ran out of cash completely and needed to pay the rest of my tuition - OSAP gave me 7k.

The next year I had a great co-op and was able to pay for all my schooling with new funds, and save 5k on top of that. I began investing at that point in 2010. 

The next year I had stable co-ops again and after expenses I had a total of 10-15k saved/invested.

Finally throughout 2012 I had to draw down that money to about 5k saved, coming up with a net worth about -$2000 last Christmas, at which point my OSAP loan was about to be called.

So, did I cheat the tax payer from 2010-2012 where I had money saved in my bank account/invested while simultaneously holding a student loan? Should I have paid that loan back immediately in full during 2011 when I had the funds instead of saving it, even though the government hadn't requested that I repay the loan? 

Does it make a differences that it turns out I DID need that money to pay for my schooling in 2012, even though it was loaned to me 3 years prior?


I can appreciate your disdain for cheats who fraudulently extract money from the government by lying about their assets/income/parents income. But what about the much more common case that my life is an example of?


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## MoneyGal (Apr 24, 2009)

But if the argument is that taxpayers should not be providing benefits based on (realized) *income,* only on *assets,* where does that leave OAS - which provides much much more benefit to many more people than OSAP and its ilk ever could?


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## KrissyFair (Jul 8, 2013)

humble_pie said:


> KR it's unlike you to miss the point but it's possible that you might have. The goal of the opportunistic student-loan borrowers is to borrow funds allegedly for their education. The funds are then used to run an interest-free investment portfolio throughout all of the student years.


I didn't miss it and I have known people who cheat the system like this and I don't like it either. I was just pointing out that we don't necessarily know that Still_A_Student is in that situation. He says student loans, he doesn't say specifically government student loans. He might be talking about privately obtained bank loans that are not free, but low interest and totally legit. In which case the thinking would probably be to get a better return on the investments than is owed on the loans until graduation, then pay them in full. So I was just giving him the benefit of the doubt until he clarifies.


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## humble_pie (Jun 7, 2009)

KrissyFair said:


> ... the thinking would probably be to get a better return on the investments than is owed on the loans until graduation, then pay them in full.


what thinking? student has made crystal clear that he understands next to nothing


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## Toronto.gal (Jan 8, 2010)

KrissyFair said:


> In which case the thinking would probably be to get a better return on the investments....


How would someone who said *'I don't know anything*' make such an investing conclusion?

I'm speculating that if 'Still a Student' is 21 with 4 more years of university to go, that he/she is going for a professional degree, which would be expensive. OTOH, if going for a BA starting this Fall, then it would seem he/she took some years off to work/travel/both since high school graduation, and perhaps why not in need to touch the investments [up to now], though it was also mentioned that he/she would be needing student loans 'from now on' while at minimum, having $59K+ in investments. 

If OP is considered eligible for [gov.?] loans with $59K, he/she would have done nothing illegal, but that's not to say that legal = ethical all the time.

I believe the primary focus of a full-time student should be the studies, though that's not to say that he/she can't learn about investments in the interim.

There are students who receive thousands in loans, but use 100% for investing and not education purposes [as they themselves have stated here and elsewhere], so if they can be vocal and tell us this with almost a tone of pride [not referring to the OP here], then the tax-payers can have a voice as well.


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## KrissyFair (Jul 8, 2013)

I'm really just sayin' the OP didn't say what kind of loans they are. Yes they *could* be student assistance loans or they could be totally for-profit loans from a bank.

And I know lots of people who know nothing about investing but still manage to come up with the knowledge that debt is so ridiculously cheap right now that you might as well incur it and keep money in stocks than pay out of pocket for things.

... But just for argument's sake, if the OP doesn't know enough to figure that out, then how can we assume that he's carrying out an even more elaborate, technically legal but highly unethical loan fraud/tax avoidance scheme?


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## humble_pie (Jun 7, 2009)

KrissyFair said:


> ... But just for argument's sake ...


please stop arguing.

he's not carrying anything out. He clearly understands nothing.

his parents might be carrying something out.

most likely the financial planner who put em all into this situation knew exactly what he or she was advising. That's why i mentioned upthread that BMO should clean up its act. If it was a BMO planner. Which it looks like.


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## KrissyFair (Jul 8, 2013)

We should probably all quit speculating until OP comes back to clarify the loan situation.... and if he doesn't come back I will happily concede that you're probably right


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## Still_A_Student (Aug 1, 2013)

*scenes mstferr*

Sorry about the confusion. 
Yes I am going for the professional degree and the projected tuition cost for next 4 years is over 80k. I won't be getting government loan most likely (still pending but not very hopeful). LOC from banks is most likely where I will get the money needed!

I didn't get the student loan until now with the bachelor's degree since I didn't need it.


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## KrissyFair (Jul 8, 2013)

Just out of curiosity, why not use the assets you've got to pay for a good chunk of that degree before you get a LOC? Bank LOCs don't defer interest like government loans do, so you'll be paying to carry that loan while the funds to pay it off are there.


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## MoneyGal (Apr 24, 2009)

Isn't this a version of the "emergency fund" conversation? I can think of a lot of valid reasons to keep some cash on hand (whether invested or not) during a period of transition (i.e., through four demanding years of a professional program). 

Most student lines of credit (for students in professional programs) are structured differently than straight-up loans in ways that make them more attractive than a "regular" LOC or loan.


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