# Newb with 200k



## xcvq (Dec 12, 2015)

Hi,

Apologies if some of these questions are dumb, but I'm a 33 year old who in the past two years has managed to save up close to 200k and am a bit clueless on what to do with it. I've always had a pretty low paying job and never bothered reading up on personal finance or investing. Right now my money is basically split between my chequing account and a high interest esavings account with RBC which nets me a lousy 0.550%. I don't have a TFSA nor have I contributed to my RRSP at all. I can't help but feel I'll be flushing my money down the drain by keeping it where it is as inflation takes its toll.

Like many, I've become intrigued with index investing. That whole couch potato thing. The only problem is right now doesn't seem like the best time to get into that. I know you're not supposed to time the market but this seems like a pretty bad time to jump in.

So I think my goal for the moment is to just preserve my money and keep saving until the market looks better. The thing I waffle between is TFSA vs. RRSP. I'm guessing I should probably just max out both? RRSP seems pretty attractive to me since I have a feast or famine type job where one year I might make 150k but I'll likely run into some years where I make close to nothing. So it's probably good to lower my taxes on the good years and dip into the RRSP during the bad if I have to. The other thing is I need to do better than the 0.550% at RBC. I see people crapping on GICs a lot so maybe there's a HISA somewhere that I should look into? 

Any help would be greatly appreciated!


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## scorpion_ca (Nov 3, 2014)

People stand on line couple of hours and also fight with other customer to buy electronic products on sale but they are not willing to buy stocks/ETF while they are on sale. 

Whatever the amount you don't next 10 years, you should invest that amount gradually. I think this is the right time to invest as markets are down nowadays.


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## OnlyMyOpinion (Sep 1, 2013)

Good to have you on CMF!

I'd say you are on the right track thinking about TSFA's and RRSP's.
You mention your goal right now is to preserve and keep saving until the market looks better - but what about overall financial & personal goals - do you see house, family, further education, early retirement in your future? They will affect your longer term goals. Are you self-employed, and/or is your job reasonably secure and does it provide any pension or savings plan? I assume CPP payments are being made?

Personally I'm a proponent of taking advantage of both TSFA's (first) and RRSP's (second). I think a max'd out TSFA should be able to fill in lower-income years, and the advantage is that you can top it up again. The problem with drawing from your RRSP is that the money is gone and retirement (even at 60 or 65) seems to come quickly. I'd keep your RRSP intact to fund your later years. Tax-sheltered growth over the years is what helps it grow to a material amount. 
Your RRSP is where I would be a couch potato. I think the market(s) are starting a deeper correction now so as you rightly point out, you don't need to (and shouldn't) feel like you have to get invested right away. Make sure you have an overall plan first.
Your TSFA investments might differ and might include some fixed income, depending on your overall goals.


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## My Own Advisor (Sep 24, 2012)

scorpion_ca said:


> People stand on line couple of hours and also fight with other customer to buy electronic products on sale but they are not willing to buy stocks/ETF while they are on sale.


Too funny but so true. Those people that stand in line for hours to buy electronic products are probably not reading CMF or other financial forums


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## xcvq (Dec 12, 2015)

scorpion_ca said:


> People stand on line couple of hours and also fight with other customer to buy electronic products on sale but they are not willing to buy stocks/ETF while they are on sale.
> 
> Whatever the amount you don't next 10 years, you should invest that amount gradually. I think this is the right time to invest as markets are down nowadays.


I dunno, I'd like the markets to come down a good deal more before jumping in. I get the feeling things are going to go a bit sideways for a while so why not safely wait things out a bit. If they keep slowly declining I'll probably start DCAing my way in as this will be my first time investing and don't want to freak out and do something stupid.


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## james4beach (Nov 15, 2012)

Welcome to the board! If you've saved nearly 200K at age 33, you're doing great. I'm like you, and work in a feast or famine line of work. For people like us, the ability to control our spending (and actually save money aggressively) is probably much more important than choosing the right investments. In the big picture, you'll get wealthier and have more cash on hand by doing savings activities (or earning more income), rather than investment activities.

The first recommendation is to pay off any debts or loans, especially credit cards or student loans. My second recommendation is to proceed slowly with any investment activities... there's no rush.

My third recommendation is to figure out how much emergency cash you need, for instance if you lose your job and are unemployed for a couple years. Keep that aside and make sure you always have enough for a rainy day. Note that GICs can help here, because (once a GIC ladder is in place) the amounts will regularly mature.

RRSP makes sense if the employer is matching contributions; if they're offering you free money, then you must take the free money. Other than that, TFSA is the better deal all around. If there's no employer matching of contributions, then go straight to the TFSA.



xcvq said:


> The other thing is I need to do better than the 0.550% at RBC. I see people crapping on GICs a lot so maybe there's a HISA somewhere that I should look into?


I get in a lot of debates with people about this, but here's my opinion: people who crap on GICs tend to be people who over-estimate how much money they will make in the stock market. GICs are a pillar of Canadian investments. You're going to get much better rates than cash savings, with essentially no risk because CDIC insured GICs are fully guaranteed by the government.

These days you can get 2.3% on CDIC insured GICs. Put it in a TFSA and you pay no tax on the interest income. Let's look at the last 5 years. The fans of stocks would say, put your money in something like XIC (TSX Composite ETF) and you'll get great returns.

In the last 5 years, with dividends included, *XIC has returned 12% total* (not annualized but rather start-to-end).

How about GICs? Their return has been approx 2.5%/year or *13% total* ... about the same as Canadian stocks. And with far less risk.

Surprisingly, similar results are seen for the 10 year comparison: TSX total return is approx 47%, and GIC total return (which is similar to the XSB total return) is 42%. That's nearly the same total return using an investment with much less risk!

So... don't discount GICs. Or simple old XSB (a short-term bond ETF) because even over long time periods, they have shown to have returns that are competitive with stocks, _especially_ when you compare the risk you're taking on with them.


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## xcvq (Dec 12, 2015)

OnlyMyOpinion said:


> Good to have you on CMF!
> 
> I'd say you are on the right track thinking about TSFA's and RRSP's.
> You mention your goal right now is to preserve and keep saving until the market looks better - but what about overall financial & personal goals - do you see house, family, further education, early retirement in your future? They will affect your longer term goals. Are you self-employed, and/or is your job reasonably secure and does it provide any pension or savings plan? I assume CPP payments are being made?
> ...


I don't see a house in my near future since I'd like to buy somewhere around the area I'm currently renting in(The Beaches in Toronto) and everything here south of 1 mil is a shack that still smells like the old people that died in it. My half of the rent for the apartment I share with my girlfriend is $700 a month which is an easy amount to handle compared to some big mortgage. Plus I'd have to buy a house that was noticeably bigger than my brother-in-law's place and that would be pricey. I don't see any kids at all in my future. My girlfriend and I don't want any and I just know they'd spill grape juice on my XBOX. The only way there will be more education in my future is if my career fails and I decide to go back to school to become an architect or some other drafting table-based professional. Even if I make enough to retire early I don't see it happening as I like my job and consider it a life-long endeavor.

I am self employed but my job is not secure at all. In a way it's a rollercoaster from hell. I'm a screenwriter and for example there was one day where I discovered I'd just landed a gig that would pay me 170k. I was psyched. Then after a lot of work I found out I was fired from said gig. I was not psyched. They agreed to pay me 32k for the work I'd done while reminding me they technically didn't have to pay me anything. I've been paying into CPP evidently. I only noticed recently when I did my 2014 taxes and asked my account why I was paying 5k into this CPP stuff. I wanted that 5k  I also paid 3k in penalties for filing late which was a kick in the nuts. Lesson learned.

I guess the main thing is to just max out both the TFSA and RRSP. I hadn't thought about putting different things in each account. So if couch potato is more suited to the RRSP, what should go in the TFSA? I'm really dumb with this stuff so I'm not even entirely sure what fixed income consists of. Will have to look into that.

Also, since I'm going to hold off on investing for a bit, should I dump my money into a HISA somewhere?

Thanks for taking the time!


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## xcvq (Dec 12, 2015)

james4beach said:


> Welcome to the board! If you've saved nearly 200K at age 33, you're doing great. I'm like you, and work in a feast or famine line of work. For people like us, the ability to control our spending (and actually save money aggressively) is probably much more important than choosing the right investments. In the big picture, you'll get wealthier and have more cash on hand by doing savings activities (or earning more income), rather than investment activities.
> 
> The first recommendation is to pay off any debts or loans, especially credit cards or student loans. My second recommendation is to proceed slowly with any investment activities... there's no rush.
> 
> ...


Thanks for the response! I like your emphasis on saving. In the past year I've become a lot more aware of my spending habits but I know I can go further to cut costs down. I tend to overspend on food. I seem to have trouble spending less than $400 a month on it. Need to make more of my own meals. Luckily I save in other areas like having no car and I don't take public transportation that much. Maybe $50 a month on transportation. Also, bought an antenna that gets me 50 channels rather than paying for monthly cable.

I don't have any debts of any kind other than $11 on my Visa because I recently bought a rubix cube from Japan for some reason. 

As for emergency cash I don't think I need a crazy amount as I could always move back in with my mother... she actually wants me back but her place smells like cats. Also, my uncle owns a small business and would gladly have me work for him again (worked with him for almost 15 years, starting in highschool). I can make 20k+ doing part time for him. I've read about GIC ladders before and will look into that again. But I guess if my money is in a ladder the % I'll make will be lowered by all the shorter term GICs, right?

I have no employer matching RRSP contributions. I can easily max out the TFSA but with the rest of the money should I max out the RRSP or just put some of it in there and some somewhere else?

The GIC info is interesting. I'd be curious to hear what other people think. Whatever route I take, as long as I'm offsetting inflation while not putting myself at risk I'll be pretty happy. I spent the first half of 2013 broke and pouring loose change into a Coinstar machine at the grocery store just to buy dinner - so I'm satisfied spending the next while merely retaining the money I now have.


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## My Own Advisor (Sep 24, 2012)

Welcome to the board as well!

First, congrats on the 200k. Very well done in your early 30s.

You're on the fast track to an early retirement if you keep up this discipline....

I would agree with another comment. If you have any small personal loans, CC debt, etc., kill it with that money.

Second, I would keep the money in high *cough* interest savings account until you figure out your game plan. Financial planning before financial products. Buy the products after you know your plan 

On the subject of TFSA vs. RRSP, I'm a fan regardless of your income to try and max out the TFSA first. Tax-free money and income over time is simply tax-free money and income...pretty hard to beat.

After the TFSA is maxed out based on your carefully selected financial products then start moving towards maxing out your RRSP.

Anyone in their 30s or 40s who has maxed out both registered accounts (TFSA + RRSP), plus has a decent emergency fund intact, is well on their way to financial security.


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## OnlyMyOpinion (Sep 1, 2013)

I think you are getting consistent feedback to open a TSFA and maximize that first. A 33 yr old (in Canada since 2009) starting one this month could put $41,000 into it. As of Jan 2016 you could add another $5,500 ($46,500 total). Make sure you read and understand the withdrawl and contribution rules.
You need to decide where and what to open - you can open a 'savings' type TSFA at a bank or trustco that will have limited investment options (HISA ad GIC's). Or you can open one with a bank-related brokerage (TD Waterhouse, Royal Direct Investing,etc., etc.). Convenience & comfort in your choice is a consideration here, as is the question of annual fees - do some research and understand your investment choices and fees, start with the company you currently bank with. Other folks like to 'chase' around after the best HISA/GIC rates being offered, moving their account around. Nothing wrong with that if you are so-inclined and don't mind the extra diligence.
You can open multiple TSFA's (i.e. a 'savings' one now and an 'investing' one later), but the contribution limit applies across all of them as one.

You sound concerned about not losing any of your hard-earned money so I'd agree with suggestions to still keep some in a HISA within the TSFA as an emergency fund (maybe $15,000?) You aren't being taxed on the interest anymore, so you are at least ahead of where you are now.
Then put some into a 5 yr GIC ladder. You are correct that your shorter terms will drag down your overall average. That needs to be acceptable to you so make sure you don't 'over commit' the amounts you lock up for the longer terms (maybe $5000 at 1,2,3,4,5 yrs?). If you have a bank you deal with and go that route, you need to ask them if they can give you a better rate than their posted GIC rates - they can, generally +0.25% or so. They should be willing to do this, if not I'd tell them 'I'll have to think about it some more'. If you plan on continuing saving and investing, you will pretty soon not even 'miss' the GIC money.

I still think that with the large-ish amount you have saved being exposed to taxes currently and no retirement savings, that after the TSFA you should look into an RRSP. Your notice of assessment will tell you how much contribution room you have built up. You will want to spend some time planning how much and over what period you want to make your contributions (i.e. in a no/low income year, the RRSP tax credit won't reduce your taxes payable - it should be claimed in a year of higher income when it will reduce your taxes). Lots more can be written about this.....


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## james4beach (Nov 15, 2012)

An important clarification about the GIC ladder is that, only in the first few years the returns are dragged down by the short term maturities.

Once the ladder is in swing, you then _always purchase_ new 5 year GICs. This is the beauty of the method; by NEXT year, you will always buy the highest yielding 5 year GICs, and yet still have amounts maturing yearly ... or more frequently (my ladder matures every 6 months).
http://www.rbcroyalbank.com/products/gic/gic-ladder.html


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## Eclectic12 (Oct 20, 2010)

james4beach said:


> xcvq said:
> 
> 
> > ... I've always had a pretty low paying job ...
> ...



While I like a lot of the priorities ... the RRSP is being given nowhere near enough attention IMO.

There's clearly too much taxable $$$ to go 100% TFSA so where the yearly taxable income is coming in at $150K ... at minimum, using the RRSP is going to mean more money to invest and build wealth with.

Then too, just because one makes six figures now does not mean that the main sources of income in retirement will put one in the same tax range automatically. Case in point - my co-workers who have shifted jobs multiple time where at the maximum the pension could payout (they are lucky to have a DB pension as I do), it will be four or five tax levels down. 

Without some estimation of what one is likely to have for retirement income ... such a blanket statement seems foolhardy.

[ Anyone remember decades of people avoiding RRSPs because they knew that in five to ten years, the gov't would cancel the RRSP program?]


Cheers


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## Eclectic12 (Oct 20, 2010)

xcvq said:


> ... I have no employer matching RRSP contributions. I can easily max out the TFSA but with the rest of the money should I max out the RRSP or just put some of it in there and some somewhere else?


Max out the TFSA ... if you don't feel comfortable with equities, you can start with a HISA/GIC type TFSA. The nice thing about the TFSA is that you can open a TFSA that will allow equities at any time. If you want to shift from HISA/GIC, even if the institution would charge a transfer fee, you can withdraw say around Dec 28th, wait until Jan 1st or later to deposit and since on the calendar year has changed, the withdrawal will be added back as fresh TFSA contribution room, in addition to yearly allotment.

Except if the withdrawal earns interest from Dec 28th to when it is deposited in Jan (would not be much), there is no tax implication. Once the $$$ are in the other TFSA, you can buy equities or whatever you want (more GICs) in the other account.

Make sure you are clear on the TFSA rules and that you have to track across all your TFSA accounts (I have two) ... it is not difficult and will help you avoid any penalties or confusion.


The other nice thing is that if you need to take money from the TFSA to live on, it won't affect your taxable income for that year.


In years of low income, you probably want to put less into the RRSP and more when you have a high income year. Though a key part is what sources of income are you likely to have in retirement ... if it's mainly TFSA and RRSP, then there is a good chance that by putting in more money into the RRSP in a high income tax year, it will work to your benefit when withdrawing in retirement at a lower income level.


Cheers


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## Eclectic12 (Oct 20, 2010)

My Own Advisor said:


> ... On the subject of TFSA vs. RRSP, I'm a fan regardless of your income to try and max out the TFSA first. Tax-free money and income over time is simply tax-free money and income...pretty hard to beat.


Whereas I'm more of a YMMV type ... in a high income year of $150K where there is enough RRSP room that refunds $5.5K, surely using the refund to max the TFSA makes more sense. At Ontario's tax rates, as little as a $12K RRSP contribution that generates a refund could take care of the TFSA contribution.

The main concern I could see was is for some reason, the OP who seems to only have OAS/GIS, what looks like all over the map CPP and taxable investments for retirement income estimated a huge income in retirement.


Cheers


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## My Own Advisor (Sep 24, 2012)

I guess what I'm trying to say is the TFSA works for any tax rate, but true, a $12k RRSP contribution, with the tax-generated refund, could almost fund the TFSA. Just know that your tax-generated RRSP refund has to be paid back at some point. 

Once in the TFSA, unless the rules change (and they always can), it's tax-free.


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## Eclectic12 (Oct 20, 2010)

Unless there's some really bad planning leading up to and in retirement ... I don't see paying income tax in the future as a problem when using the RRSP in a high income year where tax fund is enough to make the TFSA annual contribution.

If the "feast/famine" income turns into "feast, feast, feast" income then there might be an issue but there is plenty of time for the OP to learn, plan and deal with it. It's not like there's a company pension that is going to drive retirement income up a lot.

Would it really be a bad thing for the OP to have too much in an RRSP so that he decides to retire early so that there is less income when drawing from the RRSP?



Bottom line IMO ... the OP has a lot more flexibility/control to make an RRSP benefit him/her tremendously. Yet the comments make it sound like except for a couple of situations (ex. employer RRSP contribution matching), it should be avoided.

After all ... was not the RRSP created to provide a way for those without a pension to save for retirement?
That sounds like OP to me.


Cheers


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## Eclectic12 (Oct 20, 2010)

xcvq said:


> ... The thing I waffle between is TFSA vs. RRSP. I am guessing I should max out both?


Yes ... though if you want to be safe, the RRSP contributions should be maxed in the years of the high income.

The trade off is that the TFSA uses after-tax dollars so there is less to invest. The RRSP uses pre-tax dollars so there more total dollars available but there is a future, unknown tax bill. 

Putting the bulk of the RRSP money in during a high tax year reduces the risk that when withdrawn in the future ... the tax rate will higher. 


The cost is whatever growth that might have happened tax deferred by delaying the RRSP contribution. Or this could be other uses of the tax refund such as using the refund to contribute to a TFSA instead of using other money.


The good news is that it does not sound like there is any retirement plan so that the RRSP, TFSA and the taxable investments will be the bulk of retirement income. It sounds like you will have a lot more flexibility but will need to make a plan and follow through with it.


As a newb ... there has probably been a lot more info than you have had a chance to absorb and understand. So I`ll add just one more important thing ... the RRSP, TFSA and taxable accounts are accounts that determine the tax treatment. What investments or what strategy to invest will depend on what the ones you have setup allow ... the range of investments can be small, medium or large.

For example, setup a TFSA that allows a HISA and four MFs ... that`s all that can be chosen in that account. Setup a brokerage TFSA ... then the investment range might be a different HISA, thousands of MFs as well as stocks, bonds and GICs.



If you are not sure of your plan ... then IMO, step one is to setup a TFSA and max it out. It will at least remove the tax from the contributed amount. Should you decide later to branch out to something else ... that can be dealt with another day. The key is to make sure whatever is opened won`t add any unnecessary costs and provides what you want to hold while learning more. There is no down side to doing this and it does not stop any future changes in plans.


Bottom line is that investing is a skill so learn what you can, when you can and worry about the fancy choices *after* you understand them.




xcvq said:


> ... I guess the main thing is to just max out both the TFSA and RRSP. I hadn't thought about putting different things in each account. So if couch potato is more suited to the RRSP, what should go in the TFSA?



I think the idea behind the comment is that one is typically not expecting to draw from the RRSP until retirement (twenty plus years down the road) so going equities (i.e coach potatoe) is fine.


I personally have half my emergency fund in my TFSA and half in a taxable account paying 0.8%. The rest of my TFSA is invested for the longer term (i.e. mix of fixed income and equities).

My RRSP is less fixed income and more equities ... though as I get closer to retirement, it is shifting in makeup.


Cheers


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## OnlyMyOpinion (Sep 1, 2013)

^+1 Great comments Eclectic!


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## crgf1k (Aug 8, 2015)

I say max out your RRSP and TFSA. Your TFSA can act as your emergency fund because you can withdraw without penalty. I don't blame you for waiting for a better time to actually invest the money though. We're about due for a major market correction in 2016/2017. You can hold cash in both the TFSA and RRSP.


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## xcvq (Dec 12, 2015)

Thanks for all the helpful comments! Been combing through it all and starting to form a plan. I think I just need to jump in soon and get started because I learn best by doing.

The only main question that remains is what financial institution I should go with. I'm currently with RBC and their rates seem really lousy considering I'll still be losing to inflation somewhat. I've seen Peoples Trust mentioned around but part of me is wary about a place I've only just heard of on a forum. I guess it doesn't matter as long as my stuff is CDIC insured?


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## 0xCC (Jan 5, 2012)

james4beach said:


> In the last 5 years, with dividends included, *XIC has returned 12% total* (not annualized but rather start-to-end).
> 
> How about GICs? Their return has been approx 2.5%/year or *13% total* ... about the same as Canadian stocks. And with far less risk.


I'm having trouble finding data to back up that XIC 5 year return claim. Do you have a source for those numbers?

Looking at the BlackRock/iShares site the lowest cumulative total return for the last 5 years for XIC seems to be the period ending November 30, 2015 with a 19.18% 5 year return. (http://www.blackrock.com/ca/individual/en/products/239837/ishares-sptsx-capped-composite-index-etf (under Returns you can select the end date and look at the cumulative returns)


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