# Inherited $500K. What next?



## Bobbyjohn (Jul 28, 2015)

I recently inherited $500K. I earn all the income I need for my lifestyle, and have no debt besides my modest mortgage. I'm 42 years old. I want to invest it for the long run. What should I do next?


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## atrp2biz (Sep 22, 2010)

Before the end of the day, I would put it all into a MM fund/HISA while you decide. This will get you ~$20 per day while you contemplate. As for the long term, it's tough to say without knowing the make-up of your current income and portfolio, risk tolerances, long-term objectives, etc.


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## My Own Advisor (Sep 24, 2012)

Agreed, park the money in a savings account for 6 months to 1 year and figure out your financial plan; debts, liabilities, goals, assets, current expenses, long-term objectives, etc. Once all that is written down, something you can commit to, then you can invest. 

Good luck! Big but fun decisions ahead!


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## james4beach (Nov 15, 2012)

I would also park the cash and take a LONG time to think about it. However, be aware that CDIC insures deposits up to $100,000 per institution. Therefore you should ideally do something like the following to park the money.

1. $100k in a high interest savings account
2. Open a GIC account or better, a GIC brokerage account/discount brokerage
3. Put in 4 x $100k in different 1 year GICs from different bank issuers

The point of this is to stay under the CDIC's insurance limit of $100k per issuer name to make sure all your deposits are ensured. Here's what this might look like:


 100K in PC Financial at 0.8%
 100K in Bank of Nova Scotia 1 year GIC at 1.4%
 100K in Bank of Montreal 1 year GIC at 1.4%
 100K in HSBC Trust Company 1 year GIC at 1.4%
 100K in Royal Bank 1 year GIC at 1.4%

You can accomplish that with just two accounts: one at PC Financial, and one at a discount brokerage like Scotia iTrade where all the GICs can be held.

The above has zero risk whatsoever, fully insured by the federal government, and earns $18 of interest a day. While you think 

This is exactly what I would do if I suddenly had an extra 500K.


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## humble_pie (Jun 7, 2009)

^^


jas4 don't u think this business of 100k in each of bns, bmo, hsbc & roybank is a bit overdone? 

those 4 banks are not going out of business in next 52 weeks. if they do, the world will be in such grave financial danger that there won't be any CDIC insurance to cover the mass failures of all of canada's leading banks.


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## tygrus (Mar 13, 2012)

Once you have parked that money, go open a practice trading account for $500k and buy some funds and watch it for the year. See if you really have the stomach to invest this in the equity markets.

I always think an inheritance should be treating very conservatively both from a financial perspective and out of respect for the person you inherited it from. I realize they are dead and cant care anymore but if you value their memory it would be critical to me anyway not to do anything stupid with it.


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## james4beach (Nov 15, 2012)

humble_pie said:


> jas4 don't u think this business of 100k in each of bns, bmo, hsbc & roybank is a bit overdone?


Yes possibly so. But I wouldn't put 500K all into one. Maybe split in twain? The discount brokerages make this very simple though, you can simply select your issuer and buy a GIC, including 6 month terms, etc. It seems like a low-effort way to keep your deposits totally insured.


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## humble_pie (Jun 7, 2009)

2 or max 3 would be good. They would give a new heir good opportunities to explore the discount broker arms & the wealth management advisory services that each bank offers.


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## humble_pie (Jun 7, 2009)

james4beach said:


> The discount brokerages make this very simple though, you can simply select your issuer and buy a GIC, including 6 month terms, etc. It seems like a low-effort way to keep your deposits totally insured.



i think this hair-splitter has come up before. There's never been a precedent in canada, so nobody knows. But imagine massive global bank failure.

would the CDIC hand off insurance of these broker-bought GICs on the grounds that they belonged to a brokerage account, therefore they were covered by the canadian investor protection fund? (in the post-nuclear-war circumstances envisioned, the broker/dealer protection fund would have also failed.)


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## tygrus (Mar 13, 2012)

If the banks ever got into trouble, the would bail in your deposit funds first. There is legislation on the books to allow them to do this. So they might be the very institution that loses your money to stay afloat.


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## Mechanic (Oct 29, 2013)

I would look at what your mortgage rate is and whether it can be paid off without penalty. I'm pretty sure you will be paying a higher interest rate than you can get. You can keep putting your mortgage payment amount back into your savings for an even better return. The amount of interest you are getting anywhere right now is miniscule. You could also stick 100k in EQ Bank and get 3% for 6 months.


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## NorthernRaven (Aug 4, 2010)

humble_pie said:


> i think this hair-splitter has come up before. There's never been a precedent in canada, so nobody knows. But imagine massive global bank failure.
> 
> would the CDIC hand off insurance of these broker-bought GICs on the grounds that they belonged to a brokerage account, therefore they were covered by the canadian investor protection fund? (in the post-nuclear-war circumstances envisioned, the broker/dealer protection fund would have also failed.)


CDIC can't forgo their responsibility on the deposit to CIPF. But they would be paying to the brokerage, not directly to the individual, since the broker holds the CDIC-insured deposit "in trust" or "nominee" for the client (this is also why the brokerage GICs are a separate $100K limit from your own deposits at the institution). If the CDIC pays out to a bankrupt broker, the money would go into the recovery pool, and the client would get whatever percentage that provides to the customers. There's a blanket $1 million CIPF insurance, so you would get your first $1 million back before having to worry about partial recovery on the rest.

Of course, as mentioned if things get to this unlikely point for multiple institutions the economy has collapsed, and there will be a bunch of other recovery processes going on (and maybe cannibal zombies).


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## james4beach (Nov 15, 2012)

humble_pie said:


> i think this hair-splitter has come up before. There's never been a precedent in canada, so nobody knows. But imagine massive global bank failure.
> 
> would the CDIC hand off insurance of these broker-bought GICs on the grounds that they belonged to a brokerage account, therefore they were covered by the canadian investor protection fund?


I do worry about this a bit, but luckily we have a recent case: "brokered CDs" in the USA. In those cases, the FDIC made good on all of the brokered CDs, meaning certificates of deposits (CDs = GICs) held at brokerages. And there was a lot of money involved because they had a boom in brokered CDs.

The worst thing that happened were slight delays in returning some of the FDIC insured money. But there were no losses of insured deposits... this is why I still say it's essential make sure you have full deposit insurance.

What would be interesting would be to find out what happened to FDIC-insured CDs held inside Lehman or Bear Stearns brokerage accounts. I wish I knew.


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## humble_pie (Jun 7, 2009)

^^

no, cannot accept FDIC actions as legal precedents in canada, so your interesting tidbit is not jurisprudence here ...

there is no canadian precedent, which is a good thing when one thinks about it


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## none (Jan 15, 2013)

It's important to allocate these finances properly. Yup aside at least $400K for long term saving and potentially retirement but you should seriously consider investing the remaining 100K in hookers and Cocaine. #YOLO


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## Eder (Feb 16, 2011)

I'd put 100k into 
RY
TRP
CN
BCE
FTS

Actually I did...works great.


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## NorthernRaven (Aug 4, 2010)

humble_pie said:


> ^^
> 
> no, cannot accept FDIC actions as legal precedents in canada, so your interesting tidbit is not jurisprudence here ...
> 
> there is no canadian precedent, which is a good thing when one thinks about it


No precedent, but it seems fairly clear from CDIC's bulletins the way the chain works - it came up here before. CDIC pays out, and for most GICs inside a stock brokerage account, would be in nominee form and paid to the broker or its estate, instead of the beneficial owner (which the brokerage of course is responsible for making whole). 

"james4beach" - FDIC seems to tread CDs (their equivalent of GICs) somewhat differently, and the payment flows through directly to the beneficial owner (the client) of a similar nominee relationship. See an FDIC opinion here, and a seller of brokered CDs here which states that "_Funds owned by an individual and held in an account in the name of an agent or nominee of such individual (such as the CDs held in a Firm account) are not treated as owned by the agent or nominee, but are added to other deposits of such individual held in the same capacity (including funds held in a sole proprietorship) and are insured up to $250,000 in the aggregate._ ". So in the US, your CDs held in a brokerage account lump with your other stuff in a single $250K coverage, rather than creating a separate $100K "trust" coverage as they do in a Canadian brokerage account.


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## NorthernRaven (Aug 4, 2010)

james4beach said:


> I would also park the cash and take a LONG time to think about it. However, be aware that CDIC insures deposits up to $100,000 per institution. Therefore you should ideally do something like the following to park the money.
> 
> 1. $100k in a high interest savings account
> 2. Open a GIC account or better, a GIC brokerage account/discount brokerage
> ...


It would seem excessively conservative to park $500K at a rate of 1.28%, before tax, locked in for a year. Staying within CDIC limits, one could put four or five chunks in current savings at EQBank (3%), Zag Bank (2.5%), Oaken (1.75%), etc. The higher rates won't last forever, but one can certainly get a better short-term parking return while figuring out the long term plan.


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## james4beach (Nov 15, 2012)

NorthernRaven said:


> No precedent, but it seems fairly clear from CDIC's bulletins the way the chain works - it came up here before. CDIC pays out, and for most GICs inside a stock brokerage account, would be in nominee form and paid to the broker or its estate, instead of the beneficial owner (which the brokerage of course is responsible for making whole).


Yes I agree and that's my understanding of how the CDIC would pay out -- it goes to the brokerage.



> FDIC seems to tread CDs (their equivalent of GICs) somewhat differently, and the payment flows through directly to the beneficial owner (the client) of a similar nominee relationship. See an FDIC opinion here, and a seller of brokered CDs here which states that "_Funds owned by an individual and held in an account in the name of an agent or nominee of such individual (such as the CDs held in a Firm account) are not treated as owned by the agent or nominee, but are added to other deposits of such individual held in the same capacity (including funds held in a sole proprietorship) and are insured up to $250,000 in the aggregate._ ". So in the US, your CDs held in a brokerage account lump with your other stuff in a single $250K coverage, rather than creating a separate $100K "trust" coverage as they do in a Canadian brokerage account.


Wow thanks. I did not know that and didn't' realize it was different than the chain-of-payment in Canada. That's very important to know.

This means in the Canadian case, we have more middlemen in the chain of payments. That definitely adds to risk because in the US they don't treat the GIC as being owned by the agent ... in Canada they are owned by the agent.

Very interesting


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## james4beach (Nov 15, 2012)

NorthernRaven said:


> It would seem excessively conservative to park $500K at a rate of 1.28%, before tax, locked in for a year. Staying within CDIC limits, one could put four or five chunks in current savings at EQBank (3%), Zag Bank (2.5%), Oaken (1.75%), etc. The higher rates won't last forever, but one can certainly get a better short-term parking return while figuring out the long term plan.


That's not a bad idea either. Point is, with virtually no risk, the owner can get quite a bit of interest on their 500K while they decide what to do


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## Eclectic12 (Oct 20, 2010)

james4beach said:


> ... Maybe split in twain? The discount brokerages make this very simple though, you can simply select your issuer and buy a GIC, including 6 month terms, etc. It seems like a low-effort way to keep your deposits totally insured.


Where one wants to keep within the limits, won't the HISA MFs work as well?

I seem to recall one of the CDIC threads identifying that the codes were tied to different parts of the financial empire so that $100K in one and $100K in another meant $200K covered by CDIC. 

That's in addition to GICs bought from other institutions plus where there is no buy/sell cost, one can rapidly access the $$$.


Just a thought ...


Cheers


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## james4beach (Nov 15, 2012)

^ you're right. For example TDB8150 is from the issuer, TD Bank.

But they have other codes. TDB8155 is TD Mortgage Corp, TDB8157 is TD Pacific Mortgage Corp, etc. All with separate CDIC limits


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## NorthernRaven (Aug 4, 2010)

james4beach said:


> Wow thanks. I did not know that and didn't' realize it was different than the chain-of-payment in Canada. That's very important to know.
> 
> This means in the Canadian case, we have more middlemen in the chain of payments. That definitely adds to risk because in the US they don't treat the GIC as being owned by the agent ... in Canada they are owned by the agent.
> 
> Very interesting


The client is still the "beneficial owner", owes all the tax, controls the GIC, etc. The brokerage merely has a "trust" relationship, mainly I think to facilitate paperwork, transfer, etc. It is the same with your stocks - being in nominee or "street name" means the brokerage can loan them to short sellers, avoid dealing with actual certificates, move them around as you trade easier, etc. I'd imagine the beneficial owner info is passed along to CDIC, and they could presumably do a flow-through reimburse system if they had wanted to. But in the real world, the chances that a CDIC institution is going to fail to pay deposits at the same time as a brokerage holding those deposits, is pretty implausible, and unless CIPF blows up as well would only potentially affect million+dollar clients. Not something I worry about...


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## NorthernRaven (Aug 4, 2010)

Eclectic12 said:


> Where one wants to keep within the limits, won't the HISA MFs work as well?
> 
> I seem to recall one of the CDIC threads identifying that the codes were tied to different parts of the financial empire so that $100K in one and $100K in another meant $200K covered by CDIC.
> 
> ...


Pretty much any institution that has multiple CDIC coverage is going to offer sucky rates...


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## Eder (Feb 16, 2011)

donald said:


> Did you sell bce eder?


Nope...but I haven't added since the pullback when Verizon was apparently coming to town to spank the big 3. It's still my largest holding by far and do need to find a way to sell some...

I think all the telco's have legs in the future...everywhere I look people are glued to their smart phones 24/7...even here in Mexico the kids are trying to get run over as they have their iPhone in front of their eyes.


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## OhGreatGuru (May 24, 2009)

Before getting all worked up about splitting the money between 4 or more major banks to stay under the CDIC limit, everyone should consider that once it is invested in something other than GIC's or savings accounts, *NONE* of it will be covered by CDIC.

(And I agree that in the unlikely event that one of the Big 5 fails, our problems will be a lot bigger than trying to collect on CDIC insurance.)


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## Eclectic12 (Oct 20, 2010)

For the "none if it will be covered by CDIC", I understand that for the few who have suggested $100K of the total into things like RY, BCE etc. Did I miss someone suggesting more than $100K be placed in stock?

Most of the "split the money up" discussions are for GICs, HISAs & MF HISAs. My understanding is that all of these would be covered by CDIC, to the $100K limit.


There is the one post that suggested paying down the mortgage but I don't believe anyone would think a mortgage would be CDIC covered.:biggrin:


Cheers


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## houska (Feb 6, 2010)

Congrats on the inheritance. And condolences on your loss, if the inheritance comes from someone who was a personal connection. Congrats also on having run a tight ship financially up until now.

I agree with other posters to take your time figuring out what you do with the money, and thinking through the opportunities it opens for you. This level of inheritance can open up significant possibilities -- career change, entrepreneurial opportunity, lifestyle change (e.g. cottage). Or just a more secure retirement. Take the time to think through what these options entail, and what regrets you might have if you pursue any one of them. 

Unlike some of the other posters, I would be less worried about splitting up to get under CDIC limits, etc. The risk of a financial institution going under with your money are small, and over the time-limited period until you figure out what you need/want are extremely slim, and not worth getting stressed about.

While you think through the big picture, there are a few opportunities that might come up and might be worth doing immediately. Maximize your TFSAs and RRSPs. Maximize the free principal repayment options (lump sum) on your modest mortgage, and -- if it were me -- pay off the mortgage should it come up for renewal. (I was going to write those points as "no-brainer opportunities", but then I realized that if you decided you wanted to spring all $500k on launching a business or buying a cottage -- doubtful but possible -- then you might not want to do them.)

Others have suggested in various ways that you will want to learn about investing to manage the part of the inheritance you don't invest shortly in your future in some other way. I agree. You will have seen in the answers that there are different philosophies, from trading on the markets to buying and holding a handful of dividend-paying stocks. Some would even say "buy land". I'm personally a believer, especially at the start, and investing in a mix of low-cost ETFs, for instance as described in http://canadiancouchpotato.com/about/ Doing so is not sexy and exciting, and is also not risk-free (no investment is, and the least risky ones, like GICs or high income savings accounts, don't yield enough to cover inflation!). But you won't get screwed, you won't waste a bundle on dubious professional advice, you'll learn at your own pace about investing. And it's easy to take money out and redeploy if over time you want to try something else.


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## james4beach (Nov 15, 2012)

Paying off debts sounds like an excellent use of the money.

After that it gets more complicated. My own experience similar to this was that when I was in my 20s, I inherited 70K from my grandparents. This was huge for me at the time, more than doubling my net worth.

I took it slow, kept it in GICs for a long time, and I'm glad that I did. Rushing to "invest" that 70K into stocks would have been a mistake.


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## OhGreatGuru (May 24, 2009)

Eclectic12 said:


> For the "none if it will be covered by CDIC", I understand that for the few who have suggested $100K of the total into things like RY, BCE etc. Did I miss someone suggesting more than $100K be placed in stock?


My point was that most posters on this thread are recommending GIC's simply as a temporary short-term solution. If the intent is to eventually invest the money in other instruments, why get worked up about CDIC, since stocks and mutual funds are not covered by CDIC. I'm surprised how many posters keep repeating the refrain to "stay within CDIC limits" with GICs, when all our other investments are uninsured; and when banks like RBC and TD are not in any conceivable danger of defaulting on their term deposits


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## james4beach (Nov 15, 2012)

^ because these are different asset classes.

While you're in the cash asset class, you want the properties of cash: safe and zero volatility.
While you're in the stock asset class, you want the properties of stocks: high volatility, potential for high returns, sky's the limit, major risk

Or here's another way to look at it. If you leave it in cash but don't have the property of safety (deposit insurance), you're screwing yourself out of the high returns you should be getting in such a scenario of no safety.


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## NorthernRaven (Aug 4, 2010)

OhGreatGuru said:


> My point was that most posters on this thread are recommending GIC's simply as a temporary short-term solution. If the intent is to eventually invest the money in other instruments, why get worked up about CDIC, since stocks and mutual funds are not covered by CDIC. I'm surprised how many posters keep repeating the refrain to "stay within CDIC limits" with GICs, when all our other investments are uninsured; and when banks like RBC and TD are not in any conceivable danger of defaulting on their term deposits


The point is that banks like RBC and TD aren't in any danger of paying the best returns on term deposits, either...  Personally, I doubt there is any danger that Equitable (EQBank) or others are going to default either, but as a courtesy it is probably a good thing to mention CDIC limits when giving people advice; I was responding to a post that had used them, so simply gave alternatives in the same fashion. People can make their own decisions after that.

Note that EQBank has recently limited new accounts to a $100K deposit maximum, so any large-scale parking exercise looking to maximize interest return will require at least two accounts if they are involved. The point is that for the truly short term (on the order of months), you can currently do better than GIC rates without locking in your money.


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## james4beach (Nov 15, 2012)

Plus, we do not know if the end result will be to invest in stocks.

That will depend entirely on the original poster's existing allocations and their desired risk level. They could well decide to keep the 500K in a GIC ladder for the rest of their life.


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## wendi1 (Oct 2, 2013)

I wouldn't be in a rush to max out RRSPs or pay off a mortgage. I would pay off any high-interest debt (credit cards especially), and put the rest of the money in a HISA until you decide what to do.

You might decide on an income property or a business - harder to access the $500K if a chunk of it is already spent. If your TFSA isn't full, you can put some of it in there - it's easy and free to get it back if you need it.

Really, there are lots of options out there, and a lot of wrong answers. Take your time.


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## larry81 (Nov 22, 2010)

1. Pay off all high interest debts (ex: credit card, car, etc.)
2. Open a self-directed investing account
3. Put your money in various HISA MF with 100k increments
http://www.canadiancapitalist.com/high-interest-savings-accounts-at-discount-brokers/
4. Research passive invecouch potato strategy, determine your risk tolerance and asset allocation
5. Determine wich funds you want to use
6. invest your money
7. Sit back and enjoy your life as you did before


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## none (Jan 15, 2013)

OhGreatGuru said:


> My point was that most posters on this thread are recommending GIC's simply as a temporary short-term solution. If the intent is to eventually invest the money in other instruments, why get worked up about CDIC, since stocks and mutual funds are not covered by CDIC. I'm surprised how many posters keep repeating the refrain to "stay within CDIC limits" with GICs, when all our other investments are uninsured; and when banks like RBC and TD are not in any conceivable danger of defaulting on their term deposits


No investments are covered by CPIF which is a million dollars. Buy a money market in an investment account. All done.


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## getliquid (Mar 2, 2014)

Eder said:


> I'd put 100k into
> RY
> TRP
> CN
> ...


is that your whole portfolio solely for dividends? are your on DRIP of cash dividends?


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## james4beach (Nov 15, 2012)

none said:


> No investments are covered by CPIF which is a million dollars. Buy a money market in an investment account. All done.


Beware that money market funds are not insured by anything, not by CDIC either. They are short term corporate debt obligations.

I don't use money market funds, ever. I either use CDIC insured savings accounts or GICs for large amounts. Additionally, I park money in Government of Canada bonds.


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## CalgaryPotato (Mar 7, 2015)

Investing for the long term is more of a strategy than a goal IMO. Maybe I missed it, but I didn't see anything in here about what the plan is for the money at the end of this long term. University for your kids? Retirement for yourself? Inheritance for future generations?

You are getting a good chunk of money, and it can go a long way to helping many of your future financial goals. But you have to take a real look at what those goals are as of right now, and which ones may change.

If you are young and single, the idea of putting it all away and not looking at it again until 65 may seem feasible, but all of the sudden you find a partner and have children, you may get a bunch of intermediate financial goals you hadn't thought of.


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## TomB19 (Sep 24, 2015)

I suggest dividing the money in half and purchasing two GICs. One GIC would be 12 months, the other 24.

... and then I would start reading. When you feel like you know everything necessary, keep reading. Run some scenarios. Figure out your investment horizon. Figure out your life goals. Have some really great sex.

Most of all, don't rush into anything and be cautious of people who provide advice.


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## getliquid (Mar 2, 2014)

TomB19 said:


> I suggest dividing the money in half and purchasing two GICs. One GIC would be 12 months, the other 24.
> 
> ... and then I would start reading. When you feel like you know everything necessary, keep reading. Run some scenarios. Figure out your investment horizon. Figure out your life goals. Have some really great sex.
> 
> Most of all, don't rush into anything and be cautious of people who provide advice.


why would you lock it in GICs when a saving account is paying 3% backed by CDIC?


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## Eclectic12 (Oct 20, 2010)

^^^^

If the 3% savings is EQ bank, the rate drops on April 18th to 2.25%.


Cheers


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## lovemaker (Apr 18, 2016)

*Invest in agriculture*

I suggest you to invest in agriculture. It is very beneficial in some areas. I know some folks who invested in Ukrainian farm and got 18% profit annually.


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## TomB19 (Sep 24, 2015)

getliquid said:


> why would you lock it in GICs when a saving account is paying 3% backed by CDIC?


What savings account is paying 3%?


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## mordko (Jan 23, 2016)

TomB19 said:


> What savings account is paying 3%?


Not any more. Equitable Bank did for a very short period of time.


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