# Investment Options (TFSA and what else should I do?)



## seanx (May 28, 2012)

Hi everyone,

First off, I'm a newbie. I'm 26 year old, only started to save money 1 year ago. Currently I have approx. $15000 in my account, I have 3 bank account with CIBC.
- TFSA: I have about $8,000 in this account. The interest rate is approx. 1.15%. I'm continusly contributing $700/month to this account.
- E-advantage saving account: I have about $7,500 in this account. The interest rate is 1.5% when the balance is $5,000 or more. Each month after I pay off credit card/rent/utilities, I transfer whatever I have left to this account. It can vary from $50 to $200.
- Then I have everything else in my regular chequing account.

I'm currently in an okay financial situation: I have no debt, I'm not planning to buy a house/car within the next 3-5 years. Basically these money are sitting there with no use. I'm considering using these money to invest/make more money.

I talked to my financial advisor in CIBC and she suggested me to buy mutual funds with them, she asked me a bunch of questions and suggested a income portfolio with 5%saving + 75%income + 20%growth. Do you guys think it's a good investment?

I have a little bit of finance background in school but I've never actually practiced. I wanted to learn to buy stock on my own but I don't think I have the ability to do that just yet.

Can you guys give me some suggestions please? Greatly appreciated!


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## arc (May 19, 2012)

I avoid mutual funds at all costs, most under-perform the market. Look into ETF and get a few investing basics books on amazon or your library.


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## Spudd (Oct 11, 2011)

Normally at your age, you'd look for growth rather than income. One key thing to look at is the MER's on the mutual funds (management fees). If they are > 1%, you'll be paying too much. 

You should put everything you have saved into your TFSA since you are being taxed on the interest you make in the e-advantage account. In the TFSA, it grows tax-free. But there are better banks than CIBC for the TFSA - e.g. PC Financial pays 2% on their TFSA accounts.

Depending on your goals, you may or may not want to move some of the money from a plain TFSA savings account into mutual funds or ETF's.


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

I don't think you should be aiming to invest when you don't appear to have an emergency savings plan?


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## humble_pie (Jun 7, 2009)

hello sean & congratulations to you, you seem to be in excellent financial shape.

sometimes it's a good idea for a new investor to stay with a mutual fund advisor at first, although i agree with others in this thread that the choices she has prepared for you are too conservative for most young investors.

some might urge you to abandon your cibc accounts & go directly to etfs, which are exchange-traded funds.

it's true that a somewhat larger portfolio with a value of 25-50k could be economically managed with etfs. However a brand-new investor just embarking on a learning/study program might be best off staying with his advisor for several months while he develops longer-term plans.

how about contributing that extra 2,500 from your advantage account to your tfsa. This will produce a tfsa balance over 10,500. If i were in your place, i would divide this amount between the high-interest savings vehicle you have already chosen and one mutual fund. Just one fund. Not a bond or income fund, because you don't seem to need income, instead you mention you are able to save $700 monthly.

for the mutual fund i'd pick a basic canadian equity fund, or a dividend fund. Whatever you do, please make sure it's a no-load fund & specifically make sure it has no rear-load commission. You want to be able to exit this fund with no penalties.

next comes the learning/study program. There's a reading list for new investors at the top of this Investing section. Libraries have most of the books. Meanwhile, do read the business sections of leading newspapers & don't forget to hang here in the forum.

wishing you a lifetime of success.


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## seanx (May 28, 2012)

Spudd said:


> Normally at your age, you'd look for growth rather than income. One key thing to look at is the MER's on the mutual funds (management fees). If they are > 1%, you'll be paying too much.
> 
> You should put everything you have saved into your TFSA since you are being taxed on the interest you make in the e-advantage account. In the TFSA, it grows tax-free. But there are better banks than CIBC for the TFSA - e.g. PC Financial pays 2% on their TFSA accounts.
> 
> Depending on your goals, you may or may not want to move some of the money from a plain TFSA savings account into mutual funds or ETF's.


Thank you Spudd. I agree with you idea of 'look for growth rather than income', I brought this up to my financial adviser, she said because it's my first time trying to invest, she suggested me to start with something low. From that I can tell I probably won't be getting much from this.

My goal is to make money while I'm still single with no debt. Thanks for your advice, you mentioned ETF, I need to study more about it.


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## seanx (May 28, 2012)

the-royal-mail said:


> I don't think you should be aiming to invest when you don't appear to have an emergency savings plan?


I'm planning to leave $5000 in the e-advantage account to earn interest, also as emergency saving money, so that should leaves me $8000+$2500 = $10500.


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## seanx (May 28, 2012)

humble_pie said:


> hello sean & congratulations to you, you seem to be in excellent financial shape.
> 
> sometimes it's a good idea for a new investor to stay with a mutual fund advisor at first, although i agree with others in this thread that the choices she has prepared for you are too conservative for most young investors.
> 
> ...



Thank you very much humble_pie. I agree that the choices she prepared for me were too conservative but you are right, until I have more knowledge in investment I may stay with the advisor for several months.

I logged into my CRA and my 2012 TFSA contribution room on Jan 1, 2012 is $14,700. I only started to make contribution to TFSA in 2011. I’m not quite sure what does this amount mean to me. Would you please help me out? Thanks so much in advance. I currently have $8500 in TFSA (sorry I told the wrong amount earlier in my thread), I’m also continuously contributing $350 on 15th and 31st of every month, so from now until the end of 2012, I will be contributing $350 * 15 = $5,250. Only this will make my end-of-year TFSA amount to be $13,750. If I contributing that $2500 from e-advantage account to TFSA, that will make it $16,250 at the end of the year, would it be over my contribution room? 

My advisor at the bank mentioned that I can transfer all of my current TFSA amount into a TFSA mutual fund, and then open a regular mutual fund with the rest $2500. Why does that sound wrong to me? I know the portfolio she prepared for me should be very low risk, but convert them all sounds something is wrong. 

By you mean only chose one fund, do you mean not to go with the portfolio she offered but to open something like Investors’ Edge and do it myself? Thank you so much humble_pie, I do need more knowledge, this is a great forum, I’ll be here for a while.


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## boipinoi604 (Feb 13, 2012)

I disagree with people basing their invesment style on age.
It should be based on our investment horizon, risk tolerance and goals.
I think your financial advisor did a good job setting up allocation of 75/25 just to get you started.


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## Young&Ambitious (Aug 11, 2010)

Age can be very relevant. If you're on the verge of retirement, holding a risky portfolio could wipe out a material amount of your savings with little to no time to recoup the losses. 

However, the OP seems to have a long horizon given his young age. SeanX you will find there are a number of young people on here also beginning our investment journeys 

Given your portfolio amount and the monthly contribution I would recommend the TD e-series low MER funds. From a cost perspective it will be cheaper than mutual funds and is likely to return a similar or better (after MER) return. I would suggest reading books (there's a recommended list on the forum called the Eight with Weight) and some sites such as Million Dollar Journey and Canadian Couch Potato. 

I also second throwing the emergency fund into a TFSA account so your interest accumulates tax-free.


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## seanx (May 28, 2012)

Thank you humble_pie. I replied you earlier but still doesn't appear, I started to wonder if I clicked the 'proceed' button, so let me try the quick reply thing.

I logged into my CRA account, it says my 2012 TFSA contribution room on Jan 1, 2012 is $14,700. (I didn't contribute anything until 2011.) Currently I have $8,500 (sorry I gave the wrong amount earlier), and I'm still continuously contributing $350 on the 15th and 31th of every month, so from now to Dec 2012, I have $350 * 15 = $5,250 that goes to this account this year. With the $8,500, I will have $13,750 at the end of the year.

By putting the $2,500 into TFSA, would that exceed my contribution room? Of course I can cut down monthly contribution, but where would I put my monthly saving to?

There are so many I need to learn, this is a great forum! I'm glad I came across to this forum! Thank you again!


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## seanx (May 28, 2012)

Thank you Y&A, I just logged into my CRA account, it says my 2012 TFSA contribution room on Jan 1, 2012 is $14,700. (I didn't contribute anything until 2011.) Currently I have $8,500 (sorry I gave the wrong amount earlier), and I'm still continuously contributing $350 on the 15th and 31th of every month, so from now to Dec 2012, I have $350 * 15 = $5,250 that goes to this account this year. With the $8,500, I will have $13,750 at the end of the year.

By putting the $2,500 into TFSA, would that exceed my contribution room? I don't know if I understood the $14,700 correctly, if I have enough room, I will definitely maximize TFSA.

Also, thank you for recommending the TD e-series, is it 
http://www.tdcanadatrust.com/produc...-funds/td-eseries-funds.jsp?tab=what-are-mers 

Do you recommend one of the TD mutual funds that listed there? I would assume you meant 'TD Canadian Index Fund' as it has the lowest MER. Sorry, I have so much study to do, I'm not even sure if I asked the appropriate questions.

Thanks for recommending the Eight with Weight list, I'll definitely check the library!


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## Young&Ambitious (Aug 11, 2010)

You can contribute up to $20,000 at this point in time. On January 1, 2013 it will be another $5,000 for total contribution amount $25,000. All the details are here: http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/tfsa-celi/menu-eng.html

And apparently CRA has some new rule that they must answer your phone call within 2 minutes so you can also call them. But that's assuming that their records are correct and everything has been reported correctly.


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## jet powder (May 29, 2012)

Seanx

I think it is good to do some reading but I think a lot will fail because @ some point thinking is needed & just reading I dont think will cut it.


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## humble_pie (Jun 7, 2009)

och, ye'll go far, laddie. Tis a fine calculation ye have made.

you are probably better at math than i am, but it does look like, if you do make every one of those semi-monthly $350 contributions (btw are you sure there will be 15 of them ?), then by the end of 2012 you will have contributed 13,750.

and if the cra recognizes contribution room on 1 january/12 at 14,700, then the above-mentioned contribution plan should end up being a tad short of the total 20,000 that is allowed. Specifically, $950 short.

you could make up this shortfall now by transferring some funds from your advantage account. But may i suggest you flag to yourself to doublecheck all the math in november this year, because you don't want to go over the 2012 limit by a nickel (now that the penny has been abolished.) Or a centime, or a sou, or a farthing.

as it happens, i agree with Y & A about the efunds. The only reason i didn't suggest them is because you had initially described an ultra-conservative financial proposal from your bank advisor. There was no clue as to whether you yourself had informed the advisor that you could not tolerate risk ... so this gave me the impression you might be a highly risk-averse person.

and this notion, in turn, led me to the idea that you might not want to leave the comfort of the cibc.

of course, in a subsequent post you explained that the ultra-conservative weighting of the mutual fund plan was entirely the advisor's idea.

so yes, an economical, in fact spartan, way to nurture a small account - so that it will grow as fast as possible - would be to open an efunds tfsa with td itself. All contributions would be free. You could contribute every month, or as often as you like.

etfs would function just as well, but they must be bought by brokers on stock exchanges, so there is a commission for every transaction. Alas, a small account is penalized by high commissions, up to $30 per transaction. An investor with a 15k account would not dream of contributing 15 semi-monthly amounts because the full year could cost him up to $450 in commish.

the balance shifts when an account comes close to 40-50k. That's when the discount brokers tend to drop their commish to 9.99 per trade or less. So that's when some investors who have been saving with e-funds switch to a broker account where they are free to buy, not only etfs, but all kinds of stocks & bonds as well.

i don't mean to leave out questrade. Their commissions are markedly less, ranging as low as 4.95, so many new investors do start out at questrade.


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## Eclectic12 (Oct 20, 2010)

Young&Ambitious said:


> You can contribute up to $20,000 at this point in time. On January 1, 2013 it will be another $5,000 for total contribution amount $25,000. All the details are here: http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/tfsa-celi/menu-eng.html
> 
> And apparently CRA has some new rule that they must answer your phone call within 2 minutes so you can also call them. But that's assuming that their records are correct and everything has been reported correctly.


Depending on what you mean by "can contribute", this may be accurate. I suspect the OP is more interested in what is available after the previous contributions instead of the total TFSA room accrued.

The OP started with $20K but according to the post:


> TFSA: I have about $8,000 in this account.


There is no mention of withdrawals, so assuming the OP has been a Canadian resident from 2009 to today (an age of 26 was posted so the requirement to be over 18 in 2009 is taken care of), the available TFSA contribution room will be total TFSA room accrued - contributions, or $20K - $8K = $12K. 

There's been a revised post so this appears to the revised amount is $20K - $8.5K = $11.5K available.

As for CRA, a quick search here or the internet reveals complaints that the CRA amounts can be as much as 12 months behind so it is well worth one's while to track this yourself. The penalty is a minimum of 1% per month until the over-contribution is removed. Depending on the timing of when the over-contribution occurred, some people have been upset to find out they have a minimum of 1% x 12 months penalty to pay.


The TFSA contribution room, IMO is best handled like balancing a chequing account. At the start of the year, add the new yearly amount, make the updates as they happen to know exactly where one stands. The main wrinkle is that withdrawals are added to *next* year's contribution room.

Example: I used up my 2009, 2010 and 2011 TFSA contribution room and withdrew in 2011 $6K.

So, up to Dec 31st, 2011 -> TFSA contribution room = $0.

Jan 1st, 2012 -> TFSA contribution room = yearly amount + unused + *last years withdrawals* 
= 2012 $5K + 0 + 2011 $6K
= $11K

Mar 10, 2012 -> contribute $3K, therefore updated amount = $11K - $3K = $8K still available.

If one keeps updates amounts, it is not difficult and provides an indicator if wrong info was sent to CRA.


Cheers


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## Eclectic12 (Oct 20, 2010)

seanx said:


> Thank you Y&A, I just logged into my CRA account, it says my 2012 TFSA contribution room on Jan 1, 2012 is $14,700. (I didn't contribute anything until 2011.)
> 
> Currently I have $8,500 (sorry I gave the wrong amount earlier), and I'm still continuously contributing $350 on the 15th and 31th of every month, so from now to Dec 2012, I have $350 * 15 = $5,250 that goes to this account this year. With the $8,500, I will have $13,750 at the end of the year.
> 
> ...


A way to confirm CRA's assessment is add up what was contributed (not the current value in the TFSA) as of Dec 31st, 2011 and do some calculations.

If one turned 18 in 2009 or earlier and have been a Canadian resident for tax purposes for 2009 on, then in Dec 2011 - the accrued TFSA contribution room = $5K per year x 2009, 2010 & 2011 = $15K.

Jan 1st, 2012 adds another $5K and I see no mention of TFSA withdrawals.

If the CRA Jan 1, 2012 amount is accurate and one is calculating from scratch:
2012 TFSA room = 2012 $5K + previous accrued + last years withdrawals - previous contributions
= $5K + $15K + $0 - previous contributions
= $20 - previous contributions = $14,700 (says CRA)

Or putting it another way, CRA is saying prior to Jan 1st, 2012 - $5,300 was contributed to your TFSA.
If your TFSA records show something different, then a followup to figure out what's what is a good idea.


As for the NOA $14,700 - that may only apply to Jan 1st, 2012. Any TFSA contributions in 2012 will reduce this amount by each contribution amount. The only way to tell if the $2,500 is an over-contribution is to gather up the 2012 TFSA contributions to date, subtract them and see where you are *today*. Then project where you will be based on your automatic contributions.

This is why I keep a spreadsheet that records each contribution so that it reduces the running total. Then once a year, the new yearly amount plus any previous year withdrawals are added to bring everything up to date.


Cheers


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## seanx (May 28, 2012)

Thank you Eclectic12 for explaining this for me, it's very clear now. I started putting money into TFSA since August 2011, until Dec 31, 2011 I put in a total of $5,300, so this $14,700 came from 20k - $5,300, makes sense and accurate. Since Dec 31, 2011 I've been putting $350 twice every month into TFSA, so far I've put 9 payments in, so that's $350 * 9 = $3,150. There will be 15 of these payments coming up until Dec 31, 2012, that would be $350 * 15 = $5,250. If that's all I'm contributing to TFSA, the total contribution for 2012 is $8,400. It's $6300 away from my contribution room for 2012. Am I understanding this correctly?

Thank you very much!

Should've mentioned, no withdrawals were made ever.


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## Eclectic12 (Oct 20, 2010)

seanx said:


> Thank you Eclectic12 for explaining this for me, it's very clear now.
> 
> I started putting money into TFSA since August 2011, until Dec 31, 2011 I put in a total of $5,300, so this $14,700 came from 20k - $5,300, makes sense and accurate.
> 
> ...


Yes ... looking at it at the end of 2012, there will have been 24 payments * $350 = $8,400 (which matches $3150 already in plus future $5,250).

Since you have confirmed the CRA Jan 1st TFSA contribution room is accurate (and assuming nothing changes for the auto-payments), then on Dec 31st, 2012, the TFSA room = starting room - 2012 contributions
= $14,700 - $8,400, which my math also says is $6,300 TFSA contribution room left.

As others have mentioned, on Jan 1st, 2013, there will be another $5K TFSA contribution room added, which will make the $6,300 grow to a new total 2013 TFSA room of $11,300. This assumes the indexing part of the TFSA contribution room has not kicked in to increase from the current $5K TFSA amount.

If it's made it clear and has helped simplify your calculations, I'm happy. I sometimes worry I've jumped into too much detail before the idea is understood.


Cheers


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## seanx (May 28, 2012)

Eclectic12 said:


> Yes ... looking at it at the end of 2012, there will have been 24 payments * $350 = $8,400 (which matches $3150 already in plus future $5,250).
> 
> Since you have confirmed the CRA Jan 1st TFSA contribution room is accurate (and assuming nothing changes for the auto-payments), then on Dec 31st, 2012, the TFSA room = starting room - 2012 contributions
> = $14,700 - $8,400, which my math also says is $6,300 TFSA contribution room left.
> ...


Perfect. The idea is to maximize TFSA as much as I can, right? So this basically means if I move $2500 out of eadvantage to TFSA, I will still be fine for 2012. The bank advisor mentioned I should transfer all TFSA funds to a tax-free mutual funds with CIBC, would this be a good idea?


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## 44545 (Feb 14, 2012)

SeanX,
You're getting off to a great start. Keep it up and keep asking questions.

Having an emergency fund that could cover 6+ months of living expenses is a good idea. Make it 12 months even, if you feel more comfortable with that.

Make sure you're appropriately insured. (renters, drivers, disability etc).

There are a lot of books on investing and I've only read a few but I liked these ones:

The Naked Investor: Why Almost Everybody but You Gets Rich on Your RRSP 
The Little Book of Common Sense Investing - this is an intro to index investing




arc said:


> I avoid mutual funds at all costs, most under-perform the market. Look into ETF and get a few investing basics books on amazon or your library.


This paints an incomplete picture.
_Actively managed _funds tend to under perform over long time windows.
_Passive index funds _are a great way to get your fair share of the whole market's return. 

TD's e-Series index mutual funds are the least expensive tool for building a diversified portfolio, until your account gets to $75,000 to $100,000. (I'm paraphrasing Dan Bortolotti of Canadian Couch Potato - linked below)

Further reading:
http://canadiancouchpotato.com/model-portfolios/
http://canadiancouchpotato.com/2010/06/25/should-you-use-index-funds-or-etfs/

Sean, I'd also suggest that you consider managing your own portfolio.


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## Eclectic12 (Oct 20, 2010)

seanx said:


> Perfect. The idea is to maximize TFSA as much as I can, right?
> 
> So this basically means if I move $2500 out of eadvantage to TFSA, I will still be fine for 2012. The bank advisor mentioned I should transfer all TFSA funds to a tax-free mutual funds with CIBC, would this be a good idea?


Based on the limited info plus your age, I'm guessing that you aren't in a high tax bracket, which makes the TFSA a priority. 

Note that if you think your income will be higher, resulting in a higher tax bracket later - saving the RRSP tax deduction for when more taxes will be refunded may make sense. A search of CMF will find other threads that discuss RRSP versus TFSA advantages. 

For the "tax free mutual funds" - I'm not sure if the advisor made it clear but it is the registered account that holds the investment, not the investment that makes for tax free (i.e. a TFSA) or tax deferred (i.e. RRSP) status. The investment itself can only influence the type of tax applied such as capital gains (CG) or dividends for example. 

For more details of the way investment taxes work in a taxable account, check out the sticky named "How Investment Taxes Work" in the Taxation section of CMF or other sources.


As for the do CIBC MFs make sense - bear in mind that the recommendation is likely limited to CIBC products, as well as what will pay the advisor/bank the most. Without details such as the MF's management expense ration (MER) that is charged each year or what the MF is or what it invests in or what effort you are willing to make, it is difficult to figure this out.

At this point your options are:

a) leave the money where it is while learning/researching. This means taxes will continue to be paid but means the final choice will be understood and reduces the risk of regretting buying the CIBC MFs.

b) stop paying tax now without committing to the CIBC MF. Use a savings account type TFSA to avoid taxes plus make a small amount. When you have researched/learned enough to be sure of what was recommended, request a transfer to whatever TFSA account/investment is decided on. Note that multiple TFSAs are allowed, the critical part is the individual's contribution limit, not which TFSA the money went to.

c) ask what the restrictions are if you decide on another investment. For example, is there a 60 holding period to avoid a penalty for changing investments? If you are okay with the restrictions and want to be invested, then do what the advisor has recommended, learn what you can and decide if it still makes sense based on a more complete understanding. The risk is you might decide you overpaid but depending on how fast the learning happens, this may not be a long time.


The big thing is don't let the financial institutions intimidate you with "the market is complicated". Investing is no different than saying deciding to buy a car. The range of cars available plus the buying process seems overwhelming but if you learn what you can at your pace - before long, it won't seem so difficult. 


Cheers


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

seanx said:


> The bank advisor mentioned I should transfer all TFSA funds to a tax-free mutual funds with CIBC, would this be a good idea?


No!

Rule #1: the bank advisor is merely a MF salesman. Their goal is to get you to invest as much of your cash as possible into their high-MER MFs! The sooner you do that, the sooner they get to start collecting fees from that money! 

By leaving the balance in cash (TFSA cash balances pay 1-2% depending) you are saving yourself these fees which IMO only add value to the bank's bottom line, not yours.

Personally I think you should spend more time here and less time with the "advisor" - they're there for their own bottom line, not yours.


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## realist (Apr 8, 2011)

To echo a few points that have already been made.:
- Maximizing TFSA vs. RRSP depends partly on if you expect your income to increase, and on whether or you will not this money before retirement.
- Decide how much risk you are willing to take. 
- Be sure you understand about MERs and know the MERs of what you are buying if you are getting MFs.
- If you are buying MFs, for your current situation I'd take a long look at TDs e-series funds which offer low MERs comparable to ETFS. (I say that despite the fact that i am currently losing money on my Canadian Index Fund  )

They don't get much love around here since they don't necessarily do better than inflation, but just putting money in a high interest TFSA savings account until you decide what you want to do is not a bad short term strategy.


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