# Begginer Investing Questions



## jamiechese (Jul 13, 2010)

Hello everyone, at the moment I would like to consider myself a newbie at investing. Now I understand that there are many other threads out there asking "what is the right investment for my situation" although I have not been able to find a situation specific to mine so that is why I feel I need to create a new thread for it.

So here is my situation
I have just turned 18 and will be attending University or College within the next year or so.

I have a small amount to invest currently...which is approx $4500

I have about $1515 put into a High Interest TFSA ($1515/$10000 contrib. room left) with Meridian Credit Union at a 2.1% interest rate. I believe the interest rate is fairly high because its considered an "online" account and since it is not physically managed by a person they can offer that kind of interest rate.

Now I do plan on going to school in about a year or so and am trying to save up for it, although seeing as I have become obsessed with investing over the past year or so am interested in starting a nest egg pretty early.

I have just recently sent in my application for a Qtrade account, I will be charged $20 per trade (Which in my view is good as with CIBC its $30).

Now I understand that I will have to keep a minimum balance within the account to avoid fees as well as refrain from closing the account, which I am willing to do.

So now that I have explained my situation I will now try to emphasize why I am in need of help.

So currently I am interested in a few things regarding types of stocks I am interested in purchasing. Although I am stuck as to which ones I should start purchasing first. I am more interested in sticking with Claymore/iShares as they are cheap and will offer me exposure to a wide variety of stocks on the market.

1. Should I start with high paying dividen ETFs? 
2. Should I aim for more growth?
3. Or should I stick to keeping all of my money in my Meridian TFSA?

I am willing to take risks with this money for higher returns but I am just not sure where to start...or which to purchase first.

Anyone that can offer insight into my dilema is greatly appreciated!

Cheers!
Jamiechese


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

Welcome to the forum and to the world of investing!

I think you have all the right ideas. There is nothing wrong with anything you said, insofar as the types of accounts to place such sums of investment money.

However, on a more general basis it is not typical for someone your age who is about to head into school, to be putting such large amounts of money in savings or investments. For the next few years, you will need every penny to pay for all of the costs related to your schooling. I never invested anything when I was in your situation. I needed all of the money for tuition, food, housing, transportation, books. Yes yes I know you'll be doing those things on the cheap, but there are still costs to be paid every month. Don't rack up debt to pay for that stuff. Use the cash you have.

My advice is not to lock your money away in any investments such as RRSPs until you are finished school, have graduated and found work, then completed your move to your new, permanent home.

Between now and then you're going to need all the cash you can get.

Good luck!


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## slacker (Mar 8, 2010)

Your top priority should be to unlock your human capital. That is your potential earning power. Most people do this via higher education, but experience is important too. Don't cheap out on either of these, as this is investing in yourself, and will likely have greater return on investment (ROI) than you can get from the market.

I don't normally endorse leveraged investments, but borrowing money to get the required degree or training for a high paying job or position is not a bad deal.


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

slacker said:


> I don't normally endorse leveraged investments, but borrowing money to get the required degree or training for a high paying job or position is not a bad deal.



Agreed!

However, the OP has $4500 and should first apply that cash towards his education, rather than to borrow over and above. As you said, the investment in his education pays far greater "dividends" than any technical $ investment returns would.

Use the money you have. Then borrow as you need more. Also consider part time/summer jobs etc to minimize the amount you need to borrow.


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## warp (Sep 4, 2010)

Jamie:

The mere fact that you 18..going to scholl, and are starting to think about savings and investments is GREAT!

There are few things in life, that will bring financial freedom quicker than learning about isaving a percentage of your earnings and investing it early and wisely to allow the miracle of compounding to work for you.
The years will fly by quicker than you can ever imagime,,,( I can remember when I was 18,,and it seems like just a liile while ago, but its not!)

Royal-mail made some exellent points about making sure you have the money avaliable for your education costs....but it never hurts to start investing early, even with small amounts.

As you have $4500.( which is not bad for an 18 yr old)..you may be best served keeping it in your TFSA, although you prob wont have any taxable at this time anyway.
At low income levels having dividends in a taxable account can actually lower your taxes on other income too.

It may be as bring as watching paint dry..but it iss IMPERATIVE that you learn about taxes...and keep un with the yearly changes.
Read a few books,,,by Eveyln Jaks...or by Tim Chesnick...( sorry the names may be misspelled...even though I have read several books by each authour, just google candian tax authours)

Maybe a good ETF may be right for you at this time,,,preferrably dividend payers..maybe XDV

Learn abou asset allocation.....but later, after you finish school

Lastly,,,get aplan you feel comfortable with..and stick to it

Also read any of "THE LITTLE BOOK" series on investing..theres a series of them , about 6 or 7....ver easy to read, and a lot of good info.

example..."the little book of common sense investing" by John Bogle


Remember that this all sounds complicated.....the financial industry trys to convince you of that ecery day....but its not, if you are willing to do alittle reading and teach yourself.

And NeVER buy high expense mutual funds! nothing will kill your long term returns faster.

Good luck!!


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## warp (Sep 4, 2010)

Sorry to all.

Like an Idiot , Im talking about education,,,,and spelled the word "school" wrong!!

just a mis-stroke on my keypad.....but it did look dumb!!


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## peterk (May 16, 2010)

Well, I just wrote up a nice response - but like an idiot I navigated away to search for these links I'm going to give you and lost my whole message...
To sum up:
RRSPs right now = bad (too illiquid)
Government student loans = good (you'll often receive FREE grant money if you're eligible for a loan)

Here's my first question on these forums, which has a lot of useful information in the replies.
And my favourite link that I found taught me a lot, and straightened out some misconceptions I had.


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## slacker (Mar 8, 2010)

Don't forget to file your taxes, and apply for tuition tax credits. I got over $10k of tax refund from tuition credits !!


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## jamiechese (Jul 13, 2010)

Thanks everyone for the advice. Yes I understand that it is extremely important to be paying for school although I am very lucky to have parents supporting me throughout my education (call me spoiled if you will). I know that I will most likely be needing this money eventually for something (whether it be books, etc). 

The reason I put my money into this TFSA account with Meridian Credit Union was because of the interest rate, it was the highest interest rate I could find for a "Savings account". Even though I am not being taxed as of yet but the interest rate made it extremely enticing. And considering when I withdraw that money I can very well put it back in later on is encouraging.

Also thank you for the external link to the Retail Investment site, I had actually JUST come across it last night. So far it has been helpful in making me more educated on many things, although a lot of it seems a tad dry but I still am reading it when I am bored . Also thank you for those book recommendations! I guess I will have plenty of reading to do in the near future haha!

Honestly I have my business highschool teacher to thank for getting me into the world of investing and saving. Honestly before grade 11 I had no idea what a stock even was. Quite frankly it is very saddening to see how MANY highschool students have no idea about anything to do with investing or even remotely realize the importance of saving money.

Also, at the moment I am taking a year off and do have a semi part time job (full time when its winter season) although I am going to start looking for a second job so I can earn even more money. As at the moment I am just sitting around doing nothing...apart from going to the gym every so often haha .

Also regarding tuition tax credit, I honestly have no idea how that would work if my parents are going to be paying tuition (yes I guess I am a lucky *******). If the tax credit goes to my parents thats OK but if they cant file it, how would I go about filing it? (Truesay ive never filed a taxwhatchamcallit before ).

And again thank you all for the sound advice! I appreciate everyone taking the time to point a young person in the right direction!


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## MoneyGal (Apr 24, 2009)

peterk said:


> RRSPs right now = bad (too illiquid)


Purely in the spirit of education, I am typing out a post on liquidity. This is a term that I personally find is often mis-used (I'm not thinking in particular of this place, just in general). 

In investment and economics terms, liquidity is defined as the capacity of an investment to be readily converted to cash, to be available to repay debt, and/or to be sold without causing price movements or a change in value. 

There is nothing inherent in an RRSP account which makes the contents of that account illiquid. In fact, RRSP trades should trade quickly and withdrawals (should they be required) are available within a few days - not any longer than trades from an unregistered account. 

Now, the contents of an RRSP might be slightly less liquid, depending on how those funds are invested. But this has nothing to do with the fact that those investments are held inside an RRSP. 

I know that if you cash in an RRSP, you will be subject to minimum tax withholding amounts. Again, this is not an issue of liquidity; this is a tax requirement and if you have no tax owing in the year of withdrawal, the withheld funds will be returned to you after your return is filed. 

RRSPs may be considered as a less flexible investment alternative than unregistered accounts, but they are not subject to particular liquidity constraints.


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## peterk (May 16, 2010)

Of course you're right MoneyGal. I was just trying to be brief since I lost my previous post haha. I didn't really mean illiquid to mean illiquid - only to express that for a young student to _treat_ an RRSP account as a_ liquid _asset would perhaps be a poor decision.


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## Belguy (May 24, 2010)

(1) Read 'The Automatic Millionaire' by David Bach

(2) Refer to www.canadiancouchpotato.com and look at the model portfolios.

(3) At www.globeinvestor.com click on 'Funds and ETFs' tab and set up a 'Fundlist' in order to compare various ETF's from BMO, Claymore and iShares (under Blackrock) including performance for various periods.

That will give you a good grounding.


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

I don't agree. Money that's tied up in investments and RRSP shelter is a prime example of illiquid funds. If that money is needed immediately, you will not be able to get the full amount stated on your account balance. You'll be eaten alive by taxes and fees. Kinda makes it not worth the hassle.

Cash, cashable GICs or TFSA on the other hand are liquid because the entire amounts of that money is easily accessed on fairly short notice, in full, with no bogus fees or penalties. For the average person, this is liquid and provides security.


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## MoneyGal (Apr 24, 2009)

Helllooooooo! You can hold cash in your RRSP. There is nothing inherent in the RRSP container that makes its contents illiquid. So long as you do not have DSC mutual funds, the RRSP contents are liquid. 

Yes, you will have to pay a withholding tax (which may be refunded to you) - but this is not a liquidity issue.


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## Four Pillars (Apr 5, 2009)

MoneyGal said:


> Helllooooooo! You can hold cash in your RRSP. There is nothing inherent in the RRSP container that makes its contents illiquid. So long as you do not have DSC mutual funds, the RRSP contents are liquid.
> 
> Yes, you will have to pay a withholding tax (which may be refunded to you) - but this is not a liquidity issue.


I agree, RRSP = liquid.

Also - DSC funds are just as liquid as non-DSC, you just don't get quite as much of your balance.


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

Sorry folks, we'll have to agree to disagree on this one. Even if the holdings are in cash, the fact that I get nailed with all sorts of taxes and penalties (as well as have to hold my breathe and wonder how much more tax I'll have to pay next March) makes RRSP-sheltered money/investments etc very illiquid in my opinion.

Me giving you $5 and then you handing it back quickly and in full is how I view liquidity. By you saying you'll give my money back "BUT..." is not liquid. I might only get $4 back and thus is not my vision of liquid funds.

Anyway I'm thirsty lol.


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## jamiechese (Jul 13, 2010)

Yea, I think that I will start with my TFSA HISA at first then most likely just begin my RRSP after College/University. I mainly like the TFSA because you arent taxed when you withdrawn (Thats correct right?). And seeing as I am moreso planning just for this year its probably better to not risk much of my money. Although seeing as I will still have some income this year I will most likely still put some into a few ETF's and let i sit there for 1 - 3 years depending on whether or not I need it in the later years of Uni.

Thanks for all the advice though, and I definitely like the fact that you can recontribute to TFSA's in the later years.


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## davext (Apr 11, 2010)

I would have to say that what you have already done with your money is already very good. Given that you will have a lot of unexpected expenses for education, I would just keep it where it is. The market has been running up for the last couple of months, you could easily lose 10% of your money quickly and then have to recover from that. One of the problems with DIY investing is that there are practically no barriers to entry, so you can easily make mistakes and lose a good portion of your money. 

If you're saying that you don't care about this $4500 because there is more coming in and you don't need it for school, I'd still suggest that you wait and see where the market is going, especially wait for QE2 ( Quantitative Easing 2) from the States which is the 2nd potential stimulus that the government is using to spurr the economy. 

Honestly, $4,500 is a good start but it's not a lot of money to do much. Instead, you should concentrate on making sure you are going to university/college for the right reasons and program, and when you're at school, make sure your education creates the best return for your time and money. Don't waste time by failing a course or two which may result in you having to take summer school or stay another 1/2 year or full year or whatever. Time is money. Don't waste time on part-time jobs either if it doesn't help with your experience because the money made from those jobs if you don't need the money is worthless although it can be very detrimental to the success you have in school. On the wages that you're earning now, maybe 1 year means $30,000 in salary for your current job? I'm just guessing. Think about how every year of university costs your parents/you, $15,000(tuition + expenses) + $20,000(from not working 2/3 of $30,000 for 8 months of the year) = $35,000 minimum.


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## jamiechese (Jul 13, 2010)

Davext, Regarding how much I will be paying for my education is a mystery as my parents said they will be paying most of it. I suspect most of my money will go to all the little extra costs, not sure what type but stuff like bus costs, small things but I still know that I want to aim for 10k$ saved by next September, which should not be too hard hopefully and if I am lucky, depending on whether the trust funds last it should be enough to cover atleast 1.5 - 2 years of uni.

Ive heard some crazy stories of how much people need but honestly I am not the biggest partier in the world and dont plan on fucking things up by wasting it all on booze. I definitely dont intend on wasting my parents money, they would most definitely disown me if that happens.


And you are right that it is important to invest in ones future and it is understandable that taking on a part time job throughout the school year can be detrimental to success. I would only take on a job if I absolutely knew that I was going to be short on cash. Although with a budget I dont think I will have any trouble!


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## davext (Apr 11, 2010)

How much of a gain are you looking for?

As you've mentioned that you might not need this money for a few years and you might go the route of some ETFS, that might work out for you if you have the stomache for a 10% to 15% loss. I'd suggest that you look up the ETFs that you want to invest in and see how much they've gone up and down in the past year and a half and imagine how comfortable you'd be in the best/worst case scenarios. 

The first stocks that I bought were INTEL and JDS Uniphase, about 10 years ago during the tech boom. I almost immediately lost money - bad timing and poor investment strategy for me. Even if I held the stocks till today, I would still be down because I paid more than the stock prices today. 

Back then the interest rate was about 6% so there was more incentive in keeping cash in a high interest savings account. I guess it must be hard for everyone to keep money in savings acounts at the rates offered now. 

Good luck!


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## jamiechese (Jul 13, 2010)

Yea, I was just looking at Meridian Credit Union TFSA options and I made a really stupid mistake based on the fact that the 2.1% interest I am currently getting is a promotional offer (why was I so stupid to not check before). I believe their regular rate is only 1.65% so....but technically I am already screwed considering ive used up 2015/10000 of my contribution room. I plan on keeping that money in the account until September but dont plan on putting anymore into it.

I think the next thing I will be doing is starting up on my TFSA with Qtrade and may go with either some ETF's or regular Mutual Funds. The only reason why I would go for the regular mutual funds is because at Qtrade there are no commisions on them. I may even go with the mutual funds Qtrade offers. I am not sure and will have to determine what to do once my account is officially opened.


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## Rox (Oct 17, 2010)

I must say you really know how to take care of yourself, my young friend,... At your age, I was working hard at my studies and did not know a dime about stocks and investments. 

Great going there,.....


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## cardhu (May 26, 2009)

The concept of liquidity has taken quite the beating in this thread. 

An RRSP is just a form of account ... it has no inherent liquidity or illiquidity ... those characteristics belong to the assets that are contained within the account, not to the account itself ... therefore, some RRSPs may contain only highly liquid assets, while other RRSPs contain only highly illiquid assets ... and there are numerous of shades of grey in between. 

Most DSC mutual funds are highly liquid, but there are plenty of other qualified investments that are not ... GICs for example .... or residential mortgages ... or any shares that trade with unusually low volume. 



TRM said:


> RRSP shelter is a prime example of illiquid funds. ...you will not be able to get the full amount stated on your account balance. You'll be eaten alive by taxes and fees.


Whether or not you can get the full amount shown on your account statement without taxes, commissions or “bogus” fees is immaterial ... 

Eaten alive by taxes???? That’s an alarmist fiction. Rarely happens in the real world, but in any event is not pertinent to liquidity. 



TRM said:


> _TFSA on the other hand are liquid ..._


A TFSA is just a form of account ... it has no inherent liquidity or illiquidity ... those characteristics belong to the assets ... yadda yadda etc. etc.

A TFSA can hold all the same illiquid assets that an RRSP can, and can be subject to the same sorts of fees, bogus or otherwise. 

Shares in the Royal Bank are highly liquid ... period ... regardless of which broker one uses (ie. whether the commission to transact the shares will be $6 or $600), regardless of whether they are carrying any unrealized gains or losses, and regardless of whether they are held within a TFSA, an RRSP, or a non-reg account.


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## jamiechese (Jul 13, 2010)

Yea cardhu, they really have haha . Although I did know before a bit about liquid and illiquid assets etc. I do realise that if I start investing and end up needing that money in the future then it may come at a loss to me. Although I think I have decided that I am willing to put some of my money in some low risk Claymore/iShares ETFs for atleast even a small amount of growth which honestly even if its a few dollars it would be just as good as the money I have in my TFSA HISA. So I think I have decided what I plan on doing!

In the end what I will attempt to do is plan the amount I invest accordingly and make it so I can regain my capital in a short period of time IF my investments are in positive returns. Dollar cost averaging in other words .


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## Larry6417 (Jan 27, 2010)

*Liquidity semantics - my favourite!*

How is “liquidity” defined? Most would define it as the ability to sell an investment with minimal change in price or loss in value. If one defines “liquidity” as a property belonging solely to investments, then, of course, the structures those investments are held in have no effect on liquidity. 

If, like Royal Mail, you define liquidity functionally as “cash in my hand with minimal fuss,” then the structure those investments are held in have an obvious effect. Any rational person who needs $5,000 would withdraw it from a TFSA rather than a RRSP. There's no tax on withdrawals from a TFSA while there's a withholding tax on RRSP withdrawals (unless it's a HBP or LLP), so one has to sell $6,250 from a RRSP to have $5,000 cash in hand. Also, the contribution room from a RRSP, unlike a TFSA, is lost permanently.

There's a thread from a teacher who invested in a segregated fund-like product (likely invested in liquid bonds, stocks) with Skandia that has a 50% early withdrawal penalty. Do you think he feels any better because his investment is (technically) liquid?


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## Eclectic12 (Oct 20, 2010)

the-royal-mail said:


> Money that's tied up in investments and RRSP shelter is a prime example of illiquid funds. If that money is needed immediately, you will not be able to get the full amount stated on your account balance. You'll be eaten alive by taxes and fees. Kinda makes it not worth the hassle.
> 
> Cash, cashable GICs or TFSA on the other hand are liquid because the entire amounts of that money is easily accessed on fairly short notice, in full, with no bogus fees or penalties.


It depends on what the situation and what the need for money is.

In my case, for the needs I'm likely to have, I'm happy that the investments I'd choose to sell are worth more than what I paid (ignoring that some of them are generating dividends ranging from 7% through 36%). 

Note also that cash can cost as well, through account fees (if one is not careful) and if interest is paid, there is also taxes that will eventually have to be paid. It is also not always so easily accessed as there can be transfer delays and/or holds. Unless one is storing the cash in one's mattress.


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## Four Pillars (Apr 5, 2009)

Larry6417 said:


> How is “liquidity” defined? Most would define it as the ability to sell an investment with minimal change in price or loss in value. If one defines “liquidity” as a property belonging solely to investments, then, of course, the structures those investments are held in have no effect on liquidity.
> 
> If, like Royal Mail, you define liquidity functionally as “cash in my hand with minimal fuss,” then the structure those investments are held in have an obvious effect. Any rational person who needs $5,000 would withdraw it from a TFSA rather than a RRSP. There's no tax on withdrawals from a TFSA while there's a withholding tax on RRSP withdrawals (unless it's a HBP or LLP), so one has to sell $6,250 from a RRSP to have $5,000 cash in hand. Also, the contribution room from a RRSP, unlike a TFSA, is lost permanently.
> 
> There's a thread from a teacher who invested in a segregated fund-like product (likely invested in liquid bonds, stocks) with Skandia that has a 50% early withdrawal penalty. Do you think he feels any better because his investment is (technically) liquid?


I suppose there are different ways to think of it, but as MoneyGal said way upthread - it really has to do with how quickly you can convert the investment to cash. Fees, taxes etc have nothing to do with it.

Withdrawals from an rrsp will be subject to taxes, but so what? If you have $10k in your rrsp, do you really have $10k? or do you have $10k which is actually worth less once it's taxed?

As long as the investments inside the rrsp can be sold quickly then they are liquid.


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## Guest (Oct 20, 2010)

Fwiw ... you can transfer your Meridian TSFA to Qtrade ... just fill in the Qtrade forms, they'll do it for you ... if you're interested in using your TSFA for trading, investing.


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## Guest (Oct 20, 2010)

TSFA??? Tired, worked through lunch ... adios


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## humble_pie (Jun 7, 2009)

liquid/illiquid, imho everybody is right due to the fact that language use & language meaning are constantly shifting. Slang today will often migrate into officialese tomorrow. 

so although the strict traditional meaning of liquid is indeed what several interpreters have posted above, nevertheless the colloquial version of liquid vs illiquid - liquid meaning funds one can obtain readily & easily vs funds locked up in some instrument or subject to any kind of restraint - is extensively used by the general population, by the media, and even by economists.

here for example is what Reuters had to say yesterday about Basle 3 regulations for banks:

_" ... the [Basle] committee said it would also adopt a gradual phase-in for its liquidity coverage ratio (LCR), which will require a bank to hold enough highly liquid assets to cover 30 days of net cash outflows ...

" The rules have faced fierce opposition from banks, which say they would struggle to comply, and bankers said that, while a phase-in of the LCR had been expected, they welcomed confirmation of the delay."_

clearly Reuters is referring to banks that are indeed liquid in the classic sense of the word but are facing the new 30-day liquid assets rules with some difficulty. Reuters is using the word "liquid" in the same sense as the-royal-mail, that is, to indicate instantly available money.


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