# Who to Trust?



## Darius (Jul 26, 2010)

Hello All, this is my first post. I've been lurking for a while because I find these forums to be a wonderful source of information. I'm posting now because I need some advice.

After spending my 20's and part of my 30's with the 'wool over my eyes', financially speaking, I've reached a point where I know that I need to make some smart moves now (Im 38) in order to solidify my future and shorten my full time working life.

My situation:

- Married, one kid on the way
- 12 years in a Government job, ie ive paid 12 years into a pension.
- Mortgage paid off on Townhouse (valued @ 450k)
- No car payments
- can sock aside about 2,500k per month
- TFSAs both maxed (wife and I)
- About 85k combined sitting in paultry savings accounts collecting .85% to 1.00% interest
- Wife has about 50k in RRSPs
- I have no RRSPs. I purposely put any extra money I had into the mortgage knowing that the pension fund is like an RRSP.


I feel that i'm losing out just piling money into a savings account and feel that I should be capitalizing on my good position of not having a mortgage.

Problem is I do not know who to trust. My bank's financial advisor (RBC) is obviously acting in his own interest, and any financial advice i get sounds like a sell job for their products.

The only quasi plan that I have now is for us to save up enough to by a long term investment property and to hold on to it (another condo or townhome)

Stocks scare me to death and the only other investment vehicles I have read about are mutual funds and bonds. I do not feel comfortable taking 50k and plonking it into mutual fund(s) though.

Any thoughts?


----------



## Potato (Apr 3, 2009)

Hi Darius, welcome! You look like you're in great shape, at least as far as the very important steps of spending less than you make and saving money!



> Problem is I do not know who to trust. My bank's financial advisor (RBC) is obviously acting in his own interest, and any financial advice i get sounds like a sell job for their products.
> 
> The only quasi plan that I have now is for us to save up enough to by a long term investment property and to hold on to it (another condo or townhome)
> 
> Stocks scare me to death and the only other investment vehicles I have read about are mutual funds and bonds. I do not feel comfortable taking 50k and plonking it into mutual fund(s) though.



Well, your instincts are likely right about the salesperson at your bank. There are advisors out there that can put your interests first, but you probably won't find them at your local bank branch. People here in the forum and on our assorted blogs can also help you out.

That said, it's probably best to educate yourself at least a little, even if you don't want to fully become a do-it-yourselfer. For example, why do stocks scare you? Is it the volatility? Did you know that mutual funds are largely collections of stocks and bonds? 

Are you familiar with diversification? Not putting all your eggs in one basket means that running out and buying an investment property probably isn't a good idea since you already have a lot of real estate exposure with your townhouse.

Sitting in cash isn't the best way to go -- after taxes the interest there isn't even keeping up with inflation, so you're losing money year after year. However, don't be in a rush to try to fix that, it's not going to hurt you to take a few months to read some books, chat it out, and decide on what course of action to take. And of course, if you're going to need that cash soon (e.g., because of mat leave and child expenses), well, it doesn't make sense to lock it up somewhere.


----------



## Cal (Jun 17, 2009)

Agreed with Potato. Inform yourself until you figure out which investment vehicle is best for you. I would be hesitant to have such a % of my equity all in RE if you go another property at this time. Most don't have a home paid off at 38.

I prefer equities, however, couch potato or a broad based etf strategy may be best for you at this point.

Most important, you have done well. Don't forget to take a trip with the family and enjoy some of that hard earned $.


----------



## Spidey (May 11, 2009)

When it comes to money, it is generally a good thing not to trust anyone. There are often conflicts of interest with advisers concerning how they are compensated. There's no rush. I would also suggest spending some time educating yourself -- possibly read everything that William Bernstein has written on the subject of investing as well as other books.

If I were you I would consider a "couch potato" plan that invests in various index products. However, if your not comfortable with equities and especially considering that you have a government pension, you will probably do just fine by building a laddered GIC portfolio in your RRSP and TFSA. You can get a much better guaranteed rate than 1%, though.

Maybe after those are maxed out with GICs and if you want a little more adventure you could open an account evenly divided between CDN index, US index and International index. (GICs or interest products get very poor tax treatment outside of registered plans.) Or if you're feeling even more adventurous you could buy a couple of very stable blue chip dividend paying companies. Some examples might be: any or a couple of CDN big banks, TransCanada pipelines, a REIT ETF (XRE), Enbridge, Encana, Johnson and Johnson, Wallmart. But that last part is for the future, after you've read up and understand investing better and can make an informed decision if this is the route you wish to take.


----------



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

Welcome to the forum, Darius.

As far as the wool being over your eyes, that does not appear to be the case based upon your results. Even if we ignore your pension, the fact that you have paid off a $450K house, are a couple with maxed-out TFSA's and have about $85K in cash, I would say you are doing marvellously. Keep up the great work.

Let's focus on the basics. Do you have the 3 tiers of savings implemented? I've spoken at great length about them (search my past posts) and usually advise people to establish such cash funds. In your case you clearly have the cash, so it would just an allocation exercise. How are you doing your budgets, ie. what software do you use to manage your money? Even if it's just a simple excel sheet, create a new tab to track your tiers of savings, just in case adversity should strike you and/or your wife. If you do so, I think you'll be better organized and have a much better idea of how much extra money you really have.


----------



## MoneyGal (Apr 24, 2009)

I am feeling kind of grumpy this morning, so I apologize if this comes off as...grumpy. 

Posts like yours often devolve, IME, into arguments for why you should take on investment risk - even though it "scares you to death" and you don't have a financial advisor you know and trust. (Granted, you are also expressing some regret about the rate of return you are earning on your savings accounts.)

These arguments are built on a set of assumptions which are almost never discussed, as they are taken as received wisdom. The primary assumptions are that you are a long-term investor and that stocks, over the long term, will outperform bonds - hence you "should" invest in stocks in order to receive the premium expected to be available from equity investing. 

I'm not arguing that those assumptions are incorrect. However, what I am arguing is that those assumptions deserve scrutiny before a retirement income plan is constructed upon them. I personally believe the equity risk premium has been oversold and that the piece that's missing (The Royal Mail will like this) in most retirement planning is an emphasis on SAVING. Just plain old saving (and correspondingly, on REDUCING SPENDING). (Sorry for yelling!)

At any rate, there are smart people - smarter than me - who argue that taking on equity risk is NOT required for successful retirement income planning. I recommend reading - or at least skimming - the book by Zvi Bodie called Worry-Free Investing. You can download a copy from Zvi's site for $5 USD. 

Worry-Free Investing is a very good deconstruction of the arguments for and against constructing retirement income plans on an equity or bond (guaranteed) platform. You might well read the book and vehemently disagree - but at least you will not have stepped over the assumptions which underpin most discussions of retirement planning here and elsewhere, but will have had an opportunity to thoughtfully consider them and see what fits for you.


----------



## Darius (Jul 26, 2010)

MoneyGal said:


> At any rate, there are smart people - smarter than me - who argue that taking on equity risk is NOT required for successful retirement income planning. I recommend reading - or at least skimming - the book by Zvi Bodie called Worry-Free Investing. You can download a copy from Zvi's site for $5 USD.
> 
> Worry-Free Investing is a very good deconstruction of the arguments for and against constructing retirement income plans on an equity or bond (guaranteed) platform. You might well read the book and vehemently disagree - but at least you will not have stepped over the assumptions which underpin most discussions of retirement planning here and elsewhere, but will have had an opportunity to thoughtfully consider them and see what fits for you.


Thanks for the input and recommended source, MoneyGal. I will surely check it out.

It is interesting that you bring up this perspective on conservative investing, or "Worry Free Investing" as the book is called. 

I've reached a point in my life where I am getting a real sense, for the first time, of how finite the future is. The years are seemingly blowing by, I am seeing my parents age, and I have a child on the way. This makes me feel as if I need to be doing more. But all I know how to do is to SAVE SAVE SAVE. I am a product of my parents' mindset. In light of the fact that there was no education in personal finance in the system that I was raised in (here in Canada), I learned everything about money from my parents. They were immigrants who came here with about 50 bucks and a suitcase back in the 60's. Through hard work, some luck, a few business and some property investments that have set themselves up nicely - no Stock Markets, no RRSP's, none of the financial tools we read about. They had a tough life growing up and to be honest they do not trust anything. I can still hear my old man lecturing me on how the stock market is like las vegas and RRSPs are a scam because the government/banks wont do anything good for the individual (this is not my argument it is his!) As I spend more time in forums such as these there are thoughts creeping into my head suggesting that perhaps they took the wrong road. Perhaps they could have made it easier on themselves - and I am worried about taking the same path they did and missing out on investing in equities/RRSP's etc etc etc.

I dont like risks - especially when it involves my hard earned cash which I get showing up every day to a job I am not particularly thrilled about. I suspect that my aversion to financial risk is a product of the environment I was raised in. Anyhow, my point in all this is to let you know that I am very comfortable with your suggestion and I will surely follow up on it. On the way home last night I stopped by our local Chapters/Indigo bookstore and picked up a copy of "Enough Bull" by David Trahair. Ive had a chance to skim through the book and it seems as though his views on investing resemble yours.

Thank you, again, for your input.


----------



## Darius (Jul 26, 2010)

Thanks for the advice Potato and to all that have taken the time to reply.

the-royal-mail: Ill look into the 3 tier savings you described.

I agree that I should take the time to educate myself first before jumping into any strategy.


----------



## kcowan (Jul 1, 2010)

And being scared to death is usually because you have no experience. There are ways to gain experience without a lot of risk. Blue chip dividend-paying stocks or an equivalent ETF are examples.

I agree that buying an investment property might seem easier but the risks are there as well. Asset concentration can produce big returns. That is why Buffett and Gates are rich. But it also has higher risks. We just don't hear about the failures.


----------



## mrbizi (Dec 19, 2009)

Agree in educating yourself. This is one area where it will never hurt you to just stick to the basics and keeping it simple, e.g:

-invest in low-cost index mutual funds
-allocate your assets (equities, bonds, cash) based on your objectives and investment time horizon

In life, it often makes sense to heed the advise of professionals e.g. doctors, dentists, lawyers, engineers etc - not so with financial "experts". This is why it is a must that you educate yourself.


----------



## Jungle (Feb 17, 2010)

Inflation will eat away at your money. Before you know, another 10 years will pass. You need growth to beat inflation. The scaring to death part is just psychological. If you can get over that part and learn about safe growth investing, you will be fine. Markets dip up and down. Put your money in and leave it. Don't touch it. 

Like others have said, ETFs and TD's index e mutual funds couch potato portfolio are safe and smart. They are easy to maintain, just rebalance every year. It's easy to do and you will beat inflation. You don't have to pick individual stocks and read statements.

Stay away from financial advisors. They will put your money in some mutual funds with high MER fees, like eating 1-3%, of your profits going into their pockets. 

PS you didn't say what your TFSA is invested in. Just curious.


----------



## kcowan (Jul 1, 2010)

Jungle said:


> Like others have said, ETFs and TD's index e mutual funds couch potato portfolio are safe and smart. They are easy to maintain, just rebalance every year. It's easy to do and you will beat inflation. You don't have to pick individual stocks and read statements...


Or consider rebalancing when your allocation gets beyond a certain tolerance level. This might be more often than once a year or less but is another approach to rebalancing. I do it quarterly if needed.


----------



## Underworld (Aug 26, 2009)

Wow - your finances look very solid - well done paying down your mortgage!

I agree - ignore the financial advisors - those interested in this forum give advice out of interest and goodwill rather than a financial incentive behind their words. And some of the advice comes from very smart and educated people.

I too found myself in a maelstrom of misinformation and took action - I am in the process of educating myself as much as possible with regards to investment. It takes a lot of time and reading but then you get to understand everything. Don't invest in something you don't understand inside out - otherwise you will have the wool pulled over your eyes again.

Your parents definitely had the right idea - keep it simple, transparent and don't gamble.


----------



## Financial Cents (Jul 22, 2010)

*Keep up the great work Darius*

Darius, 

I totally agree with the other comments - inflation will eat away at your money. That's not just your savings, that's all of us. Get some of that cash working for you!

It sounds like you're a great candidate for coach potato investing. 
http://canadiancouchpotato.com/model-portfolios/

Dan does a great job explaining things. Between this forum and his site, I visit both very often and I encourage you to do the same if you can.

If you're (somewhat) new to investing, might I recommend a book called "No Hype - The Straight Goods on Investing Your Money" by Gail Bebee. She did a great job with the book, putting investing and investing terms in plain language. It's an easy read and the model portfolios in the book will give you some knowledge you can apply to your own situation; small savings or large.

My last piece of advice, take time to learn. It sounds like you will, which is great, because nobody will ever care more about your money than you do.


----------



## Guest (Aug 6, 2010)

Kid on the way, can sock away $2.5K/month (I assume that's you and you wife), $85K in saving is ok (I keep 100K cash) ... well, that kid on the way will cost you guys  My opinion ... just keep banking that cash for now ... see how it's going say a year from now. Forget mutuals ... way too expensive, and imo business is flat for the next while ... geez ... what do they take here in Canada 2% per year ... plus hst ... ridiculous (let's say 2% of that $85K ... $1700 ... ridiculous.


----------



## crazyjackcsa (Aug 8, 2010)

One thing nobody mentioned is that government pension. That should be more than enough to take care of you in your retirement years.

Even if you are concerned, take a decent amount, set up a GIC ladder and forget about it. Even at $1250 a month savings @ 3% that's another 330k by the time you are 55.

I don't really understand why people with a good government pension worry as much as they do. Stay out of debt and the rest will take care of itself.


----------



## slacker (Mar 8, 2010)

I don't recommend taking on more risk than you can handle. If you are indeed "scare to death" about losing principal, than you should only consider GIC's or bonds in a registered account like TFSA or RRSP. And if are afraid of financial institutions, TFSA and RRSP, then you should read up on it and educate yourself. Because without those, your alternative is hiding your money under your mattress, and that IMO is far more risky.

But consider the fact that you already had a mortgage and own a home, I'd say that you are dealing with risk just fine. The value of your home can go down overnight, so that's already a scenario where you could lose principal. The interest rate could had skyrocketed during your mortgage term, yet you were able to handle that risk. And why were you able to handle those real estate risks? I'm guessing that you educated yourself on mortgage terms, the real estate market, and interest rates, and you felt that it's an acceptable tradeoff.

If you are seeking for more returns than GIC's, you will need to take on a little bit more risk. I recommend educating yourself on the kinds of investments that are suitable for your risk profile, and also learn about what kind of risks you could potentially take. There are ways to fine tune the amount of risk you take.

In my opinion, investing in a couch potato portfolio of ETF's in RRSP, and TFSA accounts, is FAR LESS RISKY than the mortgage you took on your house.

Good luck, we're here to help.


----------

