# What should I do with my money that is earning me nothing??



## plaza (Sep 16, 2010)

Hi,

I have been fortunate to have had some good years in my business and career t have saved up some $$, but for the past 4 years, I don't have much income, due to a personal leave in order to spend time with the family. I was in the IT field (computer network engineer) and looking for a new field I could possibly do on a part time basis or from home (looking for ideas if any of you have some). I am not sure I can retire yet, because I have 5 kids (ages 2-16) and would like to help them out financially at some point in their lives.

Now being so concentrated on making money the past 15 years, I have obviously made some mistakes and not invested in the right places. 

Here are what my current financials look like. They are broken down in my personal accounts and money I hold in a business account which no longer has any operations.

Personal Cash - 110k
RRSP - 45k
Spouse Cash 37k
Spouse RRSP - 60k

Assets - I have 4 real estate properties, three which are income and one our current residence.
--------
Rental properties - 1 million 
Residence - 850k

RESP 2k (Shameful I know)
TFSA $0 (Also Shameful)


Company 
-----------
Cash - 975k 

Personal Debt
----------------
My only debt is a mortgage of 218k on a rental property.


I am making 0% on most of my money for the past 3-4 years due to the fear the market will crash, but it still has not crashed and who knows if it will ever! I also have been looking for some more real estate properties, but the market is overpriced for my liking. Like I said I would like to retire or semi retire, but not sure I can afford that yet.

My current income is only 40-50k right now, which gets us by, since we have no debt, but we could use some more to better enjoy.

I am 39, and currently wondering what I should be doing with my money in order to make it grow. I would also lie to leave something for my kids either when I go or alive (maybe help with their deposit on first home), travel with them more now that they still want to be with us and also help out with their education. All this while leaving some money for my wife and I to be able to enjoy a comfortable retirement. We were looking at buying a condo in Florida or in Europe, but not sure it is the right move since we won't retire for quite some time, but I guess the family can enjoy in meantime.

Sorry for rambling on, but I would love to hear some thoughts and suggestions from as many as possible, as I would like to make some changes now before it is too late...Thank you


----------



## Spudd (Oct 11, 2011)

For sure you should take some of that 147k (yours + spouse's unregistered cash) and max out both your TFSA's. 

In order to decide how to invest your money, you will need to decide on your goals. Whether you buy a condo or not makes a big difference to how you invest (any money earmarked to be spent on a condo should stay in cash). Also, decide how much you need/want to keep in cash to supplement your income. Do you feel comfortable that your income will be stable? Or is there a chance it might drop? The size of your emergency fund should be determined by this. Once you have that, you can figure out investments.


----------



## My Own Advisor (Sep 24, 2012)

Here are some considerations:

1. Keep a decent emergency fund, say $10k - $15k.
2. Max out contributions to your TFSAs. Own self-directed TFSAs so you could own low-cost Canadian ETFs in there.
3. Start RESPs if not already done for your 5 kids.

Those 3 things will keep you busy!

Well done to date.

re: "We were looking at buying a condo in Florida or in Europe, but not sure it is the right move since we won't retire for quite some time, but I guess the family can enjoy in meantime.:

Renting is likely going to be cheaper with A LOT LESS headaches.
http://www.milliondollarjourney.com/canadians-buying-property-in-florida-the-tax-issues.htm


----------



## plaza (Sep 16, 2010)

Spudd said:


> For sure you should take some of that 147k (yours + spouse's unregistered cash) and max out both your TFSA's.
> 
> In order to decide how to invest your money, you will need to decide on your goals. Whether you buy a condo or not makes a big difference to how you invest (any money earmarked to be spent on a condo should stay in cash). Also, decide how much you need/want to keep in cash to supplement your income. Do you feel comfortable that your income will be stable? Or is there a chance it might drop? The size of your emergency fund should be determined by this. Once you have that, you can figure out investments.


The income I have right now is based on rental income. Yes it can vary if a tenant does not pay or if I have a vacancy, but I have 9 tenants, so I doubt they will all leave at once.

I also have some $$ on top of that my wife gets from the govt for the kids.


----------



## plaza (Sep 16, 2010)

My Own Advisor said:


> Here are some considerations:
> 
> 1. Keep a decent emergency fund, say $10k - $15k.
> 2. Max out contributions to your TFSAs. Own self-directed TFSAs so you could own low-cost Canadian ETFs in there.
> ...


Thanks! I have the emergency fund covered. TFSA is on my list to do. I think the max is 40k now? As for RESP, it's started but only have 2k in there. Anyone know a good post/site to maximize the returns/grants on RESP?

What about the cash in the company? How would you handle that?


----------



## Nerd Investor (Nov 3, 2015)

For the cash in the holding company, are you drawing that out at all? I would consider a portfolio of dividend paying blue-chip Canadian stocks for the holding company. Normally investment income is taxed at pretty high rates in a corporation but Canadian dividends will flow out on a tax neutral basis. With the amount of cash you have in there it would be pretty realistic to generate about $30K in dividends per year which you could flow out to yourself very tax efficiently. (You could even look at some income splitting opportunities with your wife and your kids once they are 18, but I don't want to get to far ahead of ourselves).


----------



## Spudd (Oct 11, 2011)

plaza said:


> Thanks! I have the emergency fund covered. TFSA is on my list to do. I think the max is 40k now? As for RESP, it's started but only have 2k in there. Anyone know a good post/site to maximize the returns/grants on RESP?
> 
> What about the cash in the company? How would you handle that?


The max is 46.5k for TFSA, per person. Assuming you were both 18+ in 2009. There's no reason not to do that immediately.

For RESP, you could check out http://www.moneysmartsblog.com/resp-reference/ . 

I've never had a company so I will defer to others on that issue.


----------



## plaza (Sep 16, 2010)

Nerd Investor said:


> For the cash in the holding company, are you drawing that out at all? I would consider a portfolio of dividend paying blue-chip Canadian stocks for the holding company. Normally investment income is taxed at pretty high rates in a corporation but Canadian dividends will flow out on a tax neutral basis. With the amount of cash you have in there it would be pretty realistic to generate about $30K in dividends per year which you could flow out to yourself very tax efficiently. (You could even look at some income splitting opportunities with your wife and your kids once they are 18, but I don't want to get to far ahead of ourselves).


I am not pulling anything ye, because i didn't want to increase my income yet as it would affect my child benefits. I was looking at setting up a family trust and then draw out the minimum...about 30 k/year to myself or kids when they hit 18. Is family trust still worth doing?


----------



## james4beach (Nov 15, 2012)

I understand how you (justifiably) want to keep this money available in case you're going to buy new properties. That suggests to me that you should not put it away into stock investments, since holding stocks only works well if you can keep the money locked away for something like 20+ years without touching it. Don't put money in stocks if you're going to need to tap that value in less than 10 years.

There are many ways to invest the money that will incur minimal (or zero) risk and still have a positive return and is appropriate for storing the money for a few years and potentially using it soon. Some examples are GICs (5 year GIC ladder) and short-term bond ETFs such as VSB and XSH.

These are things that have been returning 2% to 3% annual returns with next to no risk of losing money. For example, if your $1.1 M in cash were invested in a mix of GICs & VSB & XSH, it would be growing by around $25,000 / year ignoring taxes. There is virtually no risk of losing money, and you could safely pull the investments at any time without worrying about keeping them locked in for many decades.


----------



## plaza (Sep 16, 2010)

DanielSchulberg said:


> Completely agree about not investing in stock. Why not invest in second or third mortgages? Some private mortgage brokerages in Canada can give minimum 10-12% annually.


Would have to look into that...how safe is that?


----------



## StayThirstyMyFriends (Jul 29, 2016)

james4beach said:


> <snip>... if your $1.1 M in cash were invested in a mix of GICs & VSB & XSH, it would be growing by around $25,000 / year ignoring taxes. There is virtually no risk of losing money, and you could safely pull the investments at any time without worrying about keeping them locked in for many decades.


You should definitely talk to an accountant about Family Trusts. I believe there are a variety of ways to approach income splitting with them. For example, in the above example from James, you could loan the cash into the trust, the trust would make the investments, the trust would pay 1% interest back to the loaner (you and/or your company), the remainder could be paid out to beneficiaries of the trust (your kids) at lower taxable rates. Admittedly in James example that would be only $15K (after paying the $10K in interest to the lender)... so the tax savings may not be that impressive. Although an accountant may be able to advise you on a different route, or if you used more risky investments that generated more income. If the assets are easy to liquidate, if you need the money back you simply re-pay a portion of the loan to bring the money back out of the trust.

My understanding is a Trust should cost about $3-5K to set up and then cost about $500/year in accountant fees to manage. So it may not really make sense in your case, but it might... probably worth the time to discuss. Here are a few related articles.

http://www.advisor.ca/tax/estate-planning/inter-vivos-trusts-help-minimize-tax-56360
http://www.taxdisputehelp.ca/avoiding-litigation/income-splitting-strategies-with-family-trusts/

Note that since the investment income is not coming from a private corporation, it isn't subject to the "kiddie" rules so your kids don't need to be 18.

Disclaimer : I barely know what I'm talking about


----------



## james4beach (Nov 15, 2012)

This forum seems like a good place to start asking these questions. There are many small business owners here. I can't be of much help there... I have no idea what happens with taxes, trusts, corporations, etc.

But I encourage the original poster to visit those questions about their plans. Will the money be needed for large purchases in the future? If so, when? Might there be a need to withdraw cash from them in X years? Or can they actually "lock away" the money for a very long period of time like 20+ years. Those things make all the difference when it comes to investing. To the original poster, don't beat yourself up for not investing or avoiding stocks. Depending on your plans for the money, it may or may not have been appropriate at all.


----------



## plaza (Sep 16, 2010)

james4beach said:


> This forum seems like a good place to start asking these questions. There are many small business owners here. I can't be of much help there... I have no idea what happens with taxes, trusts, corporations, etc.
> 
> But I encourage the original poster to visit those questions about their plans. Will the money be needed for large purchases in the future? If so, when? Might there be a need to withdraw cash from them in X years? Or can they actually "lock away" the money for a very long period of time like 20+ years. Those things make all the difference when it comes to investing. To the original poster, don't beat yourself up for not investing or avoiding stocks. Depending on your plans for the money, it may or may not have been appropriate at all.


Thanks for the help so far. Those questions are hard to answer. In an ideal situation, I would find a few real estate properties that would cover all its costs and generate some income. When they would be paid off in 20-25 years, then I could retire and still collect rents of sell them. The problem is that today, properties are being sold for much more than they are worth and the numbers don't make any sense. It seems that most people today will just buy something at any price just to say they are landlords. I am not looking to buy myself a risky job. 
Who knows what will happen in 5-10 years. Will the real estate market crash like people say? will there be buying opportunities and then all my cash is tied up or have lost 30% of it's value?


----------



## Plugging Along (Jan 3, 2011)

plaza said:


> I am not pulling anything ye, because i didn't want to increase my income yet as it would affect my child benefits. I was looking at setting up a family trust and then draw out the minimum...about 30 k/year to myself or kids when they hit 18. Is family trust still worth doing?


Definitely speak to an accountant. If a family trust is set up, there is a capital gains exemption to each family me,beer that it is set up, if you believe you will sell the company. There are numerous ways to set up the trust especially with minors. I would find an accountant who has experience. 

Also, you could pay the older kids a salary which is a write against the company. They would have to be doing work, but this could be in the form of invoicing, ect. 

We have cash in our company, and I have our accountant figure it th best way to withdraw money each year depending on the situation. This is a combination of rental, diveidends, investments, employment income, and maximizing benefits. There are many little nuisances that a good accountant will save well beyond the fess.


----------



## plaza (Sep 16, 2010)

Plugging Along said:


> plaza said:
> 
> 
> > I am not pulling anything ye, because i didn't want to increase my income yet as it would affect my child benefits. I was looking at setting up a family trust and then draw out the minimum...about 30 k/year to myself or kids when they hit 18. Is family trust still worth doing?
> ...


I have an accountant that i have been usimg for years but he just does not have the experience when it comes to trusts. I spoke to a fiscal lawyer that sets up trusts but he didnt do a great job at convincing me i needed it but felt more like he was trying to sell me the gold package


----------



## StayThirstyMyFriends (Jul 29, 2016)

plaza said:


> I have an accountant that i have been usimg for years but he just does not have the experience when it comes to trusts. I spoke to a fiscal lawyer that sets up trusts but he didnt do a great job at convincing me i needed it but felt more like he was trying to sell me the gold package


In my (Iimited) experience, the lawyer executes on setting up the trust, but the accountant has the tax plan that makes it work. Maybe you can ask your accountant to recommend someone to talk to?


----------



## Plugging Along (Jan 3, 2011)

plaza said:


> I have an accountant that i have been usimg for years but he just does not have the experience when it comes to trusts. I spoke to a fiscal lawyer that sets up trusts but he didnt do a great job at convincing me i needed it but felt more like he was trying to sell me the gold package


Then you need to ask your accountant to recommend someone that can set up the trust. Be aware that formal trusts have hi le gals and set up costs. That's why you want an experience accountant, because if not, then your fees will outweigh any benefit.

The only people I know that have set up trusts have done so with 8 and 9 figures in the businesses, or high 7 figures. I actually know many with just low 7 figures and it hadn't been worth it as there are on going administration costs.


----------



## Just a Guy (Mar 27, 2012)

The real way to make money with real estate is to use leverage to increase your returns. The fact that you paid off the mortgages, assuming you paid it off with your own money as oppos d to the tenant's money, and are just earning cash flow gives you really bad ROI. 

He best way to earn money on real estate is to leverage it as much as possible and have other people's money pay it off...with positive cash flow of course. People who pay cash for places earn very poor returns on rentals.

While I agree in general most real estate is overpriced, there are always deals out there if you look for them.


----------



## james4beach (Nov 15, 2012)

Just a Guy said:


> The real way to make money with real estate *is to use leverage* to increase your returns


... during a *BULL* market. Try that during a bear market and you will be destroyed.

The 16 year bull market in Canadian housing makes people think that real estate always go up. But you wouldn't have wanted to try that game in 1975-1986, or during 1989-1999.

Those are both 10 year stretches. Home prices are no different than other asset classes; they may trend upwards over time but they can have vicious bear markets. Leverage amplifies your gains or losses.


----------



## My Own Advisor (Sep 24, 2012)

plaza said:


> Thanks for the help so far. Those questions are hard to answer. In an ideal situation, I would find a few real estate properties that would cover all its costs and generate some income. When they would be paid off in 20-25 years, then I could retire and still collect rents of sell them. The problem is that today, properties are being sold for much more than they are worth and the numbers don't make any sense. It seems that most people today will just buy something at any price just to say they are landlords. I am not looking to buy myself a risky job.
> Who knows what will happen in 5-10 years. Will the real estate market crash like people say? will there be buying opportunities and then all my cash is tied up or have lost 30% of it's value?


"The problem is that today, properties are being sold for much more than they are worth and the numbers don't make any sense. It seems that most people today will just buy something at any price just to say they are landlords. I am not looking to buy myself a risky job."

Smart.

Don't get sucked in!

Diversify beyond real estate.


----------



## plaza (Sep 16, 2010)

My Own Advisor said:


> "The problem is that today, properties are being sold for much more than they are worth and the numbers don't make any sense. It seems that most people today will just buy something at any price just to say they are landlords. I am not looking to buy myself a risky job."
> 
> Smart.
> 
> ...


That's the thing...I don't know what else to diversify in


----------



## canew90 (Jul 13, 2016)

plaza said:


> That's the thing...I don't know what else to diversify in


What is your objective? Don't want more income because you'll loose child benefit! That sounds like why take a job if I can make more on EI or welfare.

Certainly get most of the cash invested as many have mentioned, but I don't have a problem with stocks (which etf's are) but I prefer individual stocks rather than an index. But that's your choice. Develop an investment plan which will best suit your end objective and work towards achieving that goal.


----------



## plaza (Sep 16, 2010)

canew90 said:


> What is your objective? Don't want more income because you'll loose child benefit! That sounds like why take a job if I can make more on EI or welfare.


That's not what I meant. I didn't need more income so I decided not to take it because at the end of the day, I would get penalized another way. I wouldn't refuse a good job/opportunity because it would cut into my child benefits. Kind of putting into RRSP when you make a low income. I weighed it out and figured it would be more beneficial to start pulling out more income from my company when kids are older.


----------



## Just a Guy (Mar 27, 2012)

james4beach said:


> ... during a *BULL* market. Try that during a bear market and you will be destroyed.
> 
> The 16 year bull market in Canadian housing makes people think that real estate always go up. But you wouldn't have wanted to try that game in 1975-1986, or during 1989-1999.
> 
> ...


James, unlike the stock market where, if it's near the peak you need to pay peak prices, real estate allows you to, sometimes, buy well below market value. The trick to being successful in real estate is to buy at a price where you can still make money in a bear market, with higher interest rates, higher vacancies, etc.

As the OP said, most real estate "investors" are willing to pay anything just to get into the market. Some of us aren't. Real investors should be looking down the road at least 10 years at purchase time, being very pessimistic to try and mitigate any issues.

Then, when the crash does happen, and I personally believe it will happen, the investors who paid any price will lose their shirt, while I'll be able to weather the storm.

For example, I recently (January) bought a 3 bedroom place from an "investor" from Toronto who is going through a divorce and needed to sell quickly. Three years earlier he paid more than 2.5x what I did (95k), the final title transfer was delayed in fact because he needed to pay more money to clear the mortgage than he generated from the sale. I spent about 5k renovating the place and it appraised at 1.5x what I paid for it. I got an 80% LTV mortgage, getting all my money back, and currently have it rented for $1400/month. 

If the economy takes a hit, I can well afford to drop my rents and still make money. People who paid 250k for a similar place certainly can't.

Now compare this to the stock market... Let's say this same lawyer "investor" owned Apple stock and was going through the same scenario. He'd just sell on the market and get current price at worst, there's no way to get a deal.

Now, that being said, deals like these aren't common in today's market and it takes a lot of work, and a wide net (I don't just look in one city), to find them. However rare does not mean non-existent. I bought 3 places this year, and put bids on several more. I could have actually bid on even more, but I'm currently busy on another project and don't really have the time to play with my hobby.

To tell the truth, it's easier to buy real estate in a bear market than it is in a bull market. In a bear, it's easier to get things which will cash flow long term.


----------



## My Own Advisor (Sep 24, 2012)

plaza said:


> That's the thing...I don't know what else to diversify in


Have you consider U.S. and international index funds for long-term growth?

What about U.S. stocks that pay you dividends to be a shareholder - i.e., you get predictable cash flow?


----------



## plaza (Sep 16, 2010)

What is a reasonable return that I can expect to get If I manage my money properly using a conservative approach? How much more do I need to have in order to enjoy a comfortable retirement and life? I use to work 12-16 hours/day and hardly see my family. Kids are not getting older and didn't want to wake up one day and see the kids into adults and say where did the years go? What memories do I have with them besides money in the bank? 

I would love to schedule a vacation or two a year with them, but seeing how my income is not high anymore, I worry I will eventually run out of money if I don't manage right


----------



## Nerd Investor (Nov 3, 2015)

plaza said:


> I am not pulling anything ye, because i didn't want to increase my income yet as it would affect my child benefits. I was looking at setting up a family trust and then draw out the minimum...about 30 k/year to myself or kids when they hit 18. Is family trust still worth doing?


It might be viable when they hit 18 (generally you would set it up so it's in place already the year your first child turns 18). If the corporation will still be earning income that will make a difference. For $1M portfolio, you'll have to weigh the tax savings of income splitting vs the cost to set it up and ongoing administration.


----------



## canew90 (Jul 13, 2016)

plaza said:


> What is a reasonable return that I can expect to get If I manage my money properly using a conservative approach? How much more do I need to have in order to enjoy a comfortable retirement and life? (


Those are the questions you should be answering, not asking. Once you've decided how much income you want from your available investments, then look at the investment choices which might provide the income you are trying to achieve.
I'd suggest specific income figures, like $25k, $35k, $50k etc per year. Then If you invested the money you have in various investment choices, which ones will provide the annual income you need and will you be able preserve your capital. Or will you need to draw a portion of your capital to meet your income needs?

I don't think fixed income will provide what you need, so consider the other options.
I'd suggest reviewing:
http://www.dividendgrowth.ca/dividendgrowth/


----------



## Jaberwock (Aug 22, 2012)

You have done very well to have built up such a high net worth at your age. You could retire if you invest your money wisely, but I suspect that you would soon become bored. You should look for a job that allows you to balance work and family life. You don't need a high salary, you seem to live fairly frugally and you have good earning potential if you can get your money working for you.

You don't mention whether the money in the company is all yours, or if your wife and children are also shareholders in the company. 

Why are you afraid of the stock market? Right now you are heavily invested in real estate, which is just as risky, probably more risky.

You could invest the money that is in the company in safe, blue chip, dividend paying stocks, and get a return of around 4%. If you focus on stocks that regularly raise their dividends you will also get some capital gains and an increasing income which will more than keep pace with inflation. Passive investment inside a corporation is taxed at the highest marginal rate, but you can flow through any dividends received in a manner that allows you to pay tax at your own personal rate. You will need an accountant to advise on this. 

You could also consider a steady withdrawal of cash from the company in the form of dividends. With the dividend tax credit, at your income level, there would be very little tax to pay. Get the money out of your company while you are in a low tax bracket. If you return to full time work when your kids are grown, you will be in a higher tax bracket and you will pay higher taxes on the money that you withdraw from the company.

You should max out your TFSA and your wife's TFSA using the cash that you have. 

If you find that the extra income from your company is pushing you into a higher tax bracket, then you can look at topping out your RRSP's (assuming you have contribution room). However, in your situation, I would use the TFSA rather than the RRSP as your primary tax free savings vehicle.

Your present assets, including the properties should be providing you with an income of $80 to $100k per year.


----------



## My Own Advisor (Sep 24, 2012)

Like Jaberwock mentioned....with an accountants help - you could invest the money in the company in 20-30 blue chip, dividend paying stocks, and get a return of around 4% - and never feel the need to touch the capital of $975k.

That's about $40k per year or over $3k per month just getting your money working for you.

Add in the rental income - you're set for life as are your kids because you can provide then with the properties as they get older.

Do some freelance work for fun or start another small business venture.

Congrats on your success!


----------



## Market Lost (Jul 27, 2016)

plaza said:


> I have an accountant that i have been usimg for years but he just does not have the experience when it comes to trusts. I spoke to a fiscal lawyer that sets up trusts but he didnt do a great job at convincing me i needed it but felt more like he was trying to sell me the gold package


I used to work in a wealth management department of a major bank, and even back then they weren't for everyone. These days its even worse as they introduced the "kiddie tax", which means if a minor receives a dividend from a trust they are taxed at the 29% tax bracket. Did the solicitor you talked to explain this part?


----------



## Jaberwock (Aug 22, 2012)

I was once in a similar position to you, I also have 5 kids. I looked into a Family trust but the advantage did not seem to be enough to make it worth all of the hassle.

If your family are shareholders in your company, you can pay dividends to your wife, and to any children over 18 and have those dividends taxed as their income.


----------



## Pluto (Sep 12, 2013)

Plaza,

1. If your wife is not working already, consider putting her to work and you take care of the kids. Sounds to me like you paid your dues in terms of providing for the family, now its her turn. 
2. Fear: You didn't invest due to fear of a crash. So try a little exercise. Make a list of stocks you would buy if you had no fear of a crash. Then see how they fared in the last, '08-09 crash. If your list is good, they all recovered and eventually went to new highs. If you buy dividend paying stocks of companies with lots of assets and excellent balance sheets, and if you don't sell during a crash, they will all come back. Risk is not in volatility. Risk has to do with the quality of the company.


----------



## ValMiks10 (Aug 25, 2016)

It’s important to understand that saving money is also good thing instead of making investment where the risk is too much, as that’s unlikely to get us anything. My usual way is to have bonds because that’s like giving me 2-3% monthly returns (in terms of prizes), so the money is safe with me and has decent chance for growth.


----------

