# Got $2000 every month to save. Can you help me figure out the best saving strategy?



## youtoo

Hi everyone,

After a couple of months reading some Dummies books and this forum (thanks for your advice), I finally got a plan in place, and I want to ask you what you think about it.

The details:


I'm 28yo, in Quebec
I make $75000/year
No other assets, renting a place for $1000/month
From every paycheck I can save $1000, so I can save roughly $2000 every month
I use ING for everything
I have these 4 goals:
[*]Fund an Emergency/Fun savings account: $200/month
[*]Save $10K for a personal business, in 3 years: $300/month
[*]Save $30K for a house, so I can make a down payment in 3 years: $1000/month
[*]Long term invest: $500/month​

Now, the questions:


For the short term goals (business, house), should I bother opening a GIC (2.50% interest at ING at 3 years) or a TFSA (2%) or a TFSA GIC (2.5% at 3 years)? Or go with a regular savings account? 

Also, I don't really understand the benefit of a GIC vs a TFSA vs a TFSA GIC in this case... Can you guys explain me?

For the long-term investment, I'm thinking of investing on ING Streetwise (Growth) Funds. I'm looking for convenience and a reasonable performance. Are this funds OK? Any alternative that you'd like to recommend?

In theory I should go for the Streetwise Growth Funds, as is long-term (retirement), but if I check their performance, the Income Funds are quite better. What should I invest on?

Also, do you think I should save more aggressively for the house and delay the long-term saving (or just start with a smaller quantity every month)?

Your advice will be VERY HELPFUL to figure out the best choices to achieve my goals.

Thank you!!!


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## marina628

I can't advise on everything in the list but I would look at the RSP Home Buyer plan and you can save for the house while getting to fund your RSP at same time.What sort of small business are you considering ?Would it be more beneficial to get that plan going first?
If you are going to buy a home ,having an emergency fund in place is just as important than having the down payment.I assume you have no debt so that is fantastic!


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## inbetweenworlds

Hello, fellow twenty-something! =)

Take advantage of your TFSA room, particularly if you're planning to keep money in GICs. GIC interest income is taxed like regular income, which can really cut into your returns. If you don't need the money immediately, put it in your TFSA. That's because if you withdraw money from a TFSA, you'll need to wait until the next year to recontribute it.

I'd probably start by maxing out the TFSA using ING. The rates are pretty low at the moment, but hey, it's still a little bit of extra interest. I'd probably keep some in a regular savings account as an emergency fund, then stash the rest in TFSA GICs or the TFSA savings account. When you max out your TFSA contribution room (pay attention to this, as the overcontribution penalties are something fierce), you can save the rest in regular savings accounts or GICs.

As for investing, you might want to take a look at TD's e-funds. They have low management expense ratios compared to the ING funds, and may make sense if you're looking for passive index investing. When comparing fund performances, check their management expense ratios, too. High MER can really reduce a fund's performance. 

I'd say save as aggressively as you can without going crazy. The more you can fight lifestyle inflation, the better off you'll be in the long run. Getting together a large downpayment can save you a lot of interest and will probably be quite comparable to what you might've gotten investing, so it's probably a toss-up which one is better - as long as having that much in the bank doesn't fool you into getting a more expensive house than you need.


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## the-royal-mail

Hi there,

Interesting. I might be a bit careful about putting too much into ING, as I heard recently that CapitalOne (lots of fees, google this) took them over. I think the TD e-series idea mentioned above is a good one.

Yes, the TFSA is only an umbrella. You are free and encouraged to fold in any kind of investment or savings account you wish: simple cash savings, GICs, mutual funds, anything! So if you want a GIC, then simply buy it under the TFSA umbrella.

My only other idea would be to first save the money, THEN invest it. I know banks and others suggest some sort of automated monthly contribution to these things, but I prefer to save the money in my account first, then make decisions about where to allocate chunks once every year or so.


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## andrewf

^ That was ING's US operation, not Canada. Even still, I would not expect them to immediately add a plethora of fees to a bank whose main point of differentiation is no-fee banking (that is, unless they want to destroy a lot of value in a hurry).


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## I'm Howard

MAX your RRSP's, remainder TFSA, if some left over ING.

Stay with GIC's, maybe two year MAX.

BUY House, use RRSP, make sure House has finished basement with seperate entrance, rent basement, let renter pay your mortgage.

VRM for Mortgage, aggressivly pay down, today's low rates are a once in a life time gift 10% Mortgages will return.

Build your plan on a solid foundation, debt free, mortgage free, then proceed with business with assurance you can sleep somewhere and rental income will pay for the food.

This stage of the game, it is all abot short term so you must invest with that time frame, ETF's can come later .


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## youtoo

Thanks for your answers.

marina628


> I assume you have no debt so that is fantastic!


Yeah!!! No debt whatsoever 

Sorry, but after so much reading I still don't see the real advantage of having a RRSP if you don't have an employer who puts money into it as well. Also, all RRSP are for the long term, right? You can't take money out (unless is for the down payement of a house)?

If I understand well, the RRSP is before-tax money right. I'll have to tell my employer to put the money there straight from my payroll?

Is there a real advantage only if you invest and make profits, that these are not taxable?

*I really would appreciate a bit of light on the subject of the RRSPs*

It's funny because in many books I've read there is the "START INVESTING YOUNG, AS MUCH AS YOU CAN, OR YOU'RE DOOMED!!!" kind of message, so I was surprised of some of your advice. I still would like to learn about investing and get it going, so I may go from the initial $500/m to $150/m

Based on the advice so far, my accounts and contributions would look something like this:


*Savings account: Emergency/Fun* savings account ($200/month)
*RRSP: House* ($1350/month) (or RRSP GIC at 2 years, 2.25%???) ~ 15600/year (maybe a bit less because of my cap)
*TFSA GIC at 2 years: Business* ($300/month) ~ 3600/year
*TFSA TD Index Fund/ING Streetwise: Investing* $150/month ~ 1800/year

How does it look?


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## inbetweenworlds

Payroll deductions are good (you don't even see the money, and they might adjust tax withheld if you send in the form), but you can also contribute it yourself. Remember to indicate it on your tax return, so you get a nice refund that you can reinvest. Money in a TFSA is a little easier to get at for non-house purposes, such as if you find your business needs an extra infusion of cash. On the other hand, if you anticipate that your income will swing a bit (you'll probably have lower income while you're getting the business off the ground), then the RRSP penalties aren't so bad, and the RRSP might even be a good way to take advantage of the tax rate differences. (Get the refund while your tax rates are high, pay the tax back when the tax rates are low.)

Many people contribute as much as they can to the RRSP, then stash the refund in the TFSA. You can make the debate moot by maxing out both, which I've been fortunate to be able to do. (But I'm fairly young, too, so we're not talking about a huge contribution room in this case...) Decent goal to set for yourself, if you can do it without feeling overly deprived.

I hear what I'm Howard says about mortgages, but depending where you are in life, you may want to postpone buying a house. If I were still living on my own, I'd probably rent until I was absolutely sure I'd probably stick around in a place for more than 10 years. This "get a tenant who'll shoulder the brunt of your mortgage" thing is something to get into _very carefully_, as deadbeat tenants can really screw up your plans, and it might be a job and a half on top of your current work. On the other hand, you might luck out and not have any hassles. Screen carefully, and find forums where landlords in Quebec hang out so that you can get an idea of what you might be getting yourself into. 

Don't pay too much attention to the scrimp-and-invest-as-early-as-you-can-oh-you-didn't-start-at-twenty-TOO-LATE gloom and doom. The financial industry has a vested interest in scaring people and making them think they need sophisticated (and expensive!) products.  I like thinking of the tidy nest egg I'm building up as freedom: the eventual ability to explore opportunities even if they might not pay off immediately. If you miss some of your targets (bad decisions, bad luck, whatever, it happens), well, it'll just take you longer to achieve your goals. You're already ahead of most people. =)

Probably a good idea to separate your fun fund allocation from your emergency fund allocation, so you can fence off your emergency fund for true emergency expenses.

Sure, you can start with $150/month into mutual funds. Good way to ease into it. You can always increase your allocation as you become more comfortable with it. If you do decide to get a house, you can reallocate your savings so that you focus on getting rid of the mortgage as quickly as possible. (Depends on your risk tolerance, your interest rate, and a million other factors, of course.)

I've got a business/opportunity fund set up myself (cashable GICs with ING), and it's great to have that kind of reassurance when I run into the rare annoying thing at work. 

If you haven't yet, it's a good idea to start doing some research into the kind of business you might want to start, so you can find out what reasonable startup costs might be like, how you might research the market, etc. Depending on your potential business, you may even be able to test the idea on the side while working at your full-time job.

It may also be a good idea to bulk up your savings so that you can use that for living expenses when you start your business - saves you from having to worry about keeping food on the table and a roof over your head. Starting a business _and_ getting a mortgage at the same time can be tough. Banks find it hard to deal with uncertain income, you might get worse rates, etc. Depending on how you want to go about it, you may want to buy the house while you've got steady income (build a large fund so that you can pay mortgage payments during low seasons in your business), or hold off on buying the house until you've started and stabilized your business. It's easier to move to a lower-rent apartment than to sell the house in a hurry if you find your new income level doesn't make your mortgage doable. 

Good luck!


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## Financial Cents

@youtoo,

If you can save $2,000/month, I would suggest the following, if just learning to invest:

1) Maximize your TFSA every year, as soon as you can. ($5,000/year or $15,000 since these accounts were available to all of us.) Use TD e-funds to build a "Couch Potato" portfolio. Check out option # 2.

http://canadiancouchpotato.com/model-portfolios/

$5,000/year would equate to just over $415/month.


2) Put $500 per month into an RRSP. Again, use one of the "Couch Potatos" to get started, probably best to use a 60/40 equity/bond allocation.


3) Put a few hundred to $500/month or rest into a high-interest savings account. Build your emergency fund, savings, rainy-day fund, other. Maybe use this money in a few years for a downpayment on a home you mentioned. 

Any other money to spare after that, live life. You're only young once 

Good luck with your decisions!


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## youtoo

*@inbetweenworlds*

I don't think I'll be able to save enough for a house with a basement or similar to rent to a tenant, and I think that is ok.

Cashable GICs? Does it mean you don't have to wait 1, 2 or 3 years to get the money + interests back?

It's still difficult for me to see the advantages of RRSPs, because, at the end of the day they gonna tax you any money you take out. The only thing I can see beneficial is if, as you said, I profit from tax rate differences...

*@Financial Cents*

Thanks for your view, very interesting! Although you suggest to invest the money most of my money, but then again, my goals are short-term (less than 5 years) and everywhere they say to not to invest the money for short-term goals... 

Thanks for the pointers anyway , I'm definitely checking out the CPotato portfolio  I see the distribution has a middle risk. Shouldn't I go high risk for my long-term investing (it's for retiring at 60 anyway, in 30 years)??

*@everyone...*

What kind of risky portfolio that would be, using the e-Series??

Also, just to make sure, dumb question: If I open a TFSA in 2011 I have room for just $5000, or do I have room for $15000 because this were created 3 years ago)?????


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## kcowan

youtoo said:


> If I open a TFSA in 2011 I have room for just $5000, or do I have room for $15000 because this were created 3 years ago)?????


Everyone over 18 accumulates $5000/yr whether they use it or not. So $15000 since you say you are 30.


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## youtoo

Oh wow, so maybe I should focus on those 15.000 before anything!

*Ok, straight question: *To save for a house: put it in a RRSP or a TFSA?


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## I'm Howard

Yes.


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## youtoo

I see lol


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## larry81

youtoo said:


> *Ok, straight question: *To save for a house: put it in a RRSP or a TFSA?


RRSP of course, ever heard of HBP ?

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/hbp-rap/menu-eng.html


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## youtoo

Are those $25.000 that you can take out from the RRSP... tax free?


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## andrewf

You can borrow it tax free. You need to repay it over 15 years. If you fail to repay, you have to pay tax on that at your marginal rate.


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## Guigz

andrewf said:


> If you fail to repay, you have to pay tax on that at your marginal rate.


...Aaaaannnnnnd you lose the contribution room. FOREVER!


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## Sherlock

I'm Howard said:


> Stay with GIC's, maybe two year MAX.


Why? A 2 yr GIC will pay 2%. There are savings accounts that pay that (Ally) and you don't have to lock your money for two years.


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## I'm Howard

Sherlock , true, but you won't be tempted to spend.


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## youtoo

Ally is not in Quebec yet though... also I can see I'm Howard's point.

For the money I'm planning to invest for long-term, do you thing I should go with a high risk portfolio or something balanced??

Is it normal that middle-risk mutual funds (INGs Balanced Streetwise Fund and it's equivalent at TDs e-Series) have performed better than their more risky mutual funds? In the long run, should I go anyway for the risky portfolio, as I'm saving for my retirement?


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## Financial Cents

@youtoo,

I think 5 years is plenty long enough to invest in some e-funds. 

Dividend-paying stocks on the other hand, not so much.


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## Sherlock

Financial Cents said:


> @youtoo,
> 
> I think 5 years is plenty long enough to invest in some e-funds.
> 
> Dividend-paying stocks on the other hand, not so much.


Isn't that backwards? I would think mutual funds (especially growth funds) would be much more volatile than some safe dividend paying stocks?


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## Sherlock

youtoo said:


> Is it normal that middle-risk mutual funds (INGs Balanced Streetwise Fund and it's equivalent at TDs e-Series) have performed better than their more risky mutual funds? In the long run, should I go anyway for the risky portfolio, as I'm saving for my retirement?


The streetwise funds have only been around since 2008, in fact they were incepted right before the big crash so you can't really compare the performance of their three funds based on their past performance. Over the long term growth funds will outperform the rest.


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## inbetweenworlds

youtoo said:


> Cashable GICs? Does it mean you don't have to wait 1, 2 or 3 years to get the money + interests back?


The ING GICs are cashable if you _really_ need to get access to your money, but they do get an interest penalty - effective interest of about 0.5% interest if you cancel early, I think. The interest rates are pretty low these days, so there's little point in short-term GICs.



youtoo said:


> It's still difficult for me to see the advantages of RRSPs, because, at the end of the day they gonna tax you any money you take out. The only thing I can see beneficial is if, as you said, I profit from tax rate differences...


When you start your company, you might have a low-income phase, or your income might fluctuate. You can use your RRSP for income-smoothing, if you don't mind the permanent loss of contribution room.


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## Financial Cents

Sherlock said:


> Isn't that backwards? I would think mutual funds (especially growth funds) would be much more volatile than some safe dividend paying stocks?


Depends what your e-funds are!

Don't get me wrong, I'm a huge fan of dividend-paying stocks but 5 years is not a long time horizon. Personally, if I was saving for a house or something, I wouldn't put my downpayment in a dividend-payer. That's just me. If your goal is passive income, growing stock units via DRIPs, that's another thing altogether.

I recall youtoo was trying to do lots of saving; for a house, a personal business, an emergency fund - maybe you could have a dividend-payer for one of these things but savings (for future spending) is different than investing. At least for me it is.


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## GOB

andrewf said:


> You can borrow it tax free. You need to repay it over 15 years. If you fail to repay, you have to pay tax on that at your marginal rate.


I just want to confirm that the repayments are not eligible for a tax refund, correct?


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## cannon_fodder

GOB said:


> I just want to confirm that the repayments are not eligible for a tax refund, correct?


They are not.


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## behappytoday

kcowan said:


> Everyone over 18 accumulates $5000/yr whether they use it or not. So $15000 since you say you are 30.


Question: is it still true for those who became residents of Canada after 2009? or does it not matter? Can the recent immigrants still enjoy this $5000 room for every year when they even were not yet in Canada?


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## mesaana14

behappytoday said:


> Question: is it still true for those who became residents of Canada after 2009? or does it not matter? Can the recent immigrants still enjoy this $5000 room for every year when they even were not yet in Canada?


No.

Please see here:

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/tfsa-celi/lgbl-eng.html

_No TFSA contribution room will accrue for any year throughout which you are a non-resident of Canada._​


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## behappytoday

Thank you for this info *mesaana14*!

However, if I landed in 2010 and since then spent more than 183 days in Canada, thus becoming a resident also for tax purposes in 2010, can I still have a contribution room for my TFSA for the year 2010?

For 2011, I understand that I have my full $5000 room for TFSA, but not sure about last year?


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## mesaana14

Sorry I missed your post until today...

First, I don't know what I'm talking about, so to be certain, you should probably contact CRA...

But, because I like to research and find answers, here is my interpretation: Yes, I think you have the 5000$ for 2010 because of this:

_Unused TFSA contribution room

The amount, either positive or negative, at the end of a particular calendar year after 2008, determined by the holder's unused TFSA contribution room at the end of the year preceding the particular year,

PLUS:

the total amount of all withdrawals made under the holder's TFSA in the preceding calendar year, excluding a qualifying transfer or a specified distribution;
the TFSA dollar limit for the particular year* if, at some point in that year, the individual is at least 18 years old and a resident of Canada.* In all other cases, the amount is nil.

MINUS:

the total of all TFSA contributions made by the holder in the particular year excluding a qualifying transfer or an exempt contribution._​
Taken from here:

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/tfsa-celi/glssry-eng.html

If you find out otherwise, please let me know


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## Young&Ambitious

To the original poster, I would recommend doing a bit more research before deciding to fund your downpayment from 1) RRSP's vs. 2) TFSA.

As was pointed out, by doing the home buyer's plan (RRSP) you are borrowing money from yourself. Your repayments will not be tax-deductible and will be paid back using after-tax income. 

You should ask yourself if your marginal tax rate will be changing over the the repayment period eg. will it be going up or down in the years to come? Also, are you then comfortable with having your RRSP reduced immediately by ~$25k and losing out on that period of tax-free earnings?


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## youtoo

Young&Ambitious said:


> You should ask yourself if your marginal tax rate will be changing over the the repayment period eg. will it be going up or down in the years to come? Also, are you then comfortable with having your RRSP reduced immediately by ~$25k and losing out on that period of tax-free earnings?


Hey Young&Ambitious, thanks for you comment, I never truly considered your point...

To the first question... I expect my income to go up. That means less money after-tax right? So not the best escenario to repay the RRSP right?

To the second question... I don't know exactly what it implies... I imagine at some point I will start investing with my RRSP money and therefore making some profit out of it... but right now is just laying there at 2% interest... Can you explain me better what you meant?


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## Financial Cents

Sherlock said:


> Isn't that backwards? I would think mutual funds (especially growth funds) would be much more volatile than some safe dividend paying stocks?


Late reply, just found this comment, sorry about that Sherlock.

Depends what e-funds you are investing in. 

My point is, dividend-paying companies are not a short-term investment <5 years, ~5 years, other. Just my opinion.


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## youtoo

Hi everyone again, I'd like to update this thread with what has changed since the initial post.

By the end of this year I would have maxed out both my TFSA and RRSP!  (I could actually max-out my TFSA right now, instead of doing it with small contributions over the rest of the year.)

*Big thing left TO-DO:* I haven't started investing on the market. At the beginning of all this I thought of starting a mutual fund at *ING* (Streetwise, high risk), and contribute $100-$200 a month...

I was recommended multiple times the *TD's e-series* (less fees), but because it wasn't as convenient for me to start one with them (I have everything at ING, I have to fill more forms, open a TFSA at TD, etc etc etc...) I kept postponing it, and *I still haven't started any, neither at ING nor at TD* 

So now for the questions:
*1- *Is there any benefit/difference between maxing out my TFSA right now, or doing it gradually before the end of the year? Should I do one or the other?
*2- *I guess you'll tell me the first thing to do is start investing on the market. Should I try to start a mutual fund and link it to a TFSA account with money in it and use that money to start investing... or use a regular savings account? (If I have to start a new TFSA account for a mutual fund at TD let's say, I only have room left for around 2k this year).
*3- *Anything else to do with the money that I can save, but I can't put in my TFSA or RRSP?
a) Just save it regularly into an regular savings account?
b) Maybe use it to invest into a mutual fund instead of my TFSA money?
c) What else could I do?​
I'm not looking into doing anything complicated. I just want to have everything as simple as possible without doing anything dumb mistake.

Thanks!


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## the-royal-mail

Actually, investing in the markets should NOT be the first thing you do. The first thing you should do (IMO) is save the money in your savings account. Don't worry about the monthly plans and don't worry about the funds right now. Unless you're doing advance research.

I guess what I'm saying is that I see too much concern about investing in the markets in your post. You're on a path to saving money and maxing out your accounts by the end of the year. That's great. A lot can happen between now and then. I say stay the present course and first focus on reaching your savings goals.

I do of course feel you should have your own tiered savings plan before investing anything into any markets. This is far more important and will protect you and your family in case of adversity. Details in my sig file. Remember that most of the tiers are not invested in the markets. 

I am working on filling up my tier 2 funds right now and will need until the end of this year. After that I'll be saving in a 4th savings tier either for a 20% house DP or play money for investing in markets. But I always save the money first before worrying about markets. Markets suck, esp mutual funds, and unless you're a cracker jack investor (most people are not) you are not missing anything and certainly don't need to rush.

These are just my opinions though.


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## youtoo

the-royal-mail said:


> Actually, investing in the markets should NOT be the first thing you do. The first thing you should do (IMO) is save the money in your savings account. Don't worry about the monthly plans and don't worry about the funds right now. Unless you're doing advance research.
> 
> I guess what I'm saying is that I see too much concern about investing in the markets in your post. You're on a path to saving money and maxing out your accounts by the end of the year. That's great. A lot can happen between now and then. I say stay the present course and first focus on reaching your savings goals.
> 
> I do of course feel you should have your own tiered savings plan before investing anything into any markets. This is far more important and will protect you and your family in case of adversity. Details in my sig file. Remember that most of the tiers are not invested in the markets.
> 
> I am working on filling up my tier 2 funds right now and will need until the end of this year. After that I'll be saving in a 4th savings tier either for a 20% house DP or play money for investing in markets. But I always save the money first before worrying about markets. Markets suck, esp mutual funds, and unless you're a cracker jack investor (most people are not) you are not missing anything and certainly don't need to rush.
> 
> These are just my opinions though.


Thanks for your advice the-royal-mail.

My reasoning about investing in a mutual fund is based in the following assumptions (which could be wrong):


I can safely invest $100-$200 per month without this affecting my monthly finances. 
Any savings account, TFSA, RRSP won't give me returns higher than 1.5-2%
Indexed mutual funds require minimal work from my part, and in the loooong run should yield to higher returns (3-4% ?), which can mean a notable difference in earnings many years down the road (+20?)

While your advice is sound -and easier for me to implement- I've been told multiple times that investing for the long run is the only way there is for your money to not to loose value over the years... (in general terms, of course other people like to invest in housing, stock market, etc, etc.)


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## the-royal-mail

Hi youtoo, it is not necessary to quote your replies, esp when responding to the post above yours.

Moving on to your questions, I would suggest you're the victim of marketing and rhetoric. 

1. why should you "invest $100-200 a month"? Just because you can do something, doesn't mean that you should. Your focus needs to be on saving. Concern yourself with SAVING $100-200 per month (or more). Invest later, in a lump sum. Banks want you to invest monthly because they start collecting fees faster. You will need a pretty good lump sum ($50K in many cases) to get started with a brokerage if that's where you ultimately end up. Many people here in CMF recommend this approach but you'll need to take a lot of time to educate yourself on this. Don't be in a hurry.

2. I have index mutual funds and while it is true that the fees are relatively low and this may seem like a passive approach, most people agree that mutual funds are not the key to prosperity in investing. In fact, I've actually lost money on the very strategy you seem sold on. Remember that your returns need to exceed what you are paying in fees AND exceed what you would get if your TFSA was in a HISA that pays a guaranteed return of around 1.1%. I'm down around 4% on my TFSA MF account right now and much of that is due to fees and poor performance. If I had of ignored the marketing and what I have "been told multiple times", I would be AHEAD by 2% (over 2 years) by now, rather than behind by 4%. I don't know anyone making 3-4% from MFs.

Ignore "financial porn" articles and appts with banks when it comes to this. Until you've saved and learned about real (ie. non MF) investing, my strong advice is to continue saving in a HISA/TFSA and ignore the glossy marketing brochures.


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