# Time to update strategy and invest outside of registered account



## smrtalec (Dec 16, 2010)

Long time lurker here. I have A LOT of questions, but here's a brief background: 


26yo F in Ottawa. Lived at home while in university and also worked 2 PT jobs during the semesters. Did a 4yr degree + 24mths of internships/co-ops. Was able to pay my own tuition and still had a lot of money saved. 
Started full time permanent federal government job 2 years ago with salary at $80k/yr roughly. I keep track of all my income and spendings but don't have a set budget. On average I save $2000/mth (~50% of after tax). No debt and all CC purchases paid in full monthly.



(numbers rounded off roughly)
$200 - Cash (rarely use cash, use CC for cashback)
$50 - Cheque Account (no fee because I have >$25000 total in bank account. I just move money from HRSA when I need more cash)
$35000 - High Rate savings account (at 0.8%, so not so high at all)
$25000 - GIC (1yr at 1.2%, almost at maturity)
$27500 - TFSA Mutual Fund maxed (monthly income)
$23000 - RRSP TD e-series maxed last yr (25/25/25/25 couch potato)
-------
$111000 total

Everything is in HSBC except for RRSP in TD. I know it's not the best bank, but I have some international ties, comes in handy sometimes.


Saving Goals:
- Watching my net worth grow is a great feeling 
- Buy a home when it's more affordable than renting in the same neighborhood (not sure when this will be). My dream home is basically just having my own garage to be able to store and work on my motorcycle and also double as hobby workshop. This limits my rental option, so a lot of my hobbies are on the backburner right now. Bike currently stored outside during summer and in landlord's garage during winter for free.
- Some occasional travel to visit family

Investment Style:
- Lazy. I like having a couch potato and rebalancing.
- Simple. I don't want to fill out complicated tax forms. (That's why so far all in reg accts)


=============


I think I'm doing very well, but feel I can do better. So far, most of my assets have been gained the simple way (ie. not spending all of my earned income). I grew up with very frugal parents with limited investment knowledge. I'd only started researching on investing since working full time, and I think some changes are needed to make the money work for me.

1) I understand how to calculate ROI if new money was added on a yearly basis, but I'm not sure how to do so when purchases are made monthly and/or sporadically during the year.

For example, my e-series was at $19143 in Apr 2012 after making contributing to RRSP. With no new contribution, it was at $21505 in Mar 2013. So (21505-19143)/19143.09 = 12% growth in a year. Is that correct?
This year I will be adding roughly $300-400/mth to RRSP (to take advantage of dollar cost averaging). How do I calculate ROI in this case? Reading threads here, I think I need to use XIRR. What is the actual formula if I were to do it by hand and not spreadsheet/online calculator?

2) If the ROI calculation is correct, then I earned 3.8% on my TFSA last year. I went pretty conservative on the TFSA because I wasn't sure when I would buy a home. Whereas RRSP would be long term so I was ok having 75/25 equity/bond. The mutual fund has a 1.47% MER, so should I just try to replicate the portfolio in e-series instead to have a lower MER? What would be a comparable e-series portfolio?

3) I see Questrade now offers free ETF trades. Should I move both RRSP and TFSA to Questrade?

4) I would like to keep at least $25000 in HRSA, which doubles as my emergency fund so I'm ok with it earning low interest while allowing me access to brick&mortar bank, no fee cheque, no atm fee, etc. This means that combining with the maturing GIC, I will have $25000+$10000 = $35000 that I can invest in non-registered vehicles.

What are some tax-efficient options? I hear of DRIPping but not sure how to start. Should I put all of it in dividend?

5) I plan on staying in the same city for awhile, and since work is relocating (to a different part of city) next year I have been looking at perhaps buying a home. However, I'm on a single income and at the current housing price, money would be tight. I think it would be wise to stick with renting for now.

Not knowing when I will buy a home, should I just stay conservative or take on more risk in my portfolio?
i hear that price would fall when interest rate rises. Is this always the case (in North America and worldwide)?

Advices are welcomed!


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

Lots of content in your post and I'm a bit limited in time at the moment. Briefly though...despite what the spin doctors will tell you, be really careful with questrade. A lot of people (myself included) have had a lot of problems with them. Search within CMF as well as google. A safer and more common recommendation around here is TDW. Good luck.


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## Spudd (Oct 11, 2011)

You're doing fantastic!! At your age I probably had $1000 to my name while you have over 100k! You're really doing great.

I would suggest your first step should be to really think about your goals. Specifically, if you plan to buy a house, you'll want to stay conservative with your non-RRSP money. And if not, maybe you will want to be less conservative.

Also, I would look at lower-fee options for the TFSA. I don't know specifically what income fund you have there, but I looked up the TD Monthly Income Fund as an example, and it holds 36% bonds and 58% stocks (all Canadian). You could do similarly to whatever fund you have (via Morningstar's website or the fund prospectus) and figure out how to best replicate it for less.


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## smrtalec (Dec 16, 2010)

@the-royal-mail: Thanks for the heads up. I did a search on the forum, and Questrade does sound like a potential headache. At this point I guess I should stick with TD e-series or TDW (if I have RRSP, TFSA and non reg with same broker).

@Spudd: Let's say I won't be buying in the next 5 years. I guess that would be short to mid term investment. I would like the TFSA to be a little more aggressive to take advantage of tax free growth. The HSBC Income fund is very conservative compared to TD's (55% bonds, 29% Cdn stock, 9% cash). I think I will do a (60/40 cdn equity/bond) e-series for the TFSA.

In non-reg acct I will stay conservative. What are some options I should look at besides HRSA and GIC? Can dividend investment be "safe"? I know there's a dividend tax credit.


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## HaroldCrump (Jun 10, 2009)

smrtalec said:


> 3) I see Questrade now offers free ETF trades.


They are offering free ETF *buy* only.
When you sell you have to pay the regular commission.


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## MorningCoffee (May 8, 2013)

smrtalec said:


> 2) If the ROI calculation is correct, then I earned 3.8% on my TFSA last year. I went pretty conservative on the TFSA because I wasn't sure when I would buy a home. Whereas RRSP would be long term so I was ok having 75/25 equity/bond.


Is there a reason you wish to only use your TFSA for buying a house, instead of both TFSA and RRSPs? There's the First Time Home Buyers Plan you can use, which allows you to pull out 25k from your RRSPs: 
http://www.servicecanada.gc.ca/eng/goc/home_buyers_plan.shtml


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## smrtalec (Dec 16, 2010)

@MorningCoffee

I know about the HBP. My reasoning was because RRSP offers tax-sheltered (deferred) growth, I should be aggressive in the vehicle. And if it's aggressive I should look at it as a long term investment. When I do decide to buy, I'm still open to taking money out of RRSP if need be. Does that make sense? Should I actually go conservative in RRSP and aggressive in non-reg?

If it makes any difference, I have yet to deduct ~19k in RRSP contribution. With tuition credit and pension buyback credit the previous two years I was still getting refunds. I anticipate getting a raise soon so will probably deduct more for 2013 and 2014 tax year.

Edit to add: So the reason why the TFSA hasn't been aggressive is because that was the very first investment I'd made. I started out with a mutual fund to get my feet wet, and as time went on, I built an aggressive portfolio in RRSP. Due to laziness and also uncertainty I kept the TFSA the same.


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## james4beach (Nov 15, 2012)

smrtalec said:


> (numbers rounded off roughly)
> $200 - Cash (rarely use cash, use CC for cashback)
> $50 - Cheque Account (no fee because I have >$25000 total in bank account. I just move money from HRSA when I need more cash)
> $35000 - High Rate savings account (at 0.8%, so not so high at all)
> ...


Looks great overall! First thing I"ll say is keep it up. Income and discipline in saving/spending is what grows wealth. Even if you positioned yourself for optimal investments, that's still only going to grow wealth a little bit... you're not going to get rich just from investments. But the income & spending habits have a big effect on your wealth.

From your 35+25 = 60k of cash savings, I think you should start building up a GIC ladder. Lots of information out there how to do this. What you'll achieve is a higher interest rate on your savings, ability to adapt to rising interest rates when they come, and will still have some money maturing every year (liquidity).

Among your other investments, I don't think the Monthly Income fund is for you. These are geared towards seniors and people who want high cashflow. You don't need that, certainly not in the TFSA anyway. What most of these monthly income funds do is hold a very plain index investment inside them, and then charge you extra fees for the convenience of distributing your own money back out to you.

I would actually suggest, once you build the GIC ladder, to put it into the TFSA. This is because interest income from GICs and savings accounts are taxed very heavily on non-registered accounts.

I don't have too many other thoughts but briefly

- yes XIRR is the way to go, in order to calculate your annualized rate of return
- don't worry about dividend funds, again these are popular with older people to achieve cashflow
- any of those dividend or monthly income things come with higher fees
- whatever index fund or ETF you choose, go for simplicity and lowest MER
- make sure you have enough in cash and GICs in case you lose your job or have other emergencies


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## smrtalec (Dec 16, 2010)

@james4beach
That's interesting. I've heard that monthly income funds are for seniors, but when I first started I thought, relatively low MER (compared to Balanced fund), have exposure to both fixed income and stock, that should be better than GIC. Especially if I mimic the same allocation in e-series, that would lower the MER even further.

I can't put any more money into the TFSA, but I could change the $27500 into a GIC ladder. $25000 I want to stay cash in HRSA. That still leaves $35000, which I shouldn't keep in GIC or HRSA because it's taxed heavily and if dividend investment (non mutual fund) is not the right answer, what should it be?


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## james4beach (Nov 15, 2012)

smrtalec said:


> @james4beach
> That's interesting. I've heard that monthly income funds are for seniors, but when I first started I thought, relatively low MER (compared to Balanced fund), have exposure to both fixed income and stock, that should be better than GIC. Especially if I mimic the same allocation in e-series, that would lower the MER even further.
> 
> I can't put any more money into the TFSA, but I could change the $27500 into a GIC ladder. $25000 I want to stay cash in HRSA. That still leaves $35000, which I shouldn't keep in GIC or HRSA because it's taxed heavily and if dividend investment (non mutual fund) is not the right answer, what should it be?


You can't really compare a stock-based fund to a GIC... they're different beasts. Which way you want to go depends on which kind of exposure you want. Stock funds, balanced funds, income funds can all decline in value potentially and don't guarantee any return, or even a positive return. No matter how long you hold them. The GIC does guarantee a rate of return, and it also has CDIC insurance. So they're really different vehicles... neither is better than the other, but they're different trade-offs.

The 'balanced' or 'income' funds can be entirely replicated using low fee index funds which you already know about, and that's the right idea.

Before deciding how to shuffle things you really have to decide what overall % exposures you WANT, what is your desired asset allocation, in: cash, GIC, stocks, bonds. In your original post you're showing, making some assumptions about the mutual funds:

cash = 35k
GIC = 25k
stocks = 0.5*(27.5k) + 0.75*(23k) = 31k
bonds = 0.5*(27.5k) + 0.25*(23k) = 19.5k

So that gives you currently 32% cash, 23% GIC, 28% stocks, 18% bonds. Do you want to maintain similar exposure to this? (It doesn't look bad, in my opinion, but I would personally put less in bonds and more in GICs because bond yields are very low, and GICs offer better returns these days).

Also as you go through this asset allocation exercise you have to keep risk in mind. With 31k exposed to stocks, you could potentially (in a very weak market such as around 2000-2002 or 2008-2009) lose about half of this, so you could lose $15,000 in a worst case scenario. Or you could earn a great return on that money... nobody knows which will happen!


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## smrtalec (Dec 16, 2010)

OK. I think I have a better understanding now. I was looking at each vehicles as having its mini portfolios, but if I look at the big picture, here's how the money would actually be used potentially:

25000 emergency fund. should remain in cash.
27500 + 23000 = 50500 which is a good downpayment for a townhouse. should be in safe investment.
35000 my "fun" investment money, long term and can be high risk.

With that in mind, I would have this giant portfolio (22.6% cash; 45.7% fixed income; 31.7% in equity)

25000 cash in HRSA
27500 GIC ladder in TFSA
23000 GIC ladder in RRSP
35000 equity in non-reg

2000x12 = 24000 saving will go into maxing out TFSA and RRSP each year (adding to GIC ladder), thus building a bigger downpayment + closing costs/furnishing fund. What's left can go into my equity investment and other ventures.

Is that a good plan?


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## donald (Apr 18, 2011)

Many might disagree with me(but i am comfortable operating this way)I'm conservative in my long-term portfolio's(rsp/tfsa and emergency fund(hisa) and more aggressive in my non reg portf and don't view it as ''long'' term as the above.........I find after you have had earned income it can offer the best,i would rather ''trade'' ect in it than my reg portf(i have no problem paying cap gains or losses and also have no problem buying attractive(in my mind)usa growth stocks ect.....otherwise you get stuck on all canadian companies(because obviously the gov wants you to put it in the canadian economy but i think that can/could hinder one(my view).............it forces huge concentration on the canadian side because the taxes on divs ect cloud thing(m.o)Many might not agree with usa in non reg
You seem like your in a solid position.


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## Jeypic (Sep 22, 2012)

smrtalec said:


> OK. I think I have a better understanding now. I was looking at each vehicles as having its mini portfolios, but if I look at the big picture, here's how the money would actually be used potentially:
> 
> 25000 emergency fund. should remain in cash.
> 27500 + 23000 = 50500 which is a good downpayment for a townhouse. should be in safe investment.
> ...


personally I'd keep equity's tax sheltered before gic's..


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## james4beach (Nov 15, 2012)

smrtalec said:


> With that in mind, I would have this giant portfolio (22.6% cash; 45.7% fixed income; 31.7% in equity)
> 
> 25000 cash in HRSA
> 27500 GIC ladder in TFSA
> ...


I think that looks good, both your overall % allocations and where it's sitting. GIC interest income will be tax sheltered, and equity -- resulting in capital gains and some dividends (provided they're Canadian "eligible dividends") -- gets good tax treatment in non-registered. Something simple like XIU or e-series canadian index fund will be very tax efficient in non-registered.

One issue to be aware of as you choose index funds for your non-registered account is that some funds produce more headaches than others, when it comes to tax accounting. In any case you will have to track adjusted-cost-base (ACB) which is standard stuff, but it gets harder to do if (a) you do lots of active trading or (b) the fund distributes things other than dividends, such as return-of-capital (ROC). Many dividend funds and monthly income funds are heavy in the ROC so beware of those.

For that reason some people like to put the equities in the tax sheltered account instead, but then you're trading off the high taxation of GIC or savings interest income. Either way works. My choice personally is to have it like you've listed, with the interest income going into the shelters and the straightforward Canadian equities in non-reg. Non-Canadian stocks get more complicated.

I didn't realize the 27.5+23= 50.5k was intended as a downpayment. The thing with a ladder is that some money is still locked away for years and I don't know how rapidly you would want to pull money once you find a place to buy. To give yourself a bit more flexibility and liquidity, you could mix a short-term bond fund with the GICs. I realize this is contrary to what I posted earlier, and GICs do have better rates, but a good short-term bond fund (like XSB) will give you a little extra liquidity since you can sell it any time. XSB holds short duration bonds and has very low risk and low interest rate sensitivity, so I think it would be appropriate in this situation (whereas a typical bond index wouldn't be appropriate).

So within that sheltered 50.5k fixed income mix, you could for instance have 10k in XSB and 40.5k in GICs... all of that produces interest income. Splitting hairs at this point but the extra liquidity is good in your situation, I think.


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## thompsg4416 (Aug 18, 2010)

james4beach said:


> 40.5k in GICs... all of that produces interest income.


I know not everyone thinks the same as me but I can't understand why anyone in their right mind would invest in GIC's today with the rates as they are now. Blue Chip Dividend growth stocks or ETFs are quite safe and would return way more. IMHO.


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## james4beach (Nov 15, 2012)

thompsg4416 said:


> I know not everyone thinks the same as me but I can't understand why anyone in their right mind would invest in GIC's today with the rates as they are now. Blue Chip Dividend growth stocks or ETFs are quite safe and would return way more. IMHO.


Why? Because those dividend stocks may fall, and you may lose money with them. They could return way more, or they could return much less. The GIC is a guaranteed return; if you get a 3 year GIC you will make 2.0% per year. The stock or ETF... who knows.

This isn't an academic or theoretical claim. Many people are too quick to assume that they'll get better returns in stocks (whether TSX, dividend, whatever) than in fixed income (GICs or something like XSB). So I made a table of exactly this comparison, going back 10 years from today, click to see that post.

This shows XIU total return (includes dividends) versus XSB. You can see that it's simply not a given that stocks/dividends will outperform boring old fixed income.

Look back 1 year, stocks outperform
2 years, fixed income outperforms
3 years, about equal
4 years, stocks
5 years, fixed income
6 years, fixed income
7 years, fixed income
8 years, stocks
9 years, stocks
10 years, stocks


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## humble_pie (Jun 7, 2009)

imho taking returns from only the previous decade & extrapolating these into a portfolio strategy designed for an entire lifetime is misleading.

during the past decade, many stock markets traded within a band. US markets, in particular, were slow & sticky. Bond products, meanwhile, did well over the past decade.

so any table prepared on figures from the recent decade only are going to show this distorted result.

to get a truer picture that might suggest useful information for a lifetime orientation, one would have to go back at least 40 or 50 years. Those studies show the outperformance of stocks. Century studies will show the outperformance of US stocks even better.

the longest time frame i ever met in real life was 700 years. She was a brilliant investment counsel, one of the first women CFAs in this city, loved & respected, a governor of a leading university, a trustee of leading hospitals. As an example of diversification, she would sometimes talk about a german family that had stewarded its immense wealth ever since the 13th century. Apparently assets were divided among stocks (fairly recent in history,) bonds, real property, jewels, gold & art.


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## Sampson (Apr 3, 2009)

humble_pie said:


> imho taking returns from only the previous decade & extrapolating these into a portfolio strategy designed for an entire lifetime is misleading.


+1. Lots of cherry picking around here. Compare an all TSX portfolio, with an all Canadian short bond portfolio, with an all cash portfolio over other rolling periods with longer time frames.

Then calculate the total returns, and the risk-adjusted returns.

Well you don't have to do this because hundreds have beforehand. The results show that equities have the highest return over longer periods. One can reduce the amount of risk (deviation in the portfolio) by adding uncorrelated asset classes. Show evidence that refutes this.


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## humble_pie (Jun 7, 2009)

yea cherry-picking is the right word.

take this sentence from james4 upthread & delete the word "dividend." Now we have a classic condemnation of all stocks anywhere, anytime, all the time, along with a hymn in praise of dear, sweet, fuddy-duddy old GICs.



> Because those dividend stocks may fall, and you may lose money with them. They could return way more, or they could return much less. The GIC is a guaranteed return; if you get a 3 year GIC you will make 2.0% per year. The stock or ETF... who knows


(joke No. 2) (above para is supposed to be joke 1, heh) recently Marina was describing how she & husband invest as a couple. To summarize, she has plenty good old stuff like banks & fortis, plus a nice wedge of the pie chart for racy stuff like gambling stocks, groupon & previously penny oils.

but her husband, she said, has held the same 5 or 6 etfs (maybe it was mutual funds) most of his life.

so i thought to myself Oh Yea this is fantastic non-correlated structuring.


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## Toronto.gal (Jan 8, 2010)

*smrtalec:* to me, you don't sound like a smart aleck at all, but you sound very wise indeed! 

I slightly disagree with Sampson, that is, to fully understand & convince yourself [don't let others convince you of anything], you must do your own calculations/comparisons to get a crystal clear visual of what has been mentioned above.

Seeing [concrete evidence] is believing!


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## james4beach (Nov 15, 2012)

Fact remains, original poster must decide what allocations she wants and then invest accordingly. Same goes for everyone else. I'm only giving my opinion and saying why.


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## thompsg4416 (Aug 18, 2010)

james4beach said:


> Fact remains, original poster must decide what allocations she wants and then invest accordingly. Same goes for everyone else. I'm only giving my opinion and saying why.


Of course James and your opinion is welcome. I find it healthy and good for my investing knowledge when my opinions are challenged. 

Still disagree with investing in Gics at their current rates but that's ok


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## My Own Advisor (Sep 24, 2012)

Great work smrtalec!

The only thing I can add, maybe....I struggle why a young person like you would want so much fixed income earning so little in your RRSP. Go long on equities!

Your 25k in your HRSA should be your downpayment, then use TFSA as needed, then use RRSP as part of HBP.

Keep the non-reg. for now and I wouldn't have it as "fun" money, invest it in dividend paying stocks or put it into an XIU, XIC or some CDN broad-market ETF and will give you some yield and capital appreciation. Get money making money.

For what it's worth, my wife and I didn't touch our RRSPs when we bought our house. We liquidated our TFSAs and now are slowly building them up again, at our own pace, to the point where one is fully maxed out. This way, the we have to worry about borrowing our own money only to pay it back again (RRSP).

Whatever path you choose, you're in GREAT shape since you have options


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## Sampson (Apr 3, 2009)

Toronto.gal said:


> I slightly disagree with Sampson, that is, to fully understand & convince yourself [don't let others convince you of anything], you must do your own calculations/comparisons to get a crystal clear visual of what has been mentioned above.
> 
> Seeing [concrete evidence] is believing!


This is a tough one. I agree with you TGal, but most of the 'data' comes from relatively complex financial mathematical modelling. While the statistics are often not the most complicated, I would hazard few people outside the industry could or would want to follow. I personally admit to skipping over some of the hardcore modelling at times, but the simple concepts of portfolio theory are accessible to most investors.

It is up to oneself to do the due diligence. I have simply never seen any evidence that suggests either bonds, or cash (GICs) alone can provide higher long term returns - in the 25yr + range. Could be proven wrong, and I hope james4 will link some evidence. Then I could forget about the stocks and focus on the saving part. (well maybe dabble a little into stocks )


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## My Own Advisor (Sep 24, 2012)

@Sampson,

Same...I have read reports over short-terms, a few years of investing, whereby bonds and GICs might be beaten stock returns. However, over longer periods, bonds and GICs don't stand a fighting chance against equity markets.


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## james4beach (Nov 15, 2012)

Sampson said:


> It is up to oneself to do the due diligence. I have simply never seen any evidence that suggests either bonds, or cash (GICs) alone can provide higher long term returns - in the 25yr + range. Could be proven wrong, and I hope james4 will link some evidence.


Well one example is Japan, where there certainly was a 25+ year period with flat/negative stock returns and thus outperformance in cash. So there's your evidence that bonds/cash CAN provide higher long term returns. It's atypical, but it can happen.

But I'm not claiming that stocks will underperform, I'm just trying to illustrate the risk. One of the reasons I post my 'bear' viewpoint is that the information we get from mainstream media, salespeople, advisors is so incredibly one-sided. They all push so hard for the long-only, stock bull case. Everyone pushes it! So people don't think much about the possibility of stock underperformance, especially not novice investors.

It's not guaranteed that you will earn more in stocks then GICs or bonds but some people on this forum talk about it as if it's a certainty. I agree that as you stretch out the time horizon it becomes more likely that stocks will outperform cash, definitely! More likely, but still not a certainty.


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## james4beach (Nov 15, 2012)

Performance aside, there are also many legitimate reasons to be holding cash & GICs. One is simply that fixed income makes a better 'emergency' reserve fund... a pool of money you can tap into. In case of job loss, or suddenly wanting a major purchase, etc.

And this is definitely what the original poster wrote about, since she may want to get a home.

Dipping into stock holdings aren't as good an idea. Part of the reason is what we're discussing about stocks providing good returns in the very long term. If you liquidate your stocks, you're really going to hurt its long term potential. It's not a good place to draw money from every couple years as you need it.

Or in case of job loss... it's quite likely you would lose your job in poor economic times, meaning you would likely have to liquidate stocks at a low. Think of 2008-2009 for example.

So I think there's a strong case to be made for having a good chunk of money in the form of a savings account, GICs, or bonds (provided they're not very long duration). I personally aim to have about 1 year salary in this cash-like form.


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## Sampson (Apr 3, 2009)

I agree with much of what you have written in your last post.

As it pertains to the OPs situation, and desire to purchase a house within 2 years, absolutely those monies should be invested in guaranteed products. Really, that money should not be lumped into the investing discussion. If the goal with the remaining monies is something like retirement, then someone that age should definitely not put 50% of their savings into cash or bond holdings, IF they can tolerate the risk, and are expecting significant real returns.

It ultimately depends on those two factors, risk tolerance, and duration the monies can remain invested into higher risk holdings (which depends on the goals).


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## humble_pie (Jun 7, 2009)

i only have a bird's eye view of this OP & it suggests that sequestering the funds that will form a down payment for a house in conservative GIC-plus-bond-fund investments is an excellent strategy. She has mentioned that in the house price range she might consider, roughly $50,000 could form this down payment.

however, recommendations to hold more in ultra-conservative GIC ladders do not seem appropriate for this OP, to me. In particular, asserting that fixed income products out-perform common stock as a lifetime orientation is a crippling - not to speak of erroneous - kind of restriction to place on anyone imho.

this OP has a strong profile of marked financial success. One has to wonder if even a large rrsp will turn out to be practical in the end, since there is a possibility the OP will enjoy significantly higher income after retirement than before.

therefore i would want to see such a poster increase her focus on the tfsa. She writes that she has not taken the time to truly think through her tfsa. But perhaps this would be an idea whose time has come. 

although some might choose to empty out their tax-free plan for a house down payment, i for one believe an optimal approach would be to avoid doing this. An emptied tfsa will take years to rebuild. Tax-free compounded growth during all those years of rebuilding will be lost. Plus there is always the risk that the government could cancel tfsas at any time, although it might grandfather existing deposits.

so i would plunk savings & GIC products in rrsp, building towards a home buyer's withdrawal. I would earmark tfsa for aggressive growth & plan never to withdraw from it. Once both rrsp & tfsa were maxed, i would keep enough fixed-income products in non-registered accounts to comfortably provide both the balance needed for house purchase plus an emergency fund.

i would not worry in the least about the income tax payable on whatever fixed-income products had to be in non-registered. At pitiful 2% current yields, this category of OP's overall portfolio is not going to pay enough to have any signficant negative tax consequences!

after that, i would deploy remaining funds in fairly aggressive growth vehicles. It looks as if, as of the present, the OP might have roughly $25-30k in this non-designated category.

i would commence studying outright ownership of common stocks, as well. Just the benefits from their plain & simple taxation consequences are rewards enough, when compared to the lack of income tax control & the complicated accounting that some etfs require.


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## smrtalec (Dec 16, 2010)

Thanks all for the replies so far. Every time I formulate a plan in my head someone chimes in with an interesting perspective and it's hard to keep up! I've been staying up late reading posts and researching my options. I shall address most of the points brought up so far and have a revised plan drafted up soon.


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## james4beach (Nov 15, 2012)

smrtalec: don't worry too much, you're doing fine and there is no "perfect" strategy. Like I said before, some of this is splitting hairs.

humble_pie's last post sounds pretty good to me too.


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## smrtalec (Dec 16, 2010)

This is fairly similar to my previous post but with a better thought process.

Although buying a home is a possibility, I will only do so if the monthly recurring cost of buying becomes almost on par with renting. With a 200k mortgage, renting would still be ~$300/mth cheaper. Though in reality I probably won't rent a townhouse and instead go for a cheaper 1br with underground parking. I will buy if rent keeps rising, house price starts dropping, and/or a higher downpayment lowers mortgage payment. However, for the sake of financial planning, let's assume the following:

I will buy a townhouse in 2-3 yrs. A townhouse of my liking is $250k (at current price on the low end). $50k is a 20% downpayment. $10k for closing cost + initial furnishing.
Because I'm buying soon, I need to make sure I have $60k available in 2 yrs. Let's pretend I can get 3% on a 2yr term guaranteed investment, then 97%x60k = 58.2k should be in GIC/HISA. I could theoretically allocate all my assets so far (minus 25k) as downpayment, but the thought of putting all that in GIC depresses me, so we'll keep that at 20%.

This leaves 27.8k I can put in higher risk investment (ie. non GIC). When I said "fun" investment money before, I meant fun as in not-GIC. In this 2yrs, I will keep on saving ~$2000/mth, I will be adding this to my risky investment as well. By the end of two years that would be $24k. $27.8+$24=$51.8k total in higher risk investment. If for some reason I end up losing all that money, hopefully not with a diversified portfolio, I would still have that downpayment money ready to be used. However, I don't know if the market taking a plunge like that would have a positive or negative effect on house price/mortgage rate.

Suppose it is 2yrs later, I put down my 20% downpayment. If my ~$51.8k is earning higher than mortgage rate after tax, then I keep them where they are. Otherwise, into the mortgage they go because it is a guaranteed "return".

I'd read up on index/market-linked GIC before, and knew that they aren't really worth it. It's part GIC and part equity but you get the worst of both worlds (0% GIC + ~50% of any equity increase). However, in one of the threads on this forum, there were discussions on how to mimic a market-linked GIC in your own portfolio. So what I have above is sort of like a giant index-linked GIC.


So my allocation is as follows:
25k in cash (22.5%), 58.2k in fixed income (52.4%), 27.8k in equity (25.1%)
(in 2yrs)
25k in cash (18.5%), 58.2k in fixed income (43.1%), ~51.8k in equity (38.4%)

I agree it's a good idea to store GIC/fixed income in tax-sheltered accounts, but as mentioned the interested earned currently is so pitiful that there's no real savings achieved trying to shelter the extra $300-600/yr. Moving money in/out of TFSA or RRSP may also incur admin fee that could completely destroy already pitiful returns.

Things to work out:
Where best to park fixed income and where to park equity
How to have a diversified equity portfolio
Stick with e-series or go with ETF/dividend
Is RRSP good for me if I have a govt pension (if I lose my job or if I want to retire early with less than full pension)


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## Sampson (Apr 3, 2009)

You are far ahead of the game. Typically advice would sound something like "make a plan and stick with it". My advice would be, analyze the situation, and make an informed, and make a best (best at that time) decision. As you rightly mention, things can and will change. Reevaluate before you actually make the decision, seems you skills to perform the analysis are strong.

Now we are done with that, time to have some fun. 

Q1 where to put cash for down payment - simple, google. http://www.ratesupermarket.ca/savings_accounts/ http://www.highinterestsavings.ca/chart/ etc

Q2 at your age, strong position in equities 70%+ (10% bonds, 10% cash, 10% real estate) if you think you can handle the risk (i.e. 30% of your entire diversified portfolio could be gone in 6 months). If you can't or don't think you want to see your $25k 'play' money turn into $17.5k, then reduce that equity position to as low as 50% (20% bonds, 20% cash, 10% real estate).Don't go lower than 50% equities at your age. After all, Stocks for the Long Run.

Q3 e-series. Don't venture outside until you learn more, and you have more capital to minimize expenses.

Q4 You cannot predict the future. You might not work for the govt in the future. A little bit in the RRSP, a little bit in the TFSA.

Good luck!


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## Jeypic (Sep 22, 2012)

smrtalec said:


> Things to work out:
> Where best to park fixed income and where to park equity
> How to have a diversified equity portfolio
> Stick with e-series or go with ETF/dividend
> Is RRSP good for me if I have a govt pension (if I lose my job or if I want to retire early with less than full pension)


At the amount you're investing in equities, and how often you're planning to add to them, definitely go with e-series. It costs money each time u trade etf's.
diversifying equities just means holding equities with a good mix of Canadian, American, and international markets. You can diversify more by adding emerging markets, a mix of large and small cap companies, precious metals, and reit's.


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## smrtalec (Dec 16, 2010)

OK. I think I may actually end up with almost the same portfolio as previously!

TFSA is hard to change mid year, it's $50 to transfer out. I will cash out at the end of the year then redeposit elsewhere (bye bye high MER mutual fund). RRSP I have room to max to about 26-27k for 2013 tax yr. That's almost equivalent to what I want as the "fun" portion.

Right now:
25k in cash HISA (same)
27k in TFSA maxed (same mutual fund until end of yr)
27k in RRSP (will add to it 350/mth in e-series) - Lower the 25% bond portion to 5%
32k in non reg - 6mth GIC or just HISA (potentially moving GIC into RSP so don't want to be locked in a GIC in non reg)

I was going to plan out allocation for Jan 2014 but it's too much to think right now so will defer that til later. One step at a time!

So my action for this 6 mths is change my portfolio in RRSP and lessen exposure to bond funds. I could do 32/32/32/4 (cdn/us/int equity/cdn bond). Are there any other e series funds I should consider? ie.

TD Dow Jones Industrial Average Index - e
TD European Index - e
TD Japanese Index - e
TD Nasdaq® Index - e


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