we want to invest but where do we start?

[malcom.max]

If you have some enough money then let me tell you that you should start food business.It is a best form of business in which your money is save and you can earn a lot in case of success.

[sweet sparrow]

The disadvantage with TFSA is that; it doesn't provides a tax refund.
If you choose the same investment in TFSA or RRSP, you are better off using the RRSP approach. This way tax refund will be additional money available for downpayment for the house purchase

The disadvantage with an RRSP is that you have to pay it back within 15 years, while funding a mortgage, supporting a possible new family, home renovations (expected and unexpected), property tax, furniture, etc. It's just another option for the OP, depending on the situation.

Some people can also save enough to max out their RRSP, in which case, TFSA provides another avenue of savings.

[ashedfc]

The disadvantage with an RRSP is that you have to pay it back within 15 years, while funding a mortgage, supporting a possible new family, home renovations (expected and unexpected), property tax, furniture, etc. It's just another option for the OP, depending on the situation.

Some people can also save enough to max out their RRSP, in which case, TFSA provides another avenue of savings.

You are not obligated to pay (its not mandatory); as per CRA guidelines you should pay, (but if you don't : then they will add that portion into your income of that year).
Assuming you 15000 to invest & let say the marginal tax rate is 30% for simplicity sake, (in reality it can be more or less).. & the returns are 5% (lets say)..
After 1yr
In TFSA: zero tax refund, & $15000 grows to $15750.. so net proceeds for home purchase $15750.
In RRSP: $5000 tax refund & $15000 grows to $15750.. so net proceeds for home purchase $20750.
After 1yr they take the proceed & put it as down payment so they can buy their house, a larger downpayment will help in negotiating a better terms & condition for the mortgage & less CMHC (or no CMHC) insurance fee.

After closing of the house, they have 1 more year to start repaying the $15750 back into RRSP (spread out over 15years; means $15750/15 equals $1050/yr, which equals $87.50 per month). So as per CRA guidelines this $87.50/ month or $1050/yr has to be deposited back into the RRSP.

Now, they have an option if they can afford this $87.50/month, they can deposit into the RRSP; however if they cannot afford this $87.50/month, they don't have to deposit.
If they do not deposit: than CRA will tax the amount not deposited. $1050 will be taxed for the year (in which they do not make the deposit); that's equal to $1050x0.3= $315.
So the total additional tax liability for not depositing $87.50/month back into the RRSP is $315 (for each year in which the deposits aren't done).

Let's say, they are broke (or they don't have money which means they are in low tax bracket anyways & the tax liability will be a lot less).. say 24% in that case the additional tax liability is $1050x0.22=$252.. .... so the net additional tax liability for not repaying back into the RRSP is very negligible.

But the biggest advantage is extra $5000 for the downpayment..


I have taken 5% return just as an example: you can go with 0% or 1% or 2% or whatever investment vehicle you decide its the same for both (as all RRSP eligible investments are also TFSA eligible)

Hope this clarifies the confusion.
You can post any questions you may have.

ASH (Financial Advisor)
www.edfc.ca

[sweet sparrow]

With all due respect, and just speaking from my own experience, not everyone has $15,000 of contribution room in their RRSP until they've been working for a few years - if you can find a decent starting salary where you are, and if you can find a job at all.

If you have that much contribution, RRSPs may be more of a consideration. TFSAs can also provide a dual function and hold accessible emergency money as well.

[anawhatsme]

wow!!
this is great info.
i assume tfsa is tax free savings account?
this is what i was leaning toward to start.
i mean if we have that and we change our mind down the road, we can just take the money out and put it elsewhere right?

also - is there a minimum for investing?
we don't have thousands - more like low hundreds.

You are not obligated to pay (its not mandatory); as per CRA guidelines you should pay, (but if you don't : then they will add that portion into your income of that year).
Assuming you 15000 to invest & let say the marginal tax rate is 30% for simplicity sake, (in reality it can be more or less).. & the returns are 5% (lets say)..
After 1yr
In TFSA: zero tax refund, & $15000 grows to $15750.. so net proceeds for home purchase $15750.
In RRSP: $5000 tax refund & $15000 grows to $15750.. so net proceeds for home purchase $20750.
After 1yr they take the proceed & put it as down payment so they can buy their house, a larger downpayment will help in negotiating a better terms & condition for the mortgage & less CMHC (or no CMHC) insurance fee.

After closing of the house, they have 1 more year to start repaying the $15750 back into RRSP (spread out over 15years; means $15750/15 equals $1050/yr, which equals $87.50 per month). So as per CRA guidelines this $87.50/ month or $1050/yr has to be deposited back into the RRSP.

Now, they have an option if they can afford this $87.50/month, they can deposit into the RRSP; however if they cannot afford this $87.50/month, they don't have to deposit.
If they do not deposit: than CRA will tax the amount not deposited. $1050 will be taxed for the year (in which they do not make the deposit); that's equal to $1050x0.3= $315.
So the total additional tax liability for not depositing $87.50/month back into the RRSP is $315 (for each year in which the deposits aren't done).

Let's say, they are broke (or they don't have money which means they are in low tax bracket anyways & the tax liability will be a lot less).. say 24% in that case the additional tax liability is $1050x0.22=$252.. .... so the net additional tax liability for not repaying back into the RRSP is very negligible.

But the biggest advantage is extra $5000 for the downpayment..


I have taken 5% return just as an example: you can go with 0% or 1% or 2% or whatever investment vehicle you decide its the same for both (as all RRSP eligible investments are also TFSA eligible)

Hope this clarifies the confusion.
You can post any questions you may have.

ASH (Financial Advisor)
www.edfc.ca

[sweet sparrow]

wow!!
this is great info.
i assume tfsa is tax free savings account?
this is what i was leaning toward to start.
i mean if we have that and we change our mind down the road, we can just take the money out and put it elsewhere right?

also - is there a minimum for investing?
we don't have thousands - more like low hundreds.

Yes, a TFSA stands for tax free savings account. You can take out the money at any time but you can't put it back in until the following year + $5000 of the new year's contribution room. Just like RRSPs, you can invest it in anything you want, under the name of TFSA (like TFSA is the basket and you can put whatever you want in the TFSA, like GICs, RRSPs, mutual funds, etc.). Although, if you put an RRSP in your TFSA, keep in mind that you lose the immediate tax benefit, as ashedfc pointed out.

There is no minimum for starting up an account. Some famous financial personality said "if you have $20, you have money to invest". I just can't remember who said it....

Congratulations on starting to put away some money for a home! If you intend on using the money within the next five years, I would choose something safe to invest in, but then, I'm not very risk adverse.

[ashedfc]

Yes, a TFSA stands for tax free savings account. You can take out the money at any time but you can't put it back in until the following year + $5000 of the new year's contribution room. Just like RRSPs, you can invest it in anything you want, under the name of TFSA (like TFSA is the basket and you can put whatever you want in the TFSA, like GICs, RRSPs, mutual funds, etc.). Although, if you put an RRSP in your TFSA, keep in mind that you lose the immediate tax benefit, as ashedfc pointed out.

How can you put an RRSP in a TFSA ?
RRSP is not an investment vehicle, its a type of account. RRSP alone not an investment (you can open an RRSP with zero money; Yes absolutely zero balance RRSP).
Inside the RRSP account: you have investments like cash, GIC, bonds, equities, mutual funds, etc.etc.

[sweet sparrow]

Sorry, that's not what I should have said. TFSA and RRSP are different, with different purposes. I meant to say you can hold the same kind of investments in both. Not an RRSP in a TFSA. Thanks for noticing! Now I know someone is reading my posts.

[anawhatsme]

yikes.
i have to admit - i do find this all quite confusing.
i hope the dummies book will break it down for me.
i feel so lost!

[ashedfc]

yikes.
i have to admit - i do find this all quite confusing.
i hope the dummies book will break it down for me.
i feel so lost!

Its normal to feel that way.
Even lot of financial gurus also find themselves lost sometimes.
Take one step at a time.

By the info you gave (you have couple hundred $$ saved); I feel its too premature to venture out into anything fancy.
Are you working; what's your tax bracket; what's your budgeting; are you spending more than you make or less than you make; is there a scope of reducing your spending; is there a possibility of increasing your income; etc.etc.. there are lot of info required to give any quality suggestion..

so the best is talk to a Financial advisor, & proceed from there.
most advisors want to talk to people who have money (cause there's potential for more commissions/revenue for them), but there are advisors who do lot of social service too..

Most important is "Don't feel so lost"..... if you loose confidence; chances are we will end no where..
Start small, & take it to the next level..
For example: Start as little as $25 PAC (annually/semiannually/ quarterly/monthly/biweekly/weekly/daily/ whatever you can afford) into a RRSP.. & accumulate it for your home purchase down payment. And let it grow.

Most important is
Not having money shouldn't be a reason to postpone your financial planning;
Most of the time People postpone their financial planning; that's the reason they don't have money

ASH

[kanewtz]

I've asked the same question numerous time. The best advice I can give you is to read as many websites/blogs about investing as you can.
One thing that really interests me is Dividend investing. Buy stocks that pay out quarterly dividends. I have bought some already and am hoping to grow my portfolio soon (buying a new SUV last month put a dent in that though).

As for a financial adviser, make sure you find one who is legit. I'd avoid FAs at banks as they will push their "own" product before others (even though theirs might not be the best or with the highest returns).

If you have any questions, PM me.

I'd open up a Self Directed Online Brokerage and just play with the stock market a little.

[ashedfc]

As for a financial adviser, make sure you find one who is legit. I'd avoid FAs at banks as they will push their "own" product before others (even though theirs might not be the best or with the highest returns).

I'd open up a Self Directed Online Brokerage and just play with the stock market a little.

True, Bank Financial Advisor's have no other choice, but to recommend their own products (either good or bad); this is the disadvantage of being a salaried FA.. There are exceptions at the bank, but to be eligible you have have an account of a HNWI (High Net Worth Individual)..

Outside the bank it takes time to get a good FA (most successful FA's do not want smaller clients; because the potential reward isn't very significant)..

Regarding a Self Directed Online brokerage account: its a good way to operate, but its not worth for smaller size accounts (prohibitive cost; transaction fee both on the buy/sell side; means to enter a trade & exit which increases your break-even cost).... Anyways Good Luck in your new venture..

[Brad]

Have you considered the TD e-series funds? They are the lowest cost mutual funds available in Canada, and you can open an e-series TFSA or RRSP. Another choice might be the ING streetwise funds.

A good place to get more info is: http://canadianmoneyforum.com

[ashedfc]

Have you considered the TD e-series funds? They are the lowest cost mutual funds available in Canada, and you can open an e-series TFSA or RRSP. Another choice might be the ING streetwise funds.

A good place to get more info is: http://canadianmoneyforum.com

I agree these funds gives you a lower management fee.
But the big question is "do you control the quality of investment inside the fund?" answer is NO.
You get what you pay..

Currently the global economy is going through a period of sustained weakness, lower GDP across the globe. It might makes sense to stay away from the market altogether, & be in completely different asset class just to protect wealth & purchasing power.

Investing is not just buying some funds & hoping it will go up. (its lot more than that, specially when you add other factors outside the nominal investment performance).

[Brad]

They are index funds... the whole point of index funds is that you don't need to know about what investments are inside the fund because they hold the whole index.