Investing Advice Please

[lekate]

I will be coming home soon with a big chunk of change (6k$) and need advice on what to do investment wise. I want to make it "work" for me!

Thanks!

[brunt]

You may or may not have the basics covered. Given your number of posts here, I assume that my first few points will not apply to you, but I will include them for general consumption.

I have a "layered" approach to investing. And some of my "investments" do not match what others think of as being investments. I have a general list, and the first ones on the list should be filled before going on the the next one. In your general case, I would go down the list until you hit the first one that you have not fulfilled, and start there.

1) If you have any credit card debt, pay that down, and don't rack it back up again. Cut up your cards if necessary.

2) If you have other high interest debts, pay them down.

3) If you do not have an emergency supply of three months worth of expenses, you should have that in a relatively accessible place, like a high interest bank account. This can be done within a TFSA if you so wish, but only in investments that you can quickly cash in at a good price - no stocks here.

4) If you have a mortgage, you may want to pay it down.

You will notice that up to this point, none of my suggestions have included traditional investments. Continuing...

5) If your employer offers 50% RRSP contribution matching, take it. If it is a "locked in" account, I would probably pass, but that is up to you. Take the most conservative investment, as you have already made a 50% return on your money. Move it out into your own self-directed RRSP if at all possible, which will give you a far wider choice of investments.

6) Examine your expenses, and see if your money can help reduce any of them. This may sound odd, but it works. It allows for a lot of flexibility here.

For instance, many people with modest incomes do not have a chest freezer. This one item is unique in that it is not only a convenience, but coupled with frugal shopping can be one of the best possible investments that one can make. If the purchase of the freezer does not pay for itself in about 10 months, then you are shopping wrong.

If you have cable TV, consider cutting the cord. Instead, buy seasons of your favourite shows on DVD when they come on sale for about $15. You can use a little of the money to buy a few up front, but make sure that you actually go through with cancelling your cable. My wife and I have done this for about 10 years now, and spend only about $10 per month - far less than most people spend on cable. And we get to watch everything on our own time, without commercials. Trade your completed seasons with your friends for even more savings.

Another example - pay as you go cell phones. If you are constantly running out to get another card to fill up your phone, but "can't afford" a monthly plan, then you are flushing money down the toilet. Get a good monthly plan, spend a bit of money up front, and cut your monthly bill in half. Don't run up your bill, but spend less every month. Even better, go to an annual plan (7-11 and Petro Canada both have good plans), and only use the phone when you really need to. Neither my wife no I have used more than 100 minutes in a year.

7) Increase your emergency savings to six months. Car problems, health issues, unexpected job losses, a(nother) pregnancy, or even a leaking pipe have a habit of happening when you are least able to afford them. Save the money up front, before these things happen. Again, you can put it in a TFSA, but only in highly liquid, predictable investments.

8) Consider using the money to upgrade yourself with highly marketable skills. No medieval Norwegian basket weaving, or Harry Potter for Muggles, real hands-on skills. Think welding, bricklaying, plumbing, electrician, engine repair, etc.. Know what the expected payoff is before you go in, and only write the cheque if you are virtually guaranteed your money back within one or two years. Be ruthless - a lot of "school" simply isn't worth the "investment" or either money or time. Don't be one of the ones who works through and then complains about the lack of jobs and your school debt. (Not meaning to kick people who are in this situation when they are down, but ask yourself how likely it is that you may find yourself in that situation when you are done. If it is at all likely, don't do it)

9) Finally, consider the more traditional investments. Bonds are probably a bad idea right now with interest rates increasing. Individual stocks are also probably verboten for people starting out. Think ETF's in highly profitable companies that are likely to remain that way. Pick ones with consistent high and increasing dividends. Think banks, utilities and the like. Don't expect returns much higher than 5% per year. If you have any debts on which you are paying interest rates in excess of 3%, you should not be putting one penny into stocks until you have those paid off.

You will note that I don't recommend standard investments until #9 above. That is because when you are starting out, the likelihood that you will, at some time, need access to your invested money at some point in time, is high. Hence the emergency money.

Also, you have to remember that the purpose of investing is not to get the best return on your money, but to get the best increase in your net worth. They may sound similar, but they are quite different. Your net worth changes each month by your income minus your expenses. Thus, you can increase your net worth either by increasing your income, or decreasing your expenses. When people think "investment", they almost universally think about increasing your income alone. Don't make that mistake. For starting investors, it is almost universally true that they can increase their net worth the most be minimizing expenses. Just don't forget that sometimes it is necessary to spend money to decrease expenses (sounds funny but it is true).

You will notice too that I stressed TFSA's more than RRSP's. There is a good reason for this. Again, new investors are more likely to need emergency cash. If you take any out of an RRSP, you can't put that money back. You can with a TFSA (but you may have to wait until next year to do it).

That's it. That's my list. It may not be all sexy investment, more like a kiss from your Aunt. But it works. Any questions, just ask.

[Carlotta]

Excellent advice Brunt.

[Zonny]

Thanks for that Brunt. I too have a bit of cash coming my way. We're going to do a bit of work on our house, I plan to but some aside from DS (unknown to him) for when he's about 19 or so. But I'll still have leftovers. Fortunately we really don't have debt outside of our mortgage.

[lekate]

Thanks for the advice Brunt! I will have to set aside some of it for living expenses, I already have a chunk o' change in my Canadian accounts as it were for emergency funds (left that there before I left Canada). I have already paid off all my debt, have no mortgage (that's the transient lifestyle for you), and have little need for material items now (have spent the past year living with about a suitcase worth of clothing).

What are your thoughts on the "couch potato investor"? I've looked at the ING Streetwise fund, which has some higher fees since it's managed, and the TD e-series, but it's not managed and I'd need to re-balance, which, I don't know, I've never any investing. Just want to start putting money away for my future.

[brunt]

What are your thoughts on the "couch potato investor"?

Couch Potato is fine. Probably as good as a portfolio on automatic pilot as you are going to get.

I've looked at the ING Streetwise fund, which has some higher fees since it's managed, and the TD e-series, but it's not managed and I'd need to re-balance, which, I don't know, I've never any investing. Just want to start putting money away for my future.

Rebalancing is no biggie, especially if you are still saving. To rebalance, most of the time, you just split up your new contributions so that after your purchases, all of your ETF's have the same value at that instant. Only when one or two of the funds have done spectacularly well over a given year do you have to sell any of it. And in that case, the extra work is worth the fact that you did so well.

Just remember that you are not going for home runs, just hopefully a slow and steady accumulation of funds.

[endi2000]

Great advice brunt!! A suggestion - if you have some lower interest and really accessible TXFA accounts but still have some cash - consider the Seg funds for TXFA options too. They are not quite as liquid (usually a week or so wait if you need the cash) - but have some guarantee for your investment and are paying higher than the 2-3% at ING and Canadian Western Bank

[brunt]

Great advice brunt!! A suggestion - if you have some lower interest and really accessible TXFA accounts but still have some cash - consider the Seg funds for TXFA options too. They are not quite as liquid (usually a week or so wait if you need the cash) - but have some guarantee for your investment and are paying higher than the 2-3% at ING and Canadian Western Bank

Seg funds are of interest to the truly risk intolerant, due to their guaranteed nature. However, typically they accomplish this guarantee by purchasing stripped bonds that mature at some point in the future corresponding to the minimum guaranteed date (often ten years). While this does accomplish the stated goal, at lower interest rates, it results in a very low amount of the contributed money being used in growth instruments.

My personal take, I don't like them in the current environment. But I'm not everyone. If you value security over all else, then perhaps they are of more interest.

p.s. By TXFA, do you mean TFSA (Tax-Free Savings Account), or am I just unaware of that acronym (Texas Forensics Association)?

[lekate]

Thanks again for all your advice!

[Shwa Girl]

I will be coming home soon with a big chunk of change (6k$) and need advice on what to do investment wise. I want to make it "work" for me!

Thanks!

Congrats on finishing your job placement.
Welcome home.

[lekate]

Congrats on finishing your job placement.
Welcome home.

Thank you! Not quite home yet, two more weeks :D

[intellg]

This discussion not only help lekate and carlotta but also very helpful who are suffering form useful advice of investment. Thank you very much admin to making this useful form.

[josephhinds]

If you want to use your money wisely, then I think real estate is the best field. I had personal experience of it.

[brunt]

If you want to use your money wisely, then I think real estate is the best field. I had personal experience of it.

There is a good reason that investment firms have to put the disclaimer "past performance may not be indicative of future results" on their prospectuses.

Real estate has performed crazily well over the last 15 years or so. By every conceivable measure, real estate is hugely overpriced in Canada. Canda is the "last man standing" in the global real estate bubble. We are not immune to the crash, nor are we special here. We are just last.

[josephhinds]

There is a good reason that investment firms have to put the disclaimer "past performance may not be indicative of future results" on their prospectuses.

Real estate has performed crazily well over the last 15 years or so. By every conceivable measure, real estate is hugely overpriced in Canada. Canda is the "last man standing" in the global real estate bubble. We are not immune to the crash, nor are we special here. We are just last.

But from my point of view I think the whole real estate market of Canada has been recovered compared to the last few years.