Debt vs RRSP

[wimbly11]

Yikes. Ok food for thought.

Yes, we were going to book with CIBC, who out PLC is with. Perhaps we need to do some research ourselves. Maybe an RRSP isn't the way to go right now and we should make sure of our TFSA.

I have to be honest, I understand very little of these things, which is why I thought an advisor may help lol

[swagmaster]

Heres the advice i can give you, don't save up. The dollar loses value each year. Being in debt isnt always a bad thing there are good debts. You should use some of your income to start a small homebusiness. The mistake you've done(most people done) you use credit to buy liabilities such as a home you own, a car(pay mortgage each month) instead of buying assets(something that pays you a home you've rented for example). Thing to do is cut some expenses and use that money to make more money .

[lecale]

Yikes. Ok food for thought.

Yes, we were going to book with CIBC, who out PLC is with. Perhaps we need to do some research ourselves. Maybe an RRSP isn't the way to go right now and we should make sure of our TFSA.

I have to be honest, I understand very little of these things, which is why I thought an advisor may help lol

It's not don't go to an advisor, it's take advice and information from everywhere and use your smarts to figure it out.

[tjthemanto]

Yikes. Ok food for thought.

Yes, we were going to book with CIBC, who out PLC is with. Perhaps we need to do some research ourselves. Maybe an RRSP isn't the way to go right now and we should make sure of our TFSA.

I have to be honest, I understand very little of these things, which is why I thought an advisor may help lol

Financial Advisors in the banks are really low end. All they care about is selling their own bank products on which they make maximum commission and bonus. All of them have sales quotas and targets to meet or they get fired or reprimanded pretty quick .

Its extremely easy to become a FA in Canada, very little oversight & punishments, when they loose the clients money or cause losses to their clients. Write a few exams & any Tom,Dick & Harry can become a FA in Canada

[tjthemanto]

Is Your Financial Advisor Deceiving You?

Written by Jin Won Choi on June 5, 2014 in Other Blogger Inspired.
Last update on June 5, 2014.



http://www.moneygeek.ca/weblog/2014/...deceiving-you/

[brunt]

Financial Advisors in the banks are really low end. All they care about is selling their own bank products on which they make maximum commission and bonus. All of them have sales quotas and targets to meet or they get fired or reprimanded pretty quick .

Its extremely easy to become a FA in Canada, very little oversight & punishments, when they loose the clients money or cause losses to their clients. Write a few exams & any Tom,Dick & Harry can become a FA in Canada

Sadly, I must agree with this assessment in general.

In the banks, I have seen some good ones, and I have seen a lot of bad ones. A first timer could have a difficult time telling the difference.

As an aside, I had one FA in the bank get into a debate with me as to whether or not a bond mutual fund would increase if interest rates increased. They were quite incorrect in stating that it would increase when rates increased. Very, very bad rookie mistake indicative of a major lack of knowledge.

Banks also tend to push mutual funds, which in a low rate environment, tend to suck up all of the returns for themselves, leaving nothing for the investor.

For those with the inclination, I would heavily recommend looking at The Couch Potato Portfolio, which uses ETF's, which have much lower fees than do mutual funds.

Remember, any FA is a salesman. They are either selling products or their knowledge. The problem is to find one selling their knowledge rather than just pushing what they are told to push.

[wimbly11]

God, this is all Greek to me lol

[seylz_gurl]

^^^very interesting article tj! exactly someone should be able to make a living but when the client is making less than the MER and it is like 3% like some of them are that is not right.

[sweet sparrow]

Yes, we were going to book with CIBC, who out PLC is with. Perhaps we need to do some research ourselves. Maybe an RRSP isn't the way to go right now and we should make sure of our TFSA.

I made the mistake of going to see a "financial advisor" at CIBC in the beginning, and DH did as well. Mistakes are all part of the learning experience. Very few people get it right the first time. When you do make a mistake with money, the lesson sticks, and you try not to do it again. (The mistake being investing in what the financial advisor told me to invest in, without knowing how mutual funds and fees and the relationship between advisors and the bank work. That took years and years of reading, simply because life gets in the way and I didn't have a lot of interest in it until recently.

The few bank financial advisors that I've had conversations with that seemed knowledgeable about investing moved on pretty quickly and I only saw them once or twice before they moved to another job elsewhere.

I second Brunt's notion that you can do it yourself once you get comfortable with different investments. Some are more complicated than others. Some experts advise that if you can't explain how it works to a child, don't invest in it. We learn things as we take more time and put more research into them. We had to learn what interest was in a bank account, then we learned what GICs were, then compound interest, ....and just keep going. Don't stop learning. Such is life.

Maybe it'll take a month, or maybe even a year. You don't have to understand everything. Just know what your money is doing right now and research the next step.

[MortgageQueen]

Yikes. Ok food for thought.

Yes, we were going to book with CIBC, who out PLC is with. Perhaps we need to do some research ourselves. Maybe an RRSP isn't the way to go right now and we should make sure of our TFSA.

I have to be honest, I understand very little of these things, which is why I thought an advisor may help lol

. . . or you could just ask Brunt!

[wimbly11]

Brunt, want to be my financial advisor? lol

[tjthemanto]

Most bank FA just give you a Risk Tolerance questionnaire when you walk in. I believe by law they have to give it to you and its more of a formality and technicality, so when you lose money they can just point to it and blame you

You just tick mark a few things on it, and then they will try to sell you Mutual Funds with maximum MER - Management Expense Ratio. Usually the more crappy the financial product the more commission, bonus and pat on the back from the higher ups

They love to lock you in with registered products like RRSP, RESP and even TFSA and locked in GIC etc. These are harder to break or sell or transfer out. Usually penalties, administrative fees, transfer out fees associated with them, so a big hassle for the customer. So usually customers are reluctant to sell, break or transfer them to another bank. So you are kind of stuck with them .

[brunt]

Brunt, want to be my financial advisor? lol

I know that you are just kidding, and truth be told, I'm just some Engineer who is very good in math, and who has an interest in financial matters.

Rather than just have the mind boggle at the nearly endless options, you have to break it down into manageable pieces. I can ramble on at times on these topics (pretty funny considering I am very shy and rarely say much), so I will try to keep it short. If I leave anything out about which you have questions, just ask. If anything is unclear, just ask. In short, ask.

Note - the following are my opinions, and anything that follows is worth precisely what you paid for it.

Question 1 - Should you pay off debt?

• If the fact that you have debt bothers you, then you should probably pay it off. Money is good, but sleep is better. Don't try to second guess yourself by thinking that you should be investing - paying off debt is investing. You may feel that you won't have a comfortable retirement if you don't invest, but nine times out of ten, retirement is even worse if you don't get rid of (and stay out of) debt.
• If you are very uncomfortable with investing (my guess would be "yes", but read question 2 anyway), then paying off debt is pretty well the easiest investment that you can make as long as you don't go back into debt. Very easy to understand, and a high comfort level. No fees or commissions payable. Nothing to follow or maintain, just write a single cheque, or make one transfer, and it is done.

Question 2 - Should you invest?

• Among those who have yet to invest, there is this vague feeling that the stock market is this great big slot machine into which you put money, and out springs a constant stream of money. You have this unhappy feeling that you will miss out on this windfall if you don't put your money in. Get rid of this feeling. The market does not care one whit about you or your retirement, and can happily gobble up your money in fees or losses. If this is the reason that you are considering investing, then you should probably pay off your debts instead.
• If your investment is going to be in something like GIC's because that is what you are comfortable with, then you should most definitely pay off your debts instead. Chances are 100% that you are paying a (much) higher interest on your debt than you will be receiving on your GIC. And then you have to pay income tax on the interest income that you receive. Absolute, take it to the bank, Brunt's iron-clad guarantee that you would be better off paying off your debt in this situation (see note in question 3 about employer matching though).
• I would suggest that you get comfortable with the difference between stocks, bonds, mutual funds, ETF's (Exchange Traded Funds) and money market funds. Know what you have to pay in each case (especially for mutual funds as many have outrageously high annual fees, and surprise fees if you cash out). If you don't at least understand what your money is being invested in, then I would suggest that you not do it. Sure, you can leave the individual choices up to the planner, but you should understand it. Banks just looooove people giving them money who don't ask questions about how it is being invested.
• And above all, if you can't bear the thought of looking at your investments one day to discover that 20% of your money is lost because the market went down, then there is a pretty good chance that you don't have the stomach for investing. This is OK and not a personal failure, it just means that you will have to make it up some other way, such as extreme frugality.

Question 3 - Should you invest in an RRSP/TFSA?

• If you have employer matching of RRSP contributions, then I would suggest that you take it if they match $0.50 of every $1 that you contribute or better. This is free money and rule #1 of every cheapskate should be never say no to a free lunch. This is even a good idea if you only put it in GIC's. It is especially good if you are older and you will be retiring relatively soon.
• If you are in a high tax bracket this year, and you are guaranteed to be in a low one in the near future, then you should contribute now and take it out when you have the lower income.
• If there is a good chance that you may need some of the money in the near future, then I would suggest a TFSA over an RRSP as you can replace money that you take out of a TFSA, but you can't in an RRSP (other than the Home Buyer's Plan (HBP), but that is a different story).
• If you have a low tax rate, then if you want to invest, I would not bother with RRSP or TFSA.

Nobody here can tell you what to do. We don't know your situation. We don't know how you feel about the possibility of losing money.

It may sound like I am telling you to pay off your debts, and you would not necessarily be too far off by making such a claim. I've been there, done that. I made the decision to get entirely rid of all of my debts - including my mortgage - before investing a penny. Some of my investments have worked, others have not. But the debts are still gone.

My choice of minimal investing plus extreme frugality paid off very well over time, so I have a bit of a bias.

Remember this if it is the only thing that you remember from this post - your net income is equal to your gross income minus your expenses. This is key, it is not what you make, it is what you keep that counts. My take on this equation is that you can increase your net income far easier by decreasing your expenses than it is to increase your gross income (this includes investment income). And one of the best and easiest ways to decrease your expenses is to reduce the amount that you pay in interest.

Once again, if you have any questions, just ask away!

[jasperandchar]

I agree with @brunt , very smart and speaking the "English" language unlike the bankers.

[jasperandchar]

Thought I would share but to each their own as they say....good read and explain in plain language with great examples
http://business.financialpost.com/pe...levant-anymore