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 Post subject: Just getting started...
PostPosted: Tue Apr 10, 2007 8:41 pm 

Joined: Tue Apr 10, 2007 8:19 pm
Posts: 20
Location: Sherwood Park, Alberta, Canada
Hey folks, I've just recently started researching the investment market. My registered retirement savings are nearly up to date and will be by tax time next year. I was looking for feedback on my current investing plans.

First, some background:

1. I'm in Canada, and while that doesn't limit my opportunity per se, I may use different language to describe my registered retirement investments (i.e. RRSP).

2. My wife and I, by the good fortune of a red-hot property market, have paid virtually all of our debt. All we have is our mortgage which is currently in and around the $250,000 range.

3. My current plan is to invest roughly $500/month in non-registered products. This is in addition to maximizing our contributions to our registered plan.

So:

I expect to have around $2000-3000 at the end of this month to get my feet wet. As above, during subsequent months, I hope to invest about $500/monthly. We are not overly concerned about our mortgage as the real estate market here looks promising for the next 2-3 years, over which time, via building new, moving and selling, we hope to be mortgage free (or relatively close).

I've just started reading more about investing, looking at several books on the subject (Wealthy Barber, A Random Walk Down Wall Street, The Investment Zoo, and Values-Based Financial Planning) and more than a few websites and blogs.

To start, I thought I'd stick with mutual funds offered through my bank. There are two reasons for this:

1. I see it as a relatively gentle "easing in" to buying/selling mutuals.
2. I won't be subject to trading fees a la iShares (especially important as my main focus is on monthly investing until I hit a sizeable nest egg to take the "lazy portfolio" approach).

I've ultimately decided on working towards a portfolio as such:
8% XIC, 40% XSP, 32% XIN, 20% XBB.

*Mutuals listed are iShares, though I will be purchasing my bank's equivalent. This is the "high-risk" recommendation for investments under $100K from The Smartest Investment Book You'll Ever Read.

From what I've read and seen, it seems a good mix of equities and bonds for my risk-tolerance level. It captures both the Canadian and US Market indexes, emerging markets and bonds. I'm relatively young (29), so I figure I can ride out any particuarly rough times in any given area of the portfolio.

It will take me some time to hit the desired balance of funds, but I think it's right for me. Though medium to high risk, I think it's reasonable, especially in light of my registered portfolio being a mixed of guaranteed, low, medium and high risk investments.

Am I moving in the right direction? Any advice for me before I take the plunge?

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PostPosted: Wed Apr 11, 2007 4:14 am 
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Joined: Thu Apr 05, 2007 1:25 am
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Location: England
I have no idea, but I wondered if it would help to know your goals for these investments, especially in terms of time frames. At what point are you planning to liquidate some or all of this money, when you retire, to send children to college, to take early retirement, etc?

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PostPosted: Wed Apr 11, 2007 6:00 am 

Joined: Tue Apr 10, 2007 8:19 pm
Posts: 20
Location: Sherwood Park, Alberta, Canada
These investments are primarily long-term. My wife and I have no kids right now and will likely start paying into an RESP (Registered Education Savings Plan) when we do to cover those costs. Present "luxuries", i.e. vacations, automobiles, will be paid for by good, old fashioned saving.

I may consider early retirement, though it's fair to say this money will be largely left alone for at least 16-20 years.

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PostPosted: Wed Apr 11, 2007 6:16 am 

Joined: Thu Apr 05, 2007 8:01 am
Posts: 243
Some advice:

Be mindful of bank/brokerage fees. You mentioned that you won't be subject to trading fees when buying these mutual funds. However, some mutual funds still charge fees. I believe the terminology is "front-end loaded" or "back-end loaded". This means they will charge you a fee for the transaction either when you buy or sell the fund. There are "no-load" funds that don't charge these fees.

In addition to fees for trading mutual funds, you should be mindful of any fees for simply having an account with your chosen financial institution. Some institutions charge you an annual fee just for having an account with them, if your total balance does not meet a minimum value. For example, Bank XYZ may charge you $100 a year if your portfolio with them isn't worth at least $25,000. $100 may be a significant chunk of your returns on an $8000 portfolio.

When shopping for a mutual fund, I've heard some other advice which you may choose to follow. Look at a fund that at least a minimum of 10 years of performance. Then look at their 10-year performance rate and check how it compares with your expectations of returns. Any fund can juice their returns over a 5-year period by sheer dumb luck or maybe even tweaking numbers.

squished


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PostPosted: Wed Apr 11, 2007 6:26 am 

Joined: Thu Apr 05, 2007 8:01 am
Posts: 243
quadraphonic:

Just a couple of other general notes. In my mind, I sense a big red flashing warning sign regarding what you mention regarding your real estate situation. You mention that you've paid off "almost all your debt", but still have a $250,000 mortgage. In my mind, that is a big hunk load of debt.

You mention that you paid off most of your other debts by virtue of a red-hot property market. I'm interested in how you accomplished this, because a red-hot property market on its own generally doesn't pay off debts, unless you are generating cash (i.e. rentals or flipping properties).

My sense is that you should be paying off that mortgage a long time before you start investing in mutual funds.

respectfully,
squished


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PostPosted: Wed Apr 11, 2007 6:48 am 

Joined: Wed Apr 04, 2007 9:19 pm
Posts: 34
Location: Portland, OR
As you predicted, I'm not familiar with most of the investment products you mentioned; are there any restrictions on opening accounts at, for example, Vanguard?

If not, I'd suggest looking at a Vanguard account and a Target Retirement fund. These are low-cost, no-load funds that, based on your retirement horizon, pick a reasonable allocation and rebalance automatically.

See for example:
https://flagship.vanguard.com/VGApp/hnw/FundsSnapshot?FundId=0305&FundIntExt=INT

Vanguard is a very highly regarded fund family, and this is a good way to get your money in the market now. Over time, as you learn more, you could choose to explore other investment ideas.



Sam

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 Post subject:
PostPosted: Wed Apr 11, 2007 8:10 am 

Joined: Tue Apr 10, 2007 8:19 pm
Posts: 20
Location: Sherwood Park, Alberta, Canada
squished18 wrote:
quadraphonic:

Just a couple of other general notes. In my mind, I sense a big red flashing warning sign regarding what you mention regarding your real estate situation. You mention that you've paid off "almost all your debt", but still have a $250,000 mortgage. In my mind, that is a big hunk load of debt.

You mention that you paid off most of your other debts by virtue of a red-hot property market. I'm interested in how you accomplished this, because a red-hot property market on its own generally doesn't pay off debts, unless you are generating cash (i.e. rentals or flipping properties).

My sense is that you should be paying off that mortgage a long time before you start investing in mutual funds.

respectfully,
squished


I don't know if it's similar in the US, but with home builders here in Canada, you can lock in the home price at time of purchase, thereby appreciating on your existing property and the "to-be-built" property at the same time. In that fashion we sold the condo we bought for $128K for $250K as we moved to our current home. We are building again and should be able to sell for $500-525K (purchased existing home for $293K). The home we are currently building is $513K, so at the worst, we'll take on a slightly higher mortgage, at the best, we'll start reducing it now. As I mentioned, I expect the market to remain like this for at least 2 years, if not more, and we will build again once we move into the next new home.

I'm certainly not opposed to paying the mortgage down further, but I felt the gains by investing now would outweigh the short-term expense of interest on the mortgage (currently 5.18%).

Either way, that's the kind of advice I'm looking for. Admittedly, I've spent much more time looking at investing, and relatively little considering my mortgage. I don't intend to start down any path until the end of April or May (or later if prudent), so I'll spend a lot of time reviewing all the options before committing.

I'll update on your previous post later this afternoon.. just popped in quickly while here at work!

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Will


Last edited by quadraphonic on Wed Apr 11, 2007 8:14 am, edited 1 time in total.

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 Post subject:
PostPosted: Wed Apr 11, 2007 8:13 am 

Joined: Tue Apr 10, 2007 8:19 pm
Posts: 20
Location: Sherwood Park, Alberta, Canada
samerwriter wrote:
As you predicted, I'm not familiar with most of the investment products you mentioned; are there any restrictions on opening accounts at, for example, Vanguard?

If not, I'd suggest looking at a Vanguard account and a Target Retirement fund. These are low-cost, no-load funds that, based on your retirement horizon, pick a reasonable allocation and rebalance automatically.

See for example:
https://flagship.vanguard.com/VGApp/hnw/FundsSnapshot?FundId=0305&FundIntExt=INT

Vanguard is a very highly regarded fund family, and this is a good way to get your money in the market now. Over time, as you learn more, you could choose to explore other investment ideas.



Sam


Hi Sam,

I'd certainly consider Vanguard (or similar companies) for investment opportunities. Obviously, my preference is to buy and sell in CDN funds, prefererably through a Canadian firm. I just like the low PITA factor with my bank, but am more than open to alternatives. Anyone know any good canadian investment companies?

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 Post subject:
PostPosted: Wed Apr 11, 2007 8:57 am 

Joined: Sat Apr 07, 2007 2:03 am
Posts: 872
Location: Taishan, Guangdong, China
quadraphonic wrote:
I'd certainly consider Vanguard (or similar companies) for investment opportunities. Obviously, my preference is to buy and sell in CDN funds, prefererably through a Canadian firm. I just like the low PITA factor with my bank, but am more than open to alternatives. Anyone know any good canadian investment companies?


From my brief look at this subject, Canadian mutual funds typically charge about 3x-4x more in annual expenses than American fund companies. Lack of competition I guess. Vanguard has a global investor site you may want to browse. Contact them to see if they offer investments directly to Canadians.

http://global.vanguard.com/


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 Post subject:
PostPosted: Wed Apr 11, 2007 11:27 am 

Joined: Thu Apr 05, 2007 11:43 am
Posts: 40
Location: Regina, SK, Canada
quadraphonic,

Greetings from a fellow Canadian. Well here are a few thoughts based on your post.

First go over to taxtips.ca and read up on how investment income is taxed. When your investing in a non registered account you can get pulled over the coals with tax if your not careful (interest type income is taxed at your marginal rate). Also if your spouse makes less than you, you might want her to open up the investment account instead of you if that drops the investment income by a tax bracket.

A good way to start out with that small amount to invest is a mutual fund, but be very careful of the fees involved. If my memory is correct TD bank has some great low cost e-index funds you might want to look at. In your case your starting amount is small so you might only be able to get one index fund to start with and then create a more balanced lazy portfolio as you account hits around $10,000.

What I'm really concerned about in your attitude around your house. Buying and selling houses so far you have been lucky that your in a hot market right now, but all the equity you have can go up in smoke if your not careful. Also your home if it is worth $500,000 market value is likely WAY to much of your net worth just in your house. The only way to really pull equity out of a house is for you to sell your house and move to a cheaper makert like Saskatchewan. So all these 'gains' you have been making are just market increases which could blow up if the Federal government comes down with CO2 caps and the boom in the oil sands dries up.

Also check out your after tax rate of return on your investment account, if your within 1% of your mortgage rate I would suggest paying off the mortgage faster would be more useful (By the way for US readers in Canada you can not deduct your mortgage interest).

Hope that helped,
CD

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http://blog.canadian-dream-free-at-45.com


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 Post subject:
PostPosted: Wed Apr 11, 2007 11:46 am 

Joined: Tue Apr 10, 2007 8:19 pm
Posts: 20
Location: Sherwood Park, Alberta, Canada
canadiandream wrote:
quadraphonic,

Greetings from a fellow Canadian. Well here are a few thoughts based on your post.

First go over to taxtips.ca and read up on how investment income is taxed. When your investing in a non registered account you can get pulled over the coals with tax if your not careful (interest type income is taxed at your marginal rate). Also if your spouse makes less than you, you might want her to open up the investment account instead of you if that drops the investment income by a tax bracket.

A good way to start out with that small amount to invest is a mutual fund, but be very careful of the fees involved. If my memory is correct TD bank has some great low cost e-index funds you might want to look at. In your case your starting amount is small so you might only be able to get one index fund to start with and then create a more balanced lazy portfolio as you account hits around $10,000.

What I'm really concerned about in your attitude around your house. Buying and selling houses so far you have been lucky that your in a hot market right now, but all the equity you have can go up in smoke if your not careful. Also your home if it is worth $500,000 market value is likely WAY to much of your net worth just in your house. The only way to really pull equity out of a house is for you to sell your house and move to a cheaper makert like Saskatchewan. So all these 'gains' you have been making are just market increases which could blow up if the Federal government comes down with CO2 caps and the boom in the oil sands dries up.

Also check out your after tax rate of return on your investment account, if your within 1% of your mortgage rate I would suggest paying off the mortgage faster would be more useful (By the way for US readers in Canada you can not deduct your mortgage interest).

Hope that helped,
CD


Thanks CD,

I do some research and update later on.

I hope I'm not leaving the impression that I'm relying on our home for assets. Most definitely, a signifcant amount of our net worth is in our equity, though by virtue of the market rather than a specific design on my part. My focus on building and flipping is primarily to reduce or eliminate our mortgage debt and increase the amount we can invest.

With respect to income, both my wife and I are in the same marginal bracket right now, though at opposite ends. My present financial institution, CIBC, offers a joint investing account. In that case, is investment income split equally between the two account holders? Can allocations vary (i.e. 60/40, etc.) on the tax returns? I mean, this is something I will have to face at somepoint, though it seems like you suggest waiting until I have a larger amount to invest.

I'll look into taxtips.ca.. and your blog! ;) Thanks for the feedback so far!

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Will


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 Post subject:
PostPosted: Thu Apr 12, 2007 11:58 am 

Joined: Thu Apr 05, 2007 11:43 am
Posts: 40
Location: Regina, SK, Canada
Quad,

I don't think you can use a joint account to split it between two people for taxes. I know my ING account is joint, but the T5 comes just in my name since I'm the primary account holder.

CD

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On the way to early retirement at 45.
http://blog.canadian-dream-free-at-45.com


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PostPosted: Fri Apr 13, 2007 9:02 pm 

Joined: Tue Apr 10, 2007 8:19 pm
Posts: 20
Location: Sherwood Park, Alberta, Canada
Well I looked at some of the CIBC mutuals and most of the ones I was considering haven't been around for 10 years. They're all at the 5+ year mark. Despite that fact, it still sounds like it is a better approach to go with mutuals to build up a larger investment base for ETFs (I'm guessing around $10-25K would be good).

In looking at things and talking about RRSP distributions in the other thread, I've rethought my appraoch on maximizing my wife's contributions. I think we'll focus on hers for this year first (looking at $400-500/month going into her account). That will put us on track for maxing her contributions within 2 years. I'll be done by tax time next year. After that I'll be good to go.

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Will


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