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Newbie asks for investment advice
November 2, 2015
4:25 pm
kanaka
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Kyle.....let's go back to basics. Easy, secure and insured investments.

A GIC preferably in a TFSA.
I'll guess you are 20 and will give you $10,000 a GIC compounding for 35 years at today's current rates.

Hubert at 2.5000% nets $23,732.05.
BMO at 1.5000% nets $16,838.81.
With BMO you loose $6,893.24.

Hopefully we will see the rates increase.

BMO will even recommend a rate riser GIC.....both of the advisers I have had give a flat outright "not worth the time to invest in".

BMO Savings Account rate.... .05% ..... 1.75% less than Accelerate or Hubert
Accelerate or Hubert Savings Account rate......1.8% .... .3% higher than a 5 year BMO GIC rate!!!

I do all of the financial investing and my wife is not that interested, but kept up to date. She just laughs when we leave BMO and will say "I guess she won't be doing any of our investments".

I am not knocking all Financial institutions with "advisers" as some of the Credit Unions have good advisers...but you always want to skip the side counter. I know this as a fact...some of the ladies that work in the banks get a bit of a certification and are expected to make sales of financial products even if they don't believe they are good. They hope to move up in the business but falter.....they are often chastised and either leave or are reassigned a lower paying and lower hours per week positions. So did you talk to one with that gun being held to her head or one that is playing politics to move up in the company at your expense? And like I said look for good credentials after their name. sf-cool

You need to be able to deal with someone that is free to sell or suggest products without their employer overseeing or limiting to what products are being offered or have been given goals or thresholds to sell a specific product(s).

The big 5 are consistently giving less while they make huge gains at YOUR expense. Listen to us and we will show you how maximize YOUR investment GAINS. We are not under the employ or take proceeds from a financial institution...and any one that is should say so.

BMO markets their products.......one should not fall for slick marketing gimmicks and smooth or confident talking. If in doubt walk away and say you will think about it. If a mutual fund or ETF is a BMO product, look at the MER and ask if there are any front or back load fees on top.

November 2, 2015
7:53 pm
Loonie
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I agree, there is merit in having some diversification into US$ investments and using the US funds you already have. to do so. In that regard, if you are buying any future US$ investments, make sure you are not required to first exchange your US for Cdn funds and then change it back again in order to buy them. In other words, make sure they will accept the US funds without any conversion. If this is an issue, they won't likely tell you this unless you ask.

I would still want to get out of this fund, if it were me, because of the high MER, which is going to cost you in real dollars regardless of how well the markets or this particular fund do. However, you could replace it with another US$ fund or funds, e.g. ETF, and still get the benefit of market success, if there is success.

I wouldn't measure this fund directly against the S&P because the latter only deals with stocks, and this fund is half invested in bonds, so they are not directly comparable. I'm not sure what the benchmark is for a balanced fund of this type but you could average out the benchmarks of S&P and mixed bond funds to get an idea. But this only tells you how your fund is doing in comparison to others. It doesn't tell you whether it's the right choice for you.

If you're going to move the money to a cheaper ETF (or any other investment for that matter), do it now rather than later, so as to stop the bleed to the MER. You can still take advantage of the Oct-May phenomenon, should it prove effective this year, but with a different investment.

November 2, 2015
8:17 pm
Loonie
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I was not quite up to date and didn't realize Hubert and Accelerate were a little better than Peoples at this time. These rates can change at any time. So I agree with kanaka's recommendation if you want a GIC. I also think that Hubert is a bit easier to deal with than Peoples but have not dealt with Accelerate. I know Accelerate will hold a rate for about 2 weeks or so until your money arrives - get a confirmation on that by email (so that you have a record) before you choose either of these as they must be done by mail.

The basic deal with the Big Banks is that the more money you have, the better quality of advice you are likely to qualify for. The banks employ many levels of people to advise/sell products. The best ones are not found in most branches but in their Wealth Management departments. That said, you can get good or bad advice and decision-making from any of them. However, you can't afford to just go by what any of them says. We are all vulnerable to our own biases, and advisors are no exception. This advice is all the more compromised when the advisor is receiving commissions, promotions, bonuses or saving her/his job by endorsing certain products.

You could, as kanaka suggests, ask for an advisor who is able to sell non-BMO products. We don't know if the person you dealt with can do that. If you do, this will likely involve setting up another kind of account, with some fees, although not necessarily a lot. However, BMO has a reasonable selection of in-house funds, and you can probably meet your current needs there. Alternatively, you could invest independently of the bank. For example, you might choose to invest in iShares ETFs, but that is only one example - they have been in the ETF market since the beginning and have a lot of funds.

Visit your local library; read more; it's free!sf-smile

Disclaimer: I have never worked in the financial services industry and do not own any stocks/mutualfunds/ETFs at this time. I have read quite a few books and still don't feel I know very much, but I know a lot more than I once did!

November 3, 2015
1:12 am
KyleDBV
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Here are some different advice I saw in this thread.
- I should hold this MF until next Apirl to see how it goes.
- Cancel this MF and buy some ETFs
- Buy GIC from PT or Hubert for good rate.
Which one is suitable for me? I have no idea.

I'll have another appointment with an advisor (a senior one) at BMO late this week. I am planning to cancel this MF. Today I called BMO. They told me I won't be charged for short term cancelation penalty as a first time buyer.

And I am thinking to open a discount broker account (invest line) at BMO, so I can invest ETF by myself. The risk level of investing ETF is almost same as that of investing MF. Since ETF charges a low MER, the profit margin is supposed to be better than MF.

I will also ask if BMO could match the GIC rate that PT or Hubert offers, or if BMO could help me buy good rate GIC from 3rd party. As for company like PT or Hubert that offer you good GIC rates, I guess they may have some conditions that customers have to obey, such as withdraw fees, processing fees or something else that I don't know. Otherwise, why they offer you such a good rate without a reason? They are not big 5 after all. In an extreme case, if they go bankruptcy someday, I will lose all my money? I don't know.

Some people said I should read books and read more. I just take a look at a book someone mentioned above. It has more than 280 pages. Honestly, I have a full time job and I don't think I have spare time to read through a few big books like this.

November 3, 2015
4:40 am
Loonie
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Kyle, we might be able to help you narrow down the advice if you are able to give us an idea of how much money we are talking about and how old you are and when you expect to need access to the money, because these things make a huge difference to your choice of strategy.

In the absence of other info, I am assuming you are young (under 25) and don't yet have a lot of money. I'm guessing in the 20 - 50K range altogether, which is enough to make you start worrying about your returns. But this is only a wild guess. I'm also assuming it's all savings or rainy-day money which you don't plan to spend too soon.
You wrote earlier, " I am planning buy RRSP via TFSA for the tax deduction of 2015." I assume this means you either have money in a TFSA or are planning to put it there short term prior to moving it to an RRSP for the 2015 tax year - which doesn't give you very much time.

If my assumptions are correct, more or less, and if you have decided that you want to be into the markets (sounds like you have made this decision), then this is what I suggest:

You need to keep some rainy day money which is not invested in long-term instruments. It needs to be accessible. It should probably go into a TFSA and stay there, to your maximum. Your contribution room limit might be limited by your age if you are quite young. The experts suggest that everyone should have between 3 and 6 months of living expenses set aside for emergencies such as loss of job etc. Opinions differ on 3 or 6 months, but more is always better.

I would put all of this rainy day money into several 1 yr GICs at Hubert. I suggest Hubert in particular because they have excellent rates (as these things go), are insured by Manitoba Deposit Insurance Corp, and they will allow you to cash them any time during that year without imposing an extra penalty. They pay out escalating interest every 3 months, so it is compounded every 3 months. The limitation is that if you should cash it at, for example, 5 months, you would only get the interest up to the end of the 3rd month; similarly if you cashed at 7 months, you would only get interest up to 6 months. So, if there is a need to cash it, try to make it right after an interest payment if possible. I suggest several smaller GICs rather than one big one because, if you need to access some but not all of it, the rest can then remain invested. The insurance offered through Manitoba is as good as any in my opinion and I think in the opinion of most people on this forum.

You ask why these less well known institutions can offer rates that are so much better. It's a valid question that has puzzled many people. It has been going on for years, and still only a minority of people choose this route or know about it. One answer might be that they spend far less money on advertising. Hubert is the online division of a credit union, and thus does not have stock market investors to satisfy or pay dividends to; it is accountable to its members - you and I. It has very few offices and no branches to maintain. etc etc.
There are no weird rules or catches with banks or credit unions like PT and Hubert. With the credit unions you will have to deposit a very small membership fee, but that's all. I believe you get it back if you leave. It's in the range of $5 to $20. They all have their fee schedules listed online. PT has almost none. I have accounts with PT and Hubert and there have never been any fees except the Hubert membership.

BMO is not going to be able to offer you a match on the GIC rates. if you want to shop around for rates through a financial institution, you would need to go to a rate broker. I have dealt with one of those but find that usually I can do better without them and I no longer use one.

Next, I would take your remaining investable money and, since you appear to want to put it into the markets and you want to have an RRSP, I would put in as much as you can and put it in one of the following:

1. the Balanced Growth Fund at Tangerine Bank. https://www.tangerine.ca/en/investing/investment-funds/investment-fund/index.html# (You can take their quiz to see if this is the right fund for you as they do have choices.) Tangerine is wholly owned by the Bank of Nova Scotia. The advantage of their funds are that they automatically rebalance them quarterly so you don't have to do a thing, since you are obviously very busy. They have a pretty good track record and are often recommended for beginners. When you have more money, say in the high 5 figures, you will probably want more diversification than Tangerine provides. Their MER is a bit higher than what you would pay for the corresponding underlying ETFs, but not exorbitant;, on the other hand, you don't have to lift a finger after you put the money in. I honestly think this would be the best of my 3 options, for you, because it looks like you are going to be watching these investments very closely, too closely. People who are new at it and who do that usually make the same common mistakes, namely cashing in at the wrong time. With the Tangerine portfolio, you never have to make those decisions, so it protects you from your own weaknesses.

2. You could set up a portfolio of ETFs such as those issued by Vanguard or iShares. I am not the person to ask for the details about how to go about this, but I think it's a reasonable strategy and you could do it through Investorline, I think. Keep it simple at this stage. Diversification is the key but not too much of it. You probably don't want to have more than 4 or 5 funds max at this time. Kanaka or others can suggest how to go about this. HOWEVER, if you are going to pursue this, or my 3rd suggestion, I insist that you MUST do some reading, for your own protection. The time you are going to spend on the internet watching these funds go up and down and wondering if you should bail out would be FAR better spent educating yourself. I always find it interesting what people manage to have time for. 20 pages takes me up to an hour, depending on what kind of reading it is. If you truly don't have the time for it, then stick with Tangerine.

3. You could stay with ETFs issued by BMO. You may be able to avoid setting up an investing account by doing it this way; I'm not sure, as it's many years since I've done this. Keep an eye on MERs, benchmarks, and diversification (again, necessary, but not too much). For this, the person you are seeing this week can probably handle it. Just beware of any exotic suggestions. For example, you don't need an "Emerging markets" fund at this stage or a "Resources" fund or a "Precious metals" fund and you don't have to specialize in large caps or small. Just stick with Cdn equities, US equities, a broad international or European fund, maybe a Cdn bond fund although you already have that more or less covered with the emergency fund. Depends again on how much money you have. Be prepared to let it sit there for a number of years until you have enough money in the account to warrant moving on to more complicated scenarios, but rebalance them regularly - 6 months or a year or whenever there is a significant change in the markets is what is usually recommended. This kind of fund should not need any action on your part unless it is not keeping up with its benchmark, in which case you should sell it and buy one that is.

Bear in mind that some people now think that RRSPs may not be the greatest strategy in the long term.
First, TFSAs are cumulative, and that is usually a better place to put it over time because you only ever pay tax on the principal that you invested whereas with RRSP you will eventually pay tax on all of it and at full rates.
Second, it can happen that by the time you get around to withdrawing it, you will find yourself in a higher tax bracket than now, or at least equal, so, in the end, you might come out about the same or be worse off. Who knows what tax rates are going to be 40 or 50 years from now. Really, it's beyond our ability to imagine, as government budgets respond to changing realities. This risk may become a bigger concern if you marry because, when the first spouse dies, the remaining one acquires the RRSPs of both, which can really bump up your mandatory withdrawals and tax bracket in a hurry. I know it[s a long way off, but something to think about.

I think you should also set up a day-to-day savings account which offers chequing at low or no cost but a high rate for savings. Keep your BMO account because you will need it as a base when dealing with the smaller banks and CUs, most of which require you to have one in order to send money back and forth to you. Accelerate offers one of these, but I have not used it. Others can comment on their choices for this purpose. I have a no-fee seniors account at Big Bank so don't require the chequing feature. PC Financial and Tangerine also offer this. With Tangerine, you would need both a savings and chequing account, but the chequing account does offer some miniscule interest; not sure of the arrangements at PC. PC and Tang often have "rate specials" where you can do much better than their prevailing advertised rate (currently there are two deals running at 3% for those who accessed it earlier.) But these require some attention from you in order to make sure you continue to qualify for their special rates, so you might find that too time-consuming.

If there are any savings left after your emergency fund in your TFSA and your RRSP, and you still want to invest it, I would suggest you look at "eligible" Canadian dividend-producing stocks as defined by CRA. I'm sure there is a good fund out there that will cover these and someone here can recommend it. With a dividend fund, you will get a much better tax break than on capital gains (growth stock), although it will still get bumped up in terms of tax bracket for your income. But the main reason is that you still want lower risk investments, and that is one of the better ways to achieve this goal.
Alternatively, you could keep your US$ and put them directly into a US$ investment, I suppose, as you just did. Presumably there is an ETF that would work for that purpose at BMO, or you could split it between a US equity fund and a US bond fund if you want, as that's what the current fund holds.

However, if you do as I suggest, you are probably going to need to use mostly Cdn $, so hanging on to your US$ may be difficult. You can't put them directly into a GIC and I don't think (but am not certain) that you can put them directly into an RRSP investment either. You can inquire about the latter, but it's likely you would have to convert it to Cdn and then you could convert it back again once it was in the RRSP in order to buy a US-denominated fund; these conversions will cost you. You also need to consider whether you want that money hedged to the Cdn $.

I hope my assumptions were more or less correct and that therefore this advice applies, and that it breaks things down for you a little more. I think all of the advice you have been given by other posters is relevant, not as contradictory as it may seem to you.
If, on the other hand, you are older and significantly wealthier, well, that's another ball game entirely.

P.S. Bottom line, the reason you are finding this so difficult is simply because you know so little. There are two ways out of that. Either you learn by experience, which usually involves some very regrettable mistakes (you are already regretting your first decision); or you take the time to educate yourself. You might get lucky and find a great advisor by accident. That wasn't the way it worked for most of us though. All of these except getting lucky eventually involve spending time educating yourself. You can do it now, before you lose money, or later, after you have. I assure you that in the latter case you will find yourself very highly motivated.

All the best!

November 3, 2015
10:16 am
Bill
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Kyle, I know how it feels not to want to spend much time on your investments - I like to spend every minute I can outdoors. Here's what I did some years ago, after a number of years of spending too much time with too little to show for it: Decided what % I wanted to risk (i.e. stuff that goes up and down) and what % I didn't (i.e. GICs, high interest savings accounts). I decided I would look for the best low-fee mutual fund (in my opinion, helped by Morningstar ratings and other research), decided on Mawer Balanced (MAW104 & 105) and, via my discount broker account, put my risk % money there. In other words, I'm letting some "experts" with a pretty good track record do my risk portion, and the fee on that fund is just under 1% a year - that's what I have to pay to be relieved of spending any time on that part of my money. I can add or withdraw to the fund as I choose. There are a few other, similar funds out there, this one suited me. The other % I look after myself, GICs and "high" (!) interest bank accounts. There are a million approaches out there, each, depending on your particular situation, has its benefits and its costs, just thought you might be interested in another idea.

November 3, 2015
4:14 pm
Loonie
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I think that's a pretty good fund too, as these things go. You could use it instead of the Tangerine one if you wanted. With Mawer, you would need, I gather, to set up a brokerage account. Note that it is deemed suitable for registered accounts, e.g. RRSP.
With Tangerine, you can do it directly with the bank. Not much difference, overall. Mawer may have a better track record in terms of returns though - you should check on that.

November 3, 2015
5:51 pm
AltaRed
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It would help if the OP let us know how much s/he has to invest. That would help determine whether a BMO Investorline discount brokerage account (both CAD and USD) would be suitable and whether there are sufficient funds to get started with ETFs (or index mutual funds) and some kind of balanced portfolio (equity and fixed income). It makes little sense to be opening accounts in a bunch of places for a relatively small portfolio.

If there is enough money to start a BMO IL account, I stand behind my recommendation earlier for the OP to look at http://www.finiki.org and do a bunch of reading. One should never invest until they have done some fundamental reading.

November 3, 2015
9:39 pm
Loonie
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I agree with you for the most part, AltaRed. I am noting my agreements with what other people are saying so that Kyle doesn't think he's getting contradictory advice.

But he has made it clear that he is not likely to do the reading until forced to do so, and he IS going to make the investments - as he already has made one that he already has changed his mind about.

I think you would agree that the decision about how diverse to make one's investments depends on how much money one has and where one perceives the cutoffs to be which make further diversification worthwhile.

I don't know where your cut-off would be, but I think that it is OK to have accounts in various places if they are not too complicated and give you best advantage in each category, even if you don't have 100K, knowing the difference in results will not be huge in absolute dollars. Once set up, they can ride for several years until he has enough money to warrant changes.

Of course, for all we know, he may have just inherited 500K, which would suggest a more diversified portfolio and a somewhat different approach.

I am doubtful about his idea of buying several different ETFs (at least I think that's what he's saying) until he has more money than I assume he has. Bill has a good idea on that, with just one fund, suitable for the RRSP. As you say, he hasn't told us how much he's playing with, and it does make a difference, as does his age.

I think there are a lot of people in Kyle's situation, people who feel desperate to find a way to get a better return, don't want to do the homework, and want someone to hand them the magic bullet. There are infinite numbers of people out there who will be willing to take his money, but he is a sitting duck if he doesn't have the tools to take a critical view of what they suggest. If he were to read the books etc., he would see how his behaviour fits into a pattern, and might change it for the better.

He's also a sitting duck for one of the other most common investment errors because he is going to be watching these investments too closely and will likely pull the plug on them while they are down, just as he wants to hang on to the US dollars when they are up. He has already shown that he is intolerant of a short-term dip, so how will he cope with the inevitable vacillations of 'medium' or even 'low' risk funds?

So much to learn!

December 6, 2015
8:08 am
dentgal
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I love all of the advise that you guys are giving! It pretty much mimics what i am doing--and i hadn't been aware of this forum previously!!
I'm also a big fan of the tangerine and PC accounts (when they are giving 2.4-3.0%) and am unaware of Hubert, etc. As others have stated, make sure that Hubert is a member of CDIC--which protects your money up to $100,000.
I also researched and decided to put some money into Mawer--i have the tax effective balanced fund. I just started with them last January and they have done much better than my financial advisor (whom I just left). I love this Mawer fund because it is a global balanced fund (i believe 60fixed investments/40stocks) but they are NOT restricted to canada or usa. It is a global fund so they put the money whereever they deem it best. I have a cash account at Mawer that i set up myself--it is not a registered account. I just sent them a cheque and filled out some forms and voila--i was a client. I actually phoned them and i believe that for a RRSP you need to open a self directed account in order to put RRSP money into their funds. I think that their US fund and global funds have also been doing really well, but so far I haven't put money into these. I met with a new financial advisor a couple of days ago. Interestingly, she herself has some Mawer funds!!
Although I am feeling more confident investing on my own, for some crazy reason I am still using a financial advisor. I asked some high wealth friends for recommendations--the woman that i am going with has been advising a friend for 28 years, through the market downturns, and he is very happy with her performance. And, many of my friends are using the same woman. She is recommending 60/40 balanced funds, but again splitting into canadian, global, usa, etc.
Hope this helps!

December 6, 2015
4:44 pm
Loonie
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Credit unions are not covered by CDIC. They are covered by provincial deposit insurance corporations of their own. There are previous threads on this. The general consensus seems to have been that the coverage is adequate. I think Brian probably disagrees, as I believe he posted recently that he felt more negatively towards at least some of the credit unions.

December 7, 2015
6:42 am
xxxx
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Yes Loonie - since Manitoba credit unions are not government backed (are backed by a corporation funded by assessments of CUs) and Tangerine is CDIC fed govt backed - I would certainly put Tangerine a few notches higher than Hubert in security rating.

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