September 6, 2020
September 6, 2020
April 18, 2020
Yes, termites are nasty - and prevalent in certain parts of Toronto. It's those little wee bugs and insects that get us! - like, say, covid. Termites can actually destroy houses, left to their own devices.
It's good to hear you are looking for a home with rental potential. You sound like a sensible guy.
Back to the interest problem...
Yes, the rates are nasty and could go lower. In some places in Europe, you actually have to pay the bank to keep your money (negative rates), and that could potentially happen here. You might find this video from German DeutscheWelle interesting - and possibly scary.
It was made before the covid crisis.
Everyone on this forum is having to deal with that the best we can and I think it's fair to say we are all taking a cut.
But I think it's also fair to say that we are doing it because, for that portion of our assets that are in savings, there is no real alternative. We are not going to change our overall strategy or take additional risks just because interest rates are low.
Those who can will do some tweaking. They will, for example, perhaps put a bit more into GICs than before. They might put a bit more into equities if they think those are going to do well. They will look harder for HISA short term deals.
But you are at a stage in life where you don't have flexibility because any flexibility would either risk depleting your cash or taking greater risk with it. I think you just have to accept the situation as it's one nobody is keen on, and hope for better days ahead.
If it's any comfort, inflation is practically zero at the moment, so you can even make money with a return of 1.5% after inflation and taxes, depending on your tax rate.
I have 3 other suggestions which might soften the blow slightly.
The first is that you could put some of your cash (let's say half) into a one year GIC at Hubert. These are cashable at any time, but the interest is tiered so that you only get the interest up to the most recent quarter, and the rate gradually increases so that you lose a bit if you don't keep it the whole year. Still, you can divide up the money and buy many smaller GICs and just cash as many as you might need, hoping you don't need any. It only protects you for one year at a time but it's something.
Second, as soon as you are eligible, start putting money into a Tax Free Savings Account. This is a registered account in the same way that an RSP is a registered account but with different rules. You will not have to pay income tax on any interest earned in that account. I am not sure what the rule is for new immigrants in terms of eligibility, but Canadians will be able to put in 6000 this year and 6000 next year. Don't let any bank employee try to talk you into contributions for past years that you missed. You can't make contributions based on years that you were not yet here. Hopefully you could put in 6000 this year and 6000 in January. It's not hard to get the money out again if you keep it in cash. Try to avoid banks that charge a withdrawal fee.
And the third suggestion is to keep watching this forum for further developments. Most deals are posted here.
There may be better solutions out there, but I have to admit I don't know what they are, especially for someone just starting out, with a large mortgage to service on one salary.
There is always risk, no matter what you do. Keeping your money in savings carries currency risk and the risk of ever-decreasing rates, for example. Investing in property on margin, which is essentially what a mortgage is although not normally called unless you fail to pay, has its own risks. The real estate market might fall. Your land may turn out to have toxins in it. Your ceiling tiles might be asbestos. Not to mention the termites! LOL Most people still feel real estate is a good investment because values have gone up over the long term and it gives you a roof over your head at worst. But very few people can buy with cash or have the patience to wait for that. The problem is in identifying which alternative is best for you at this time. There are admittedly many problems in the world's economies, and they are worrisome.
If someone has a better idea for you, I'm sure they will post it.
If the rates go negative, I would bring all the cash and put it under my pillow, that way I could have a sound sleep LOL