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College student looking for TFSA & knowledge. Wanna a financial noob?
January 15, 2014
12:31 am
ItsOP
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Looking at how I only have a 0.25% savings account now that I got when signing up I figure time for a change. And it's clear that the big 6 are, shall we say, unpleasant (rate of inflation is higher that their interest rate). I came across ING and immediately became intrigued (and saddened due to scotia take over) I figure a TFSA is probably suited for me as opposed to a regular high interest savings account.

I don't know much about TFSA but have a basic understanding from reading things like FAQs and top 10 things to know about TFSA. I'm 18 and only work part time so the $5500 limit is no issue for me. I have money to put away (I'm in Quebec so tuition isn't a problem) I already have investments in Bitcoin which are doing very well and figured its time to make some use of fait currency.

So now I'm here for advice after finding you guys though Google and reading some useful stuff (and getting over how appalled I was to see a wordpress forum).

I have no knowledge of taxes (haven't seen my first tax season yet) and I want to put away my money in the best places I can so I can effectively save. I figured ING is a good start. They seem promising and 0 fees is nice plus getting $25 just for signing up will more than cover the small fees associated with transferring funds to them plus there is the ABM access and they seem well put together and offering what I need, they are also a familiar trustworthy sounding brand to me. Peoples trust also sounds great because of that 3% rate but after hearing about the security breach I'm not sure I'd trust them, plus minimum deposit is $1000 and I wouldn't have enough money to do that fast enough. The way I see it I got at minimum ~150 I can put away every 2 weeks.

So not sure what I'm asking for really. Other than just advice and anything I should know of and watch out for and weather or not signing up for ING is the right move.

January 15, 2014
9:58 am
Save2Retire@55
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SD2013 said

ItsOP, if you can put away and save $150 every 2 weeks that is great and most people do not save that much so don't feel bad that you are not that knowledgeable about investing and TFSA's.

Your a young guy and you probably need your money liquid and accessible because you are not rolling in money.

If you start putting your money in equity or stock ETF's, mutual funds and the stock market takes a downturn by 10%, 15% or more which is at a record high right now, DOW JONES 16,373, S&P 500 1,838 but NASDAQ 4,183, TSX 13,692 not so much then you will be really pissed.

As you said, interest rates on savings accounts at the big 5 Canadian banks are almost near 0.00%, a 0.25% rate is close enough. Even their highest interest savings accounts are paying 1.10% at best.

There are higher interest savings accounts paying as much as 2.50% but for only a short period of time and like you said Peoples Trust is paying 3.00% for its TFSA savings account but security breach issues makes people think twice about it.

Also, these higher interest savings account rates are variable and can decline anytime which makes it frustrating for savers.

You are in Quebec, La Capitale Group savings accounts is something we discussed in this forum that is only available to Quebec residents.

In order to get 3.00% to 3.30% you have to go up to 5 years and lock in your money and have a $1,000 or more minimum investment.

Our family uses longer term provincial strip bonds for our TFSA's and RRSP's but we have enough money maturing every year plus thousands a month extra that we have for saving, reinvesting so we can do this.

Just to give you an idea, we are conservative investors looking at balancing safety, term or maturity date, income or yield.

In order for us to get 4.01% to 4.07% net yields or interest rates, we have invest in provincial strip bonds that mature in June-2026 to 2027, which is about 13 to 14 years.

The highest provincial strip bond yields are currently Quebec 2029-December-1 and Quebec 2030-June-1 and are yielding net 4.22%.

Provincial strip bonds work by using compound interest and all the interest that accrues over the term or until maturity discounts the price of the provincial strip bond.

For example, the Quebec 2030-June-1 strip bond would cost $50.8336 today and mature at $100.00. All bonds, strip bonds always mature at $100.00.

The minimum investment needed to buy these provincial strip bonds is a $5,000 maturity value.

In this case, it will cost you $2,541.68 today to own a $5,000 Quebec June-1-2030 strip bond at maturity.

People with longer time periods to invest using TFSA's, RRSP's ,RESP's are avoiding the annual income tax consequences which would happen with Canada bonds, provincial bonds, provincial strip bonds, GIC's, bond ETF's, dividend paying shares, dividend paying ETF's, REIT's, REIT ETF's, mutual funds and any investment that was sold and had capital gains, losses plus some taxable income, taxable distribution in a non-registered account.

Another name financial advisers, brokers, securities and investment dealers call them is provincial residuals and provincial zero coupon bonds but they work the same way and are basically the same.

What is very important for you and everyone to understand is you must hold all your bonds until their maturity date to avoid risking your principal and accrued compound interest.

If you can't hold your bonds, strip bonds until maturity, then do not buy them. We do the same thing with GIC's, term deposits as well.

This happens because bond prices go up and down with the opposite movement of bond yields, interest rates for the same term or maturity value. It is an inverse relationship.

For example, you buy a 4.00% bond today and market interest rates, bond yields go up to 4.50%, your bond will fall in price and the longer the term or maturity date, the more it will fall in price.

A 13 year provincial strip bond paying 4.00% today would fall at least 7.00% with the above example of a 50 basis point upward move in rates, bond yields from 4.00% to 4.50%.

The only good news is that as your bond or strip bond gets closer to maturity, your risk and price loss gets smaller and smaller.

The opposite is true as well, the longer the bond's maturity date or term, the higher the bond price will rise.

Our family does not buy, sell, trade bonds because this is not investing, it is speculation which can result in capital losses and will incur buying and selling transaction costs, trading fees, commissions as well.

There are corporate strip bonds which pay a much higher net yield or interest rate like Bell Canada paying 4.96% and 5.20% for the same time period 2029-May-1, 2031-April-2 but have more risk than provincial strip bonds as many other corporate bonds, strip bonds do.

You can see for yourself, hundreds of Canada, provincial, corporate bonds, strip bonds at http://www.canadianfixedincome.ca.

The only thing you have to know is that the ones you see on their website are before commissions so my from my own and my family's experience, we found that 10 to 12 basis points less than their gross stated market yields are a good estimate of your net yield or interest rate.

I would not suggest doing any longer term investing now either buying equity ETF's, bond ETF's, bonds, strip bonds, REIT's, stocks, index mutual funds etc.

First, get educated on what type of saver, investor you are and what investments you do feel comfortable with.

Know your risk tolerance. Know why you are buying a certain type of investment. Know what the risks are. Know what it does and how it works or does not work for you.

Is it capital gains from market appreciation, stock prices going up or is it an income producing investment paying interest, dividends, royalties etc. ?

Is it your best option by meeting your goals, objectives etc.? You must consider many important factors like the ones I gave just above.

Understand RRSP's, TFSA's now is very important to you because being young is a big advantage having time on your side for saving, investing and maximizing compound interest, compound growth.

You have to do a lot of research and only from your experiences of saving, investing, paying taxes, reducing debt, paying your bills and living your life within reasonable means or a lifestyle.

You will then understand what I am writing and find your own real path to hopefully financial well being.

Also, know what you need your money for and is it short, medium or long term?

Do you need it to buy a car, house down payment, starting a business, retirement, investing, maximizing TFSA's, RRSP's, children's education, 12 to 18 month cash reserve or fund for a possible future job loss, car repairs and other things that happen in life ?

Is it needed in 6 months, 1 year, 3 years, 5 years, 10 years etc. and how much do you need for your specific goals, objectives?

I think that by you starting to save your $150 every 2 weeks and building up your savings in a high interest savings account for the next 18 to 24 months, this is your best option.

You can then see where you stand in your life financially and other aspects as well. I know it is a lot of information to go through but I hope, my posts are useful and helpful for you, ItsOP and for anyone else as well.

Thanks for reading and having patience, interest in my posts, from SD2013.sf-cool

Always enjoyable and educational. Thankssf-smile

January 15, 2014
1:18 pm
ItsOP
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You are in Quebec, La Capitale Group savings accounts is something we discussed in this forum that is only available to Quebec residents.

Thanks for letting me know. I just looked into them though they seem to have relatively similar rates compared to ING (0.1% difference non promotional difference) . Though ING also is other much better promotion.

Also, know what you need your money for and is it short, medium or long term?
Do you need it to buy a car, house down payment, starting a business, retirement, investing, maximizing TFSA's, RRSP's, children's education, 12 to 18 month cash reserve or fund for a possible future job loss, car repairs and other things that happen in life ?

Yes I'm looking for short term preferably something where I can have easy access to my money. Locking it up for 90 days or something isn't so bad sounding but I have no interest in some 5 year GIC. And when I see some TFSAs with higher rates than the typical GICs I don't see a point.

I already have taken care of high return highly speculative investments with the cryptocurrency market (turned my $600 into $3000 in only a few months time and have since invested an other 500 once I noticed the market stabilized) but right now I'm looking for savings that I know I can trust and can rely one to be there in the future for buying a car or to keep me going in case of a job loss.

In order to get 3.00% to 3.30% you have to go up to 5 years and lock in your money and have a $1,000 or more minimum investment

I was under the impression that with peoples trust it was 3% but the money was not locked up unless I put it in a GIC within a TFSA for them (which sounds like a bad idea considering their GIC at a 5 years has a lower interest rate than the TFSA. Or am I missing something here?

Would it be wise to just sign up for a decent TFSA like with ING and then once I accumulate $1000 transfer to people's trust TFSA?

Anyways Thanks for the advice

January 15, 2014
3:26 pm
Dennis
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Would it be wise to just sign up for a decent TFSA like with ING and then once I accumulate $1000 transfer to people's trust TFSA?

I don't think people's trust TFSA has minimum amount. It is just like ING account.

January 15, 2014
4:13 pm
musicalmaestro
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People's trust does have a minimum of 1000$ stated clearly on the pdf application form.

I joined them shortly before the security breach and must say though have had no major issues, although unfortunate that the breach happened I am happy with their response and transparency of the issue, and still think they can be trusted.

In regards to college savings, I cannot speak of what is best for you, but as a second year university student from Quebec studying in Montreal I can say that establishing an emergency fund would be a very good idea, just in case something happens. Six months worth to cover room board, commodities and a bit of comfort. Maybe 10,000$. Something which you could start in a TFSA.
Then make sure you have enough or will make enough to pay your short term and long term bills/goals. Tuition, trip, etc.
After that, establish a portfolio strategy. Since you are young going for 70% stocks and 30% bonds is probably ok. You have your EF as a float anyways. I prefer GIC's or bonds that are CDIC ensured. Cheaper and easier to manage than etf's or mutual funds, and not too complicated to figure out.
As for stocks I like the couch potato method of index investing as it's simple, (meaning you can focus on your studies without worrying): choose low cost index mutual funds, like TD eseries, to diversify to reduce risk and use an opportunistic investing strategy to optimize returns and further reduce risk. This means checking your balances every couple weeks and rebalancing only if it shifts beyond the target allocations by 20% of the allocation. I'm sure you can look this strategy up.

Hope this is insightful and best of luck.

March 4, 2014
6:00 pm
Loonie
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I just got around to reading this thread.

I think a TFSA at ING in a simple savings account, currently at 1.4% makes reasonable sense for this situation, as there is no minimum deposit required, and it is easy to deal with online.

You are not in a position to invest for the long term, so strip bonds and so on don't make sense.
You are looking for security (getting out of bitcoin), so you don't want any ETFs or stock market securities because those are longer term strategies with a risk of shorter term downturns.

ING does not have any exit fees, so you can leave when you are able to invest somewhere else.
Meanwhile, you will be shielding the interest from the tax man, which is the purpose of a TFSA.
When you have enough money in the TFSA, which shouldn't take very long from what you are saying, you might consider moving it to Peoples Trust if they are still holding to 3% for savings, as it does not require a time commitment from you. My feeling is that the security risk for them is probably less than for some other institutions which have not yet experienced security breaches; once burned, twice shy.

Since you are not looking for a longterm investment, why not take advantage of the Peoples' Trust offer? If they bring the interest rate down to a level which is not competitive, then you can always move your money somewhere else as you are not locked in and don't want to be locked in.

For up-to-date term deposit rates (i.e. less than 1 year), check out http://www.cannex.com Go to Term Deposits on the left side of the screen, and then to TFSAs under one year. At the moment, Equitable Bank looks good on this list. It is in Toronto, but serves the nation, according to its web site. It is not clear to me if you can open TFSA long distance directly. You may need to go through a deposit broker, which is not a risk. They should be able to direct you. Minimum for 90 day TFSA is only $500. Daily rate for TFSA is 1.5%, higher than ING. Equitable would be a bit more cumbersome than ING, but, still, if you are looking for a better deal, it might be worth considering.
Whether or not you are interested in any of the above-named institutions, you might consider the services of a deposit broker for any kind of term deposit or GIC. Their job is to find you the best deal on this type of investment, and they are paid by the institution that you choose to invest in as a reward for them a customer. Usually the rates you get through a deposit broker are fair, but you may find a better deal through a credit union or a promotional deal. Most deposit brokers prefer to deal with CDIC-insured institutions. Deposit brokers have an association, with a website, and you should be able to locate someone local through the association. Always confirm cannex rates with the specific institution, and always check that the institution in question is covered by deposit insurance.

Perhaps you already made your decision. Perhaps someone else will benefit from these thoughts.sf-smile

March 4, 2014
8:31 pm
Rick
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ItsOP: Congrats for taking a serious attitude to your savings. I will throw my 2 cents into the fray. Firstly, Peoples Trust issues have been addressed, so worrying about their security now is a little like closing the barn door after the cows have left. ANY institution is subject to breach if the hacker is dedicated enough. Yes, their under a thousand rate is lower, but the hassle to move the funds, and any fees incurred for doing so, is just not worth the time, effort, and expense (for me) to do so. If you are putting away 150 every 2 weeks, it will be over the minimum in no time. My advice to my kids is to use the TFSA as a retirement account. It is after tax money and, as such, does not count towards claw backs when you retire. If you have a regular bank, it is easy to link your PT account to transfer funds, and it takes a couple days, Enough time for some somber thought before you actually commit to any major expenditures. I am currently a customer of PT, ING, Coast Capital, and CDF. ING and CC have been losing more and more of my business as their rates are lower than CDF and ING plays too many gimmicky games with short term promos to attract funds, then after the promo period, you are stuck at lower rates. eg....their 5 year RSP term currently JUST went up to 2.55% while CDF is at 2.85, ING promo TFSA is @ 2.5% until Apr 30, but drops to 1.4 after your funds are in and becomes a hassle to move while CF is at 2.25 ALL the time. Do the math...CDF is the better deal. Yes..they have fees for transferring out, but a $50.00 transfer fee is not a consideration when the difference in rates MORE than covers it over the length of a term. If you pick a institution with better rates to begin with, you won't need to transfer anything. Besides... ALL the institutions I have transferred funds to were more than happy to reimburse the fee to have my funds moved over to them. When dealing with TFSA's, there is always the December maneuver if you are not in a hurry. I don't believe in keeping all my eggs in one basket, so my TFSA funds are in PT and my wife's are in CDF. There is no reason you cannot take advantage and split your funds between 2 as well....one for retirement and one for spending goals. You are young and have a long time to save for retirement, so anything invested now will give you the best returns without a significant risk. I wish I had started saving for retirement at your age...life would have been so much easier. Good luck and happy saving!

March 5, 2014
4:57 pm
msl25
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Rick, we have almost the same feeling with coast capital. looks like we use common banks though my ing account is zero dollars. i'd get my pay deposited at my pcfinancial account then move it to coastcapital but yeah...they [coast] have been lowering and lowering their rates so i just move my funds to canadiandirect financial.

March 5, 2014
5:04 pm
Rick
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msl25 said

Rick, we have almost the same feeling with coast capital. looks like we use common banks though my ing account is zero dollars. i'd get my pay deposited at my pcfinancial account then move it to coastcapital but yeah...they [coast] have been lowering and lowering their rates so i just move my funds to canadiandirect financial.

I only have a couple of RSP GICs locked in at ING right now. Savings has .35 and US savings has .50 in it (they DO give an above average exchange rate, last time I used it anyway). CC is about the same...I have more in shares than I do in my checking. I just keep them open in case I need them when I retire. As of yet, CDF does not offer RIFS.

March 5, 2014
10:36 pm
Rick
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Loonie said

I just got around to reading this thread.

I think a TFSA at ING in a simple savings account, currently at 1.4% makes reasonable sense for this situation, as there is no minimum deposit required, and it is easy to deal with online.

You are not in a position to invest for the long term, so strip bonds and so on don't make sense.
You are looking for security (getting out of bitcoin), so you don't want any ETFs or stock market securities because those are longer term strategies with a risk of shorter term downturns.

ING does not have any exit fees, so you can leave when you are able to invest somewhere else.
Meanwhile, you will be shielding the interest from the tax man, which is the purpose of a TFSA.
When you have enough money in the TFSA, which shouldn't take very long from what you are saying, you might consider moving it to Peoples Trust if they are still holding to 3% for savings, as it does not require a time commitment from you. My feeling is that the security risk for them is probably less than for some other institutions which have not yet experienced security breaches; once burned, twice shy.

So why not open an e-savings @ PT (no minimum & 1.8%), and once you reach 1000.00, transfer it into a TFSA and then set up automatic bi-weekly contributions after that? Much easier than transferring from 1 institution to another. He will have the minimum in about 3 months, so the tax implications will be negligible.

March 5, 2014
11:48 pm
Doug
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To the original poster, what SD2013 fails to mention in his/her self-interested posts that focus almost exclusively on government and quasi-government (i.e., Crown corporations, municipals, etc.) bonds (in addition to GICs) is the transaction costs on buying any kind of corporate or government bond issue for a small retail investor, particularly one in a monthly accumulation plan such as yourself, are cost-prohibitive. :(

You're going to be paying, at a minimum, even through Scotia iTRADE (which is the cheapest), $29 and $50 per purchase.

While you lose some direct control, for a small investor looking to dollar cost average and accumulate small amounts of savings per week, I'd choose a relatively low MER mutual fund portfolio appropriate to your investor situation. ING DIRECT Canada's Streetwise Portfolios of essentially index funds have historically outperformed most actively managed mutual funds from the major banks with MERs of about 1% (or less) compared to an obscene 2-2.5% for a "big bank" active management fund, with no annual/transaction fees. It gets your "feet wet" in the markets and, when you're ready, you can move to a self-directed discount brokerage and transfer out your assets and get the "transfer out" fee fully reimbursed by that discount brokerage. You can also move directly to ETFs, but look for a brokerage that offers some form of free ETF trading (no experience with Questrade, Virtual Brokers lacks sufficient staff so I cancelled my account opening with them so I'd go with Scotia iTRADE).

Hope that helps,
Doug

March 6, 2014
9:29 am
GS1
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Doug:

I just rebalanced and bought a series of strip bonds using my RBC Direct Investing account. I knew the costs involved and was willing to pay them due to my particular circumstance.

I did do some analysis to confirm what I was paying.

The strip bond issues I bought were in the $5000 - $18000 face value range.
They were 6 - 8 year maturities.
They were quoted at a semi-annual rate of 3.4 to 3.9%.
They were rated BBB to AL.
They were selling for $78-$82 per $100 face.

The days that I purchased them I could have sold them back to RBC for a loss of between $1.70 and $2.10.

So this means my costs were in the 2.5% range. Unlike a mutual fund's MER this is a one time cost and spreading that cost over the 6 - 8 year timeframe means my annual trading costs for these bonds are in the 25 to 45 basis point range. I am amortizing that cost over 6 - 8 years I am willing to pay it.

My alternatives would be find somewhere cheaper and then to split my RSP and my TFSA and also those of Mrs GS between RBC DI and that other vendor. When I re-balance next year I would likely have to move some portion of the RSPs and TFSAs between vendors.

I like the simplicity of having everything in one place.

Greg

March 6, 2014
11:33 am
Itisthetimethisistheplace
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Why would somebody whom has $150 bi weekly to save be at all interested in strip bonds or any other type of bond for that matter?

The original post was taken way off track by reply posts that mention strip bonds, government bonds etc...totally off topic and unnecessary.

ItsOP - congratulations on making the decision to save. Please take the rinse and repeat verbage given by some members (in virtually every post I might add) with a pinch of salt. Always, seek advice from somebody whom is qualified.

You are 18. You have plenty of time to diverse and grow your portfolio in the future years, so why not stick with a nice and simple TFSA with Peoples Trust. It pays 3%, which is currently beating the "official" inflation figures.

There you go. Keep It Simple Stupid.

JS

March 6, 2014
5:00 pm
Rick
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ITISTHETIMETHISISTHEPLACE said

Why would somebody whom has $150 bi weekly to save be at all interested in strip bonds or any other type of bond for that matter?

The original post was taken way off track by reply posts that mention strip bonds, government bonds etc...totally off topic and unnecessary.

ItsOP - congratulations on making the decision to save. Please take the rinse and repeat verbage given by some members (in virtually every post I might add) with a pinch of salt. Always, seek advice from somebody whom is qualified.

You are 18. You have plenty of time to diverse and grow your portfolio in the future years, so why not stick with a nice and simple TFSA with Peoples Trust. It pays 3%, which is currently beating the "official" inflation figures.

There you go. Keep It Simple Stupid.

JS

Excellent advice. You should always have some semi-readily available cash on hand. Bonds and mutual funds don't really qualify IMHO....more long term investments. Build yourself up a nice nest egg.

March 6, 2014
7:32 pm
Loonie
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I think Rick's idea about putting the money in a savings account at Peoples until he has enough to move it to their savings account TFSA makes sense if a person doesn't have any qualms about Peoples' security. When I wrote before, I was thinking as I wrote, probably not a good idea.

Personally, my feeling would be against any mutual fund at this time. ItsOP appears to have no other assets, so a conservative investment, one where the money will unquestionably still be there if he needs it in a few months or a few years, seems the most sensible approach at this time. You simply can't get this in mutual funds (or in strip bonds, which are longer term investment). The Money Market Funds, which are the safest, have virtually no return at all these days, and everything else has more market risk. ItsOP was trying to get out of Bitcoin, because of the risk factor, into something more stable.

I find GS' report on buying long bonds interesting, but I don't think he meant to suggest it is a suitable investment at this time for ItsOP.

March 7, 2014
6:48 am
Itisthetimethisistheplace
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@Loonie @Rick - valid points about Peoples' security with the recent lapse. Valid points about having the money accessible in a few months or years. The point here is context of the OP.

Some members here spout answers to questions that were not even asked! This forum isn't a platform to show the world how much you know about finance, or what your family likes to invest in or how many millions of dollars you have. Nobody cares, unless the original post was titled "my family wants to invest in strip bonds, please help".

The context of the OP was an 18 year old whom wants to start saving in the most efficient way with $150 bi-weekly. There is no more efficient way for this person to save than a TFSA ($3900 per year @ the rate of $150 for 26 weeks) - I stress again, the context being a young person whom will likely need the funds drip fed along the way...car, house, marriage....LIFE.

Those who can do, and those who can't teach.

JS

April 23, 2014
1:34 pm
ItsOP
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Wow I didn't realize this thread would still be going on months latter. Thanks for the help guys. While I won't be buying any bonds perhaps mutual funds are something to look into. In the meantime though yeah I will be using TFSA. As things stand I am riding out the promotional interest rates at Tangerine and will soon open up account at Peoples Trust as it seems they are the only bank where I won't loose out to inflation on my dollars.

From my understanding I can just use Tangerine TFSA as an intermediary before I transfer the minimum 1 grand for PT without working up the contribution limits. Unlike big banks tangerine doesn't charge for this so it shouldn't be a problem.

Just to be clear my intent of this post was not to "get out of bitcoin" in fact as things stand I have more in bitcoin/litecoin than my savings account though that will soon change as I continue to save. My goal of this post was to find a low risk alternative to the already high risk things I have dabbled into. A way to diversify but still make a return.

April 23, 2014
2:20 pm
Loonie
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It's good to hear from you again, ItsOP. Sometimes I wonder if an original poster appreciates, or even reads, our responses!
Sounds like you have a good strategy. Don't forget the $150 in bonuses that you can get from Tangerine right now. I expect you've done that.
When you get around to mutual funds, be sure to look at ETFs at that time.
Keep an eye on inflation. Seems alive and well to me at the gas pumps and so on, despite 2013 statistics from the government. The price of oil and gas sooner or later affects the price of everything else, it seems.

Please write your comments in the forum.