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Opening First TFSA
February 22, 2016
10:20 am
Litre
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Hi everyone I just signed up today looking to gain information on the best TFSA. I'm not very knowledgeable on all of this investment stuff as I'm just starting to get into it.

I came into a bit of money and I'm looking to do the right thing with it. The only investments I have currently are mutual funds through TD. I contribute a small amount each week to that. (Good/Bad?)

Now instead of my money sitting in my checking account doing nothing I'm looking for a TFSA to put it into. Obviously the TD TFSA has a low interest rate so I have been looking elsewhere. I have came across EQ, Zag, and Accelerate. I would like to set something up soon. I have been looking into the GIC too it's just tough putting money away and knowing you can't touch it. Also a bit unclear on the compound interest and how it is calculated. (A lot of the bank sites make no mention of that) Not sure on what to do... Any advice would be helpful, I have been reading a lot of the posts on here and sometimes get mixed reviews on each place.
Thank you.

February 22, 2016
10:46 am
kanaka
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To see how compound interest works....... http://www.moneychimp.com/calc.....ulator.htm

Investing in mutual funds with a bank....not a good idea.
To invest in mutual funds.....not a good idea.

Acclerate is good. Look at five year GIC laddering.

I am retired and if I had hindsight and more knowledge before hand I would have never invested in mutual funds or ETFs.

Assuming your mutual funds are RRSP or better yet...just to ask. If you do invest in RRSP what do you do with the income tax savings from the RRSP deposit?

February 22, 2016
10:46 am
Litre
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I just realized EQ's isn't a tfsa.

February 22, 2016
10:53 am
Litre
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kanaka said
I am retired and if I had hindsight and more knowledge before hand I would have never invested in mutual funds or ETFs.

I'm 28 and received some inheritance so I'm trying to make smart decisions with it rather than blowing it on a nice car, haha.
I'm extremely new to all of this so it's a little bit overwhelming at first trying to find the right way to save/invest.

February 22, 2016
10:53 am
kanaka
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Also if you want GICs only deal with a Financial institution that has an associated saving account. Ie. TFSA GIC and a place to park matured money or a place to accumulate money to buy a GIC ...... you will find it a benefit to have a TFSA savings account.

Pick the institution with both GIC and savings, good service, and a record of being on top of rates otherwise transferring becomes messy and costly.

February 22, 2016
11:00 am
kanaka
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Litre said

kanaka said
I am retired and if I had hindsight and more knowledge before hand I would have never invested in mutual funds or ETFs.

I'm 28 and received some inheritance so I'm trying to make smart decisions with it rather than blowing it on a nice car, haha.
I'm extremely new to all of this so it's a little bit overwhelming at first trying to find the right way to save/invest.

:) a car with a heater and radio that can transport you from A to B is all you need unless you like being flashy and waste full....which you are not.

Depending how much TFSA room do you have and how much the inheritance is you should look into a ladder. Ie. $25.000 and put $5000 in a 1, 2, 3, 4 and 5 year GIC. If you need funds....you will have $5000 available every year. If you don't need, reinvest for 5 years. And in 5 years or so you will have every GIC collecting the highest 5 year rate.

February 22, 2016
11:01 am
Litre
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So would it be smart to pull my mutual fund deal and place it in a tfsa gic?

February 22, 2016
11:04 am
Loonie
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Which province are you in? It makes a difference as to which institutions will serve you.

February 22, 2016
11:09 am
kanaka
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In regards to your mutual funds ah....no.
What return are you making? Is it RRSP? How much have you invested? What is it worth if you cashed it in today? What penalties are there to cash the mutual funds in? If mutual funds are RRSP you will have to pay income tax on the withdrawal.

February 22, 2016
11:14 am
Loonie
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Litre said

So would it be smart to pull my mutual fund deal and place it in a tfsa gic?

You are young. You may be able to afford to wait until the markets are up to cash your mutual funds. It may depend too on exactly which fund(s).
Before cashing them, take a look at how much they cost you in the first place and how much they are worth now. The basic point of investing is to make money. If cashing them would not make you any money, then I would postpone it until it does. The most popular way to get bad results from mutual funds and other stock market investments is to cash them at the wrong time.
However, in most cases the mutual funds should not be thought of as something you can access in the short term, period.
Another factor is, how much money you have invested in them.

Is your inheritance big enough to fully fund your TFSA? I think the maximum, for someone who has never had one before is now about 47,000, but need to check on specifically how much. If it is big enough, then you don't need to mess with your existing mutual funds right now.

I am sympathetic to kanaka's point of view, but you need to be aware that most professional advisors would suggest that you should keep some portion of your funds in the stock market. I'm not saying they're right, but this is what they would say. You do need to remember that the stock market is always a longterm strategy, not for people who might need the cash in the next 5 to 10 years. Many of these advisors will not bother to tell you that.

February 22, 2016
11:32 am
kanaka
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If there was one thing I wished I did a better job of recording; was for our RRSP accounts......to have kept a record of how much I actually invested. Don't expect your adviser or mutual fund company to keep track for you. Over your lifetime of investing you will have more than one adviser, your adviser may change his/her provider and they always like to refresh your account by selling off and buying the new flavour of the day.

February 22, 2016
11:33 am
2of3aintbad
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You will get a variety of answers for what is the best TFSA. But first you need to confirm the maximum that you are allowed to contribute. Have you been in Canada since 2009? If yes, since you are 28 and this is your first TFSA, your limit is $46,500. If you did not file an income tax return for 2009 or later, you might need to do so to establish your entitlement, according to the CRA website.

Even though TFSA stands for Tax Free Savings Account, the word 'Savings' is misleading since you can also invest in stocks, bonds, mutual funds, etc. In my opinion, the best type of investment for a TFSA is a broadly based global stock ETF (exchange traded fund), the worst is a GIC, and a high interest savings account is in between. Many people treat the TFSA as a sort of emergency fund, or saving for a particular large purchase, in which case a savings account is OK. However, especially since this was an inheritance, I recommend that you put it away in an ETF for the long term. Even if it goes down in value in the short term, when you look at the statement, you will think of the person who left you the money and be happy that s/he thought of you.

February 22, 2016
12:26 pm
Rick
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I'm with Kanaka, I am less than 3 years from retiring and don't have faith in EFT's or mutual funds. I have no market knowledge so my investments in MF's in the past has been by relying on my FA. Didn't work out well either time I tried. If they go south, they go quickly and once the herd smells danger they drop even faster as the rush to sell spreads. Too much like gambling to me. Do you know your return or how much TD is charging to manage them for you? I currently have all my TFSA's in 3 year GIC ladder at CDF. The rates aren't the best, but not the worst either. If you absolutely positively need the cash, they are cash-able at 0%. If you are younger and can max out your contributions for the next 30 or forty years you will have a nice next egg, tax free, even at today's rates. If TFSA's were available when I was younger, I would choose them over a RRSP for sure.

February 22, 2016
1:52 pm
Litre
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Iam on the comfort balanced portfolio here is a link: https://www.tdassetmanagement.com/fundDetails.form?fundId=6321&lang=en

I live in Ontario. I just started last year and I have invested about $7,500 in that.

The inheritance is around $20,000 and that's what I'm trying to invest in the best way possible.

Glad I found this forum I'm learning a lot.

February 22, 2016
2:05 pm
kanaka
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Also keep in mind a GOOD FA will tell you that you can make 5-7% with your Mutual Fund or ETF. Both your FA (or bank) and the company that provides the ETF of mutual fund gets a cut as well. And if those funds are in an RRSP or not you will be eventually taxed and if you can't sell ETF or Mutual Fund for the same or more than what you paid for it that affects your 5-7% gain and can spin into a loss all while your FA and fund provider takes their cut.

So GIC in a TFSA at 3% is actually yielding more as it is not taxed like an unregistered investment or a RRSP/RRIF withdrawal.

With today's opportunities and "if" you do the RRSP then I would strongly recommend that the tax savings from the RRSP deposit should be put into a TFSA 5 year GIC and be considered as untouchable till retirement.

February 22, 2016
5:18 pm
SavingIsGood
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kanaka said
Investing in mutual funds with a bank....not a good idea.
To invest in mutual funds.....not a good idea.

Acclerate is good. Look at five year GIC laddering.

I am retired and if I had hindsight and more knowledge before hand I would have never invested in mutual funds or ETFs.

Assuming your mutual funds are RRSP or better yet...just to ask. If you do invest in RRSP what do you do with the income tax savings from the RRSP deposit?

It is always helpful to hear advice of those born before me.

Few points, though:
You are saying investing in mutual fund is not good. Why do not you present WHAT is good in your opinion? Gold? Stocks? Real estate?
This is like those car reviews: this car is great but there are many others which have bigger trunk, more head-room, etc. but they NEVER tell you which are those 'other cars'. That is why I call them useless reviews.

Investing in mutual fund is smart way to start. Problem is to pick steady and good performing fund. Somebody mentioned return of 5-7%. SHOW me fund which performs EVERY YEAR 5-7%. This is just a myth fin.adv. are spreading. I can show you fund which performed steadily (until a year or so) 10-12%. Yes, I have some $ in that fund and I am happy how it performs even today.

If I had inheritance of 20K and still thinking what to do (no, you cannot buy good car for 20K. You need at least 10K more to get great new Elantra 2017) I would open 1 year TFSA GIC at Hubert. You will have 1. decent tax free rate, 2. ability to withdraw after 3 months and keep interest if opportunity presents itself, 3. helpful and friendly staff.
At least that is what I am doing now, transferring my 50K from Peoples to 1y GIC at Hubert.

That person is young and even if he elects to invest in mutual funds, in 30-40 years he will have a bundle. Do your research. Fin. advisers at the banks are NOT aware of MANY good mutual funds. They push what their bank is offering for bank's and not for your benefit. You are not paying their salary. Bank does. I was lucky, guy told me where to look from personal experience...

February 22, 2016
6:50 pm
Bill
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You'll get advice that's all over the map. Ultimately, you have to decide for yourself, no-one else will take responsibility for a decision that's yours. (Strangers and other people who aren't our mothers don't care about our money except to the extent they can get some, in my view.) So another suggestion would be to get a one-year GIC and spend the year educating yourself so you have a much better idea a year from now of the options, their advantages and disadvantages, and what your risk tolerance is. In the long run, a year won't matter. Sounds like right now you could be very easily influenced to invest in something that might not be to your taste in the long run.

February 22, 2016
8:55 pm
Norman1
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High-interest savings accounts, GIC's, mutual funds, and stocks may not be the best that one could do, Litre. It really depends on one's situation.

For example, if one had $20,000 of credit card debt at 19%, then one would much further ahead by paying off the 19% debt immediately and directing the former monthly credit card payments to savings or investments. In the same time it would have taken to pay off the credit card, one would end up with the original $20,000 plus the 19% per annum that would have gone to the bank! No stocks, mutual funds, or bonds these days can reliably return 19% per annum after taxes.

Also, most people's wealth does not come from investment returns. Instead, it comes from their job or careers. If that $20,000 were spent on training that boosts one's skills and leads to $5,000 more a year in pay, then that would be a much better choice than trying for the 5% to 7% one could expect from equity investments.

Some of the money could be used to increase one's happiness by eliminating some irritants in one's life. Perhaps, one is not at their best from not sleeping well because of a lumpy, worn out mattress. That could be fixed for under $1,000. That approach to money and happiness is explored in the Maclean's (February 13, 2006) article Money Really Can Buy Happiness, Study Shows.

As Bill says, there's no hurry. One could park the money for a year in a GIC while one looks for the best way to deploy the inheritance.

SavingIsGood mentioned those one-year term deposits at Hubert Financial. They can be cashed every three months, after the quarterly interest payment, without penalty.

February 22, 2016
11:08 pm
Loonie
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There are many excellent comments in this thread.

Norman1 is wise to point out that you need to consider your entire financial situation and your future earning potential. I would also add that since this is an inheritance, you are going to have some emotional attachment to it and would probably feel really dreadful if you lost some of it to the stock market etc.

You are young. We don't know your earning potential or whether you would improve it by further education. Not all education leads to better income. Certainly you would be doing the right thing if this money enabled you to discharge any debt that you can't otherwise get rid of soon. Debt is very expensive. If you have debt, and pay it off this way, use the money you would have spent in future payments to replenish your inheritance, and save yourself a bundle in the process.

However, it would seem that you probably don't have much money. I am assuming that the 7500 you have at TD is probably all or most of what you had in savings before this inheritance came along. This means you have essentially no cushion or money for a true emergency. So, on those grounds, I would not want to see you tie it up in something that you couldn't get profitable access to in a hurry.

Since you live in Ontario, and considering that you don't appear to have much other money, here is my one-and-only recommendation for you for the inheritance money, assuming it is not all needed for debt or a decent mattress. If you choose this, you may need to do it this week, as I wouldn't be surprised if this deal is gone after end of February.
https://www.duca.com/rates/term-deposits/
I would put this money into a TFSA in 4 GICs, each for $5000, for 80 months at 3%, cashable after one year at 2%. Make the amounts in each one slightly different, as it's easier to keep tack of them that way.
I think this gives you the best of all worlds, for now.
I am making the assumption that, since you were getting along OK before you got the inheritance, that you likely won't need the money before a year has passed.
This is the best GIC rate you can get anywhere. And it will give you the cushion you probably need. The first goal of saving has to be to have an emergency fund, and htis is something you cannot accomplish through the stock market.
I would put it into the 4 separate GICs (or more smaller ones if you prefer) so that, in the event you need access to the cash in an emergency, you can access some of it but leave the rest to collect 3% annually. If you can hang on for a year, you will still get 2% even if you need to cash out.

I would NOT use it to pay down mortgage debt, if you have any. If you own property, you have an even greater need for an emergency fund.

Hopefully, while that 20,000 is cooking away in your TFSA earning 3% tax-free for almost 7 years, you will also be able to save additional money which you can also put into your TFSA in the future. The question of where to invest future savings can be considered at that time in view of your circumstances at that time.

I haven't looked at your mutual fund yet, but will take a look.

February 22, 2016
11:23 pm
Loonie
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OK, I see you have a relatively low-risk balanced mutual fund. Performance has been a bit lacklustre, but not fatal.
It lost over 3% in the last year but will almost certainly eventually recover and go forward. I would not cash it right now; neither would I add any more to it. You need to have more of an overall financial plan before you get further into mutual funds or ETFs, and that plan needs to take into account your entire financial situation and personal goals.
There are reasons pro and con as to whether you would want to move this mutual fund to your TFSA. It's not a huge amount. I would just leave it as it is for now and just wait until you have a more comprehensive plan before you make any changes to it.

I know Bill has a mutual fund that he likes which is also balanced and has delivered better returns and has had a good reputation for a long time. It might be a better bet. However, there may be a minimum deposit and it may require a brokerage account. You could ask him about it, but that, in my mind, would be a consideration for the future when you have saved up more money to invest. In principle, a balanced fund is good way to start when you don't have a lot of money to invest, if you are choosing to invest in the stock market. After you have accumulated significantly more money, you can think about diversifying further.

Nobody can really tell you whether it is a good idea to invest in the stock market. Some will point out that, historically, the stock market in Canada and the US has, if you wait long enough, always gone up. This is true. The problem is, how long will you have to wait, will history repeat itself, and will your particular investment(s) benefit. There have been situations in other countries where the recovery never happened, and those are now long forgotten.
Some people just never develop the stomach for the stock market, and will never be able to sleep at night with investments there as they can't tolerate any volatility.
There is also some research that suggests you might do as well with GICs and bonds. Much depends on when exactly you put your money into the investment and when you take it out. Most losses occur when people take it out at the wrong time.
However, you appear to have some level of (conservative) comfort with it, as you have already begun to invest in it.

So, hang tight, read and learn as much as you can, and take a year or so to develop a more comprehensive plan. Leave the mutual fund where it is. Buy a mattress if you need one, and sleep well. Pay down debt if that is a burden, and replenish with future savings. If the inheritance is still available, put in TFSA GIC at DUCA with right to withdraw in 1 year at 2%. Don't even think about RSPs until you have maximized your TFSA contributions and got your financial plan in order.

Bill is right that opinions from strangers have to be understood as such. Still, for what it's worth, I think there are many useful comments in this thread. Personally, I always try to give the best advice I can come up with to people on this forum. But, still, you don't know me or, I presume, anyone else here, and you must satisfy yourself that any advice you follow is sound. My personal background is not in banking or investing. I am retired, very cautious, and doing OK. Many here would say I am too cautious, no doubt!, but I don't feel any need to take greater risks.

Norman is also absolutely correct that most people's wealth is from their own earnings. It's a sobering thought, but true. In other words, the best way to save money is to save money.

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