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Opening First TFSA
February 23, 2016
6:28 am
Litre
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February 22, 2016
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Thank you for all of the replies. I understand I still have to make my own decisions but I always like listening to advice from people that have already had to make these decisions before me and looking back what they would of done differently.
Just a little background I have already owned a rental house and sold that, so I do have some money in the bank other than this and I am debt free other than my mortgage.
I don't have a financial plan as of right now I was just trying to make use of my money currently rather than it sitting in my checking account. I have no reason or need to use it at the current time but at the same time I don't know that I'm confident enough to place it in stocks and somewhere that I couldn't touch it for 10-20 yrs.

February 23, 2016
8:06 am
Loonie
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It's great that you don't have debt. It sounds like you are in a good position for someone so young.

If you have enough set aside for a rainy day fund, and you do still have a mortgage, there would be merit in using the inheritance to pay down some of the mortgage whenever the terms allow you to do that. Mortgage interest is not deductible from income tax in Canada, so you are paying the interest with after-tax dollars. In other words, if your mortgage rate is 3%, you could be paying over 4% in real dollars after you consider the tax you already had to pay on it. Even on 20,000, if you compound that for a number of years, it does add up fairly quickly. Debt that is paid off can't come back to bite you later!
I suggest you do the math and see if you think it would be worth your while.

I'm going to stick with my earlier recommendation though, assuming you don't want to put it into the mortgage. If you get your planning sorted out in a year or so, you can cash some of the GICs. You will always want to have some money in GICs anyway, and these are as good as any and better than most. Also, because it's in a TFSA, you get to keep all the interest. If GICs were held out side of TFSA, you would be paying tax at your marginal rate on the interest. If you are going to do the stock market, you would probably be better to do it outside of TFSA, for the tax breaks. Dividend income and stock market capital gains are taxed at a lower rate.

February 23, 2016
9:52 am
2of3aintbad
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Well, I also am going to stick with my earlier recommendation, especially now that you have posted some more information about your financial situation. Not trying to offend anyone, but I think it is logical that most people that hang around a High Interest Savings Forum will be conservative investors, and closer to retirement than you are, and the majority of the advice here reflects that. But for a 28 year old with no debt except a mortgage, some savings from a rental property sale and $7500 plus regular purchases of a conservative, Canadian focused balanced mutual fund, but no TFSA and a $20K inheritance:
1. I agree that learning more about investing and taxes will help you.
2. Create a balanced portfolio of Canadian dividend paying stocks, non-Canadian growth stocks, fixed income and cash.
3. Put your Canadian dividend paying stocks / mutual funds in an open account to get the tax advantage. Personally, I think that the TD portfolio you posted has too much interest income. Why do you need that?
4. Put your non-Canadian growth stocks / ETFs in a self-directed TFSA - the $20K. It is not that you cannot touch it for 10-20 years, but you have other investments that you can cash in first, while you let it grow tax free with no work on your part.
5. If you really want to put away some rainy day cash, you still have room in a second TFSA.
6. Put your fixed income - bonds and GICs - in your RRSP, only when your tax bracket is high enough that an RRSP contribution makes sense.

Good luck to you in wading through the various responses.

February 23, 2016
11:12 pm
Loonie
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I regard this as a friendly debate too.
There is much to consider.

Litre may well end up doing something like 2of3aintbad has recommended - after he/she has taken some time to evaluate the overall situation and plan.

my recommendation is for the immediate term, which could be done this week but might not be available next week.

We don't know how much money Litre has at his/her disposal in total, but at such a young age I must assume the profit on the rental property after fees was not enormous.

Everyone who must pay their own way needs to have an emergency fund. Sh*t happens. Jobs can disappear. Termites attack your house. You need major dental work. Whatever. Most experts recommend that one should have 3 to 6 months' of living expenses readily available at all times. However, odds are that you will not need to use this money, so you could keep it in your TFSA where you will not get dinged at the highest rate by CRA. The 20K would fit nicely here and would be a suitable cushion. And that was the question we were asked about - what to do with the 20K
You will always want to have a certain percentage of your money in cash/GICs/bonds. You will still have lots of contribution room left in TFSA after you contribute the inheritance for emergency funds, and you can always replace them if you should need to spend them, in a subsequent year, without worrying about any loss of capital or contribution room.

I would not buy any individual stocks at all unless (a) you have total cash assets of 100K (of which some should be kept in cash, GICs - you have yet to determine how much); and (b) you have the skills and knowledge with which to make the right choices. Both of these seem unlikely to me at the present time based on what you have said. Take your time.

There is no law that says you would have to hold your stock market ivestments for 10 or 20 years. You can caah them whenever you want. The point is that in orer to make these investments, you need to be prepared for the possibility that you might have to wait that long in order to turn a profit which meets or exceeds that of GICs and bonds. In fact, it SHOULD exceed the GICs and bonds. Otherwise, why did you take the market risk?
Historically, it sometimes has taken a long time for market investments to reach this point, so you have to be prepared to wait. What you want to be sure of, is that you don't find yourself in a position where you have to cash them before you make the profit that exceeds GiCs/bonds. The perspective that us old folks perhaps can offer is that we've seen these things happen. We remember when imortgage rates hit 20%. We remember when stocks lost 40% and did not recover even their base for several years. It doesn't seem that long ago,. Something difficult like that will almost certainly happen again more than once in Litre's lifetime, but nobody knows when, and sometimes the timingcan be very inconvenient indeed. A lot of people who thought they had higher risk tolerance have found out to their dismay that they did not when the markets were down. They then sold what was left and were much the poorer for it. It is one of the most common investing errors and one of the hardest to resist when you are watching your money go down the ticker tape drain. The emotions are a huge factor that the rational person does not think will affect them - until they do. In my view, Litre is not ready for any of this yet.
It may seem that you just hand over your money, sit back and collect the dividends. Many ads for vacations in the south give that impression. But it's never quite that simple.. You always have to be vigilant about your investments. There's no such thing as a sure thing.

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