Interested in investing a bit of money, but clueless (Canada)
April 9, 2018 11:09 PM Subscribe
Last year I received a modest inheritance and the money has been sitting in a savings account for the last year. I'd like to invest a portion of it somehow, somewhere, but I have no idea where to start, how to do it, where to go to invest, etc. I'm looking to get some advice on where to go for more information/ideas on where/how to invest. I'm located in Canada.
I know you aren't my Financial Planner, but I am curious about this and I don't know where else to ask. Frankly, I feel confused by most of the advice I find online! Currently my financial situation is: I'm a grad student who works part-time ($22-ish/hour x 0.7 FTE--yeah, I work a lot). Ideally, I'll get a better paying job when I am finished school in a year and a half. I feel like I should at least invest some of this money while I'm not working full time.
So, I have about $50K (not the full amount of the inheritance) I would like to invest somehow. I guess I'm kind of dumb, because my money has just been sitting in a regular savings account not a Tax Free Savings account. From what I understand, I should probably put what I can of my inheritance into a TFSA. I've never had a TFSA, so I guess I can put $57,000 into that account.
I'm clueless about what comes next. Am I then somehow able to invest the amount of money in my TFSA? How do I do that? Should I get a TFSA GIC? I'm looking for relatively "safe" investments. I don't want to do anything crazy and I know I would be devastated if I lost that amount of money. Should I start with a lower amount of money first?
Who exactly do I go to to to ask for advice? I know there are financial planners, but are they reliable? Don't they get a % of my investments? I can go through my bank, but will they have my best interest in mind? Who can I trust to ask for advice if I don't know what I'm doing!? I don't want to do something stupid and lose my money.
Is there somewhere that explains all this in plain english?
I know you aren't my Financial Planner, but I am curious about this and I don't know where else to ask. Frankly, I feel confused by most of the advice I find online! Currently my financial situation is: I'm a grad student who works part-time ($22-ish/hour x 0.7 FTE--yeah, I work a lot). Ideally, I'll get a better paying job when I am finished school in a year and a half. I feel like I should at least invest some of this money while I'm not working full time.
So, I have about $50K (not the full amount of the inheritance) I would like to invest somehow. I guess I'm kind of dumb, because my money has just been sitting in a regular savings account not a Tax Free Savings account. From what I understand, I should probably put what I can of my inheritance into a TFSA. I've never had a TFSA, so I guess I can put $57,000 into that account.
I'm clueless about what comes next. Am I then somehow able to invest the amount of money in my TFSA? How do I do that? Should I get a TFSA GIC? I'm looking for relatively "safe" investments. I don't want to do anything crazy and I know I would be devastated if I lost that amount of money. Should I start with a lower amount of money first?
Who exactly do I go to to to ask for advice? I know there are financial planners, but are they reliable? Don't they get a % of my investments? I can go through my bank, but will they have my best interest in mind? Who can I trust to ask for advice if I don't know what I'm doing!? I don't want to do something stupid and lose my money.
Is there somewhere that explains all this in plain english?
Here's another good place to start, the Canadian bogleheads wiki section Getting Started.
I would also recommend John Bogle's excellent introduction, The Little Book of Common Sense Investing.
posted by Short Attention Sp at 5:52 AM on April 10, 2018
I would also recommend John Bogle's excellent introduction, The Little Book of Common Sense Investing.
posted by Short Attention Sp at 5:52 AM on April 10, 2018
Absolutely yes to the TFSA - trot on down to your bank and open one, drop the cash in there. Your other step - and you should probably do this first, if you like - is to make an appointment with an independent fee-only financial planner and get some face-to-face mentoring on how to invest your money - it'll probably cost you a couple hundred bucks but it's really worth it to talk with a professional. They don't take a percentage, they don't try to sell you anything, they'll just explain what your options are and how to go about it; you don't even have to maintain a relationship with them afterwards if you don't want to. You're paying them a flat fee for their advice and for drawing up an action plan on how to handle your inheritance.
Remember: don't panic, NOBODY is born knowing how to do this! It's something you learn how to do, like putting your pants on or driving a car. A fee-only financial advisor is a person you can hire to be your teacher and show you the ropes. You're paying them to look after your best interests, and your best interests only - their income comes from the flat fee you pay them, not from any sales commissions or a paycheque from a bank.
posted by Mary Ellen Carter at 6:03 AM on April 10, 2018
Remember: don't panic, NOBODY is born knowing how to do this! It's something you learn how to do, like putting your pants on or driving a car. A fee-only financial advisor is a person you can hire to be your teacher and show you the ropes. You're paying them to look after your best interests, and your best interests only - their income comes from the flat fee you pay them, not from any sales commissions or a paycheque from a bank.
posted by Mary Ellen Carter at 6:03 AM on April 10, 2018
Seconding the personal finance subreddit, especially the Canadian one (be very careful with US-based financial advice, including from users here, as it can be wrong for us).
As someone who graduated semi-recently from a grad program, I strongly encourage you to keep at least six months of your expected living expenses in a cash savings account, reserved for when you graduate (this can be a no-fee TFSA account, for example at Tangerine), or even more if you're particularly risk-averse or lacking a social safety net (I did 9-12 months). I suggest putting the remainder in an index fund TFSA that can be accessed without penalty if needed (it can go up and down in value, and you can keep it all the way until you retire if you like, but can still be turned into cash in an emergency). Again I recommend Tangerine as a starting point as it has very simple but good and user-friendly options for this, although you can find more efficient (ie lower fee) options if you want to put some work into setting up the investments yourself.
Note: The "standard" banks have these index funds (or similarly, mutual funds) as well, and any financial planner you visit through a bank will try to sell you their bank's funds, but their funds' yearly fees are often very high, cutting into your returns. However if you want the absolute lowest effort option, this is still better than parking everything in a cash savings account, which won't even beat inflation.
If anything's left after that, you can decide whether to save for retirement, mortgage, travel etc. But the safety net is so so so important, especially as a grad student. You don't know how long it will take you to find a job; some fields don't have many openings for recent grads.
Max your TFSA before thinking about RRSP or other options, because you don't pay much if any taxes now and because the TFSA can be either kept long-term for retirement or withdrawn penalty-free in the future, either for an emergency or mortgage, car, etc. Just be careful if you withdraw and remember you can't replace the money until the next calendar year (very important, you can be charged huge fees if you mess that up).
posted by randomnity at 7:09 AM on April 10, 2018 [1 favorite]
As someone who graduated semi-recently from a grad program, I strongly encourage you to keep at least six months of your expected living expenses in a cash savings account, reserved for when you graduate (this can be a no-fee TFSA account, for example at Tangerine), or even more if you're particularly risk-averse or lacking a social safety net (I did 9-12 months). I suggest putting the remainder in an index fund TFSA that can be accessed without penalty if needed (it can go up and down in value, and you can keep it all the way until you retire if you like, but can still be turned into cash in an emergency). Again I recommend Tangerine as a starting point as it has very simple but good and user-friendly options for this, although you can find more efficient (ie lower fee) options if you want to put some work into setting up the investments yourself.
Note: The "standard" banks have these index funds (or similarly, mutual funds) as well, and any financial planner you visit through a bank will try to sell you their bank's funds, but their funds' yearly fees are often very high, cutting into your returns. However if you want the absolute lowest effort option, this is still better than parking everything in a cash savings account, which won't even beat inflation.
If anything's left after that, you can decide whether to save for retirement, mortgage, travel etc. But the safety net is so so so important, especially as a grad student. You don't know how long it will take you to find a job; some fields don't have many openings for recent grads.
Max your TFSA before thinking about RRSP or other options, because you don't pay much if any taxes now and because the TFSA can be either kept long-term for retirement or withdrawn penalty-free in the future, either for an emergency or mortgage, car, etc. Just be careful if you withdraw and remember you can't replace the money until the next calendar year (very important, you can be charged huge fees if you mess that up).
posted by randomnity at 7:09 AM on April 10, 2018 [1 favorite]
To add onto that, if your inheritance is big enough to have a solid 6-12 month safety net AND to max your TFSA as well, you should keep the safety net in a non-TFSA savings account (or something very safe like GIC) and use your TFSA for long-term investments, which will let you actually benefit from the tax-free growth of the TFSA.
I only suggest using a TFSA savings account for short- or medium - term savings if you don't have your TFSA maxed with long-term investments yet.
After maxing your TFSA, you can use non-TFSA index funds, which are relatively safe investments over a 5-10y time frame, or a plain old no-fee savings account if you need 100% safety or expect to withdraw in the next year or two.
posted by randomnity at 7:26 AM on April 10, 2018
I only suggest using a TFSA savings account for short- or medium - term savings if you don't have your TFSA maxed with long-term investments yet.
After maxing your TFSA, you can use non-TFSA index funds, which are relatively safe investments over a 5-10y time frame, or a plain old no-fee savings account if you need 100% safety or expect to withdraw in the next year or two.
posted by randomnity at 7:26 AM on April 10, 2018
I was in a similar situation as you near the end of grad school. Paid off my (small) student loans off right away, kept 6 months rent and "survival budget" in savings (I ended up massively underestimated the cost of living explosion in my area), the rest into a TFSA. I wasn't making enough for RRSPs to save me any money, and when I graduated I had all that juicy tuition credit so I was barely paying any taxes anyway (and needed every dollar of that tax refund) for a few years.
Did withdraw about half of my TFSA deposit - absolutely no hassle other than receiving some paperwork - for a period of unemployment, and then for an extreme risk medium term investment gamble (stocks in the startup I joined and helped launch).
posted by porpoise at 2:25 PM on April 10, 2018
Did withdraw about half of my TFSA deposit - absolutely no hassle other than receiving some paperwork - for a period of unemployment, and then for an extreme risk medium term investment gamble (stocks in the startup I joined and helped launch).
posted by porpoise at 2:25 PM on April 10, 2018
* Canadian, but not a financial advisor.
- Keep some in your savings account for an emergency (in case you need cash fast!)
- Put the rest into a TFSA that's set up for investing (i.e., RBC's Direct Investing TFSA).
- Buy safe/stable dividend-paying Canadian stocks (examples). Banks, utilities, telecoms are good examples.
- Set your account to auto-invest any dividend payouts (i.e., buy more of that same stock), rather than accumulate more cash.
- You'll earn a dividend of 3-5% per year, regardless of whether the stock increases in value.
- Bonus: Your stocks will probably increase in value.
^ Money is great at making more money.
(Also, you can pull money from your TFSA anytime. The catch is that you can't put it back until the following calendar year.)
posted by lukez at 6:42 PM on April 10, 2018
- Keep some in your savings account for an emergency (in case you need cash fast!)
- Put the rest into a TFSA that's set up for investing (i.e., RBC's Direct Investing TFSA).
- Buy safe/stable dividend-paying Canadian stocks (examples). Banks, utilities, telecoms are good examples.
- Set your account to auto-invest any dividend payouts (i.e., buy more of that same stock), rather than accumulate more cash.
- You'll earn a dividend of 3-5% per year, regardless of whether the stock increases in value.
- Bonus: Your stocks will probably increase in value.
^ Money is great at making more money.
(Also, you can pull money from your TFSA anytime. The catch is that you can't put it back until the following calendar year.)
posted by lukez at 6:42 PM on April 10, 2018
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Their FAQ covers it all. One of their most common questions on the forum is: "I have $X, what should I do with it?"
There is even a Canadian specific answer to what do you with extra money.
posted by moiraine at 2:34 AM on April 10, 2018 [1 favorite]