Making an investment plan for my family
November 3, 2018 12:13 PM Subscribe
My wife and I have been pretty good savers, but have not really given much thought to what to do with that money. Now we have a son [!] and I'm starting to realize that might have been foolish. I'm looking to make a plan so that we can spend as much time together as possible, as soon as possible. We are in Canada.
When we were first married, we went to a financial consultant [investor's group], nodded along with whatever it was he said, and that was that.
I would like help to make a plan.
We currently have:
-An RRSP in my wife's name that is split up into 3 categories that I think are mutual funds ["income plus", "dividend" and "canadian equity income"] - About $30k
-a TFSA in my wife's name ["income plus"] - about $65k
-money sitting in the savings account - about $85k
The rate of return on the above has been something that I haven't paid attention to [we're paying someone to do that, right?], but now that I read the most recent report, we have been getting about 2.3% return on the RSP, 1.4% on the TFSA, and 1.25% in the savings account.
With the current inflation rate of ~2.5%, none of these are even keeping up with inflation!
I'd been living under the assumption that the invested money must have been outperforming the interest rate on our mortgage [3.6% or 2.6% depending on what line I'm looking at], too!
I've been reading some blogs about achieving financial independence, and there is this baked-in assumption that my money is invested in something that returns at least 5% above inflation. Index funds is the most common thing, but I don't know how to start with them.
Priorities as I see them [I realize that I may be wrong about all of these]
-move all of this money into better places.
-Things must be relatively simple. I would prefer to set one thing and just keep contributing. If I have to rebalance a portfolio every year I will probably just forget to do it.
-Open an RRSP in my name and a RESP in my son's name [though the rules about RRSPs are much more flexible about withdrawal, so if it makes sense to just keep a larger principal in the RSP accounts, we would do that]
-Open a TFSA in my name if we have a need / leftover money. To be extra clear - TFSAs can be things other than just cash in the bank, right?
-If this makes more sense, do a lump-sum mortgage payment? We can pay about $40k this year without penalty, and presumably a similar percentage every year.
What I think I want from one evening's worth of being confused on the internet is to find some index fund that returns a predictable, average, at-least-5%-above-inflation amount [which one? how do I buy it?] and transfer the RRSP, new RRSP, and TFSA[s] into that index fund. Are there rules against moving money inside of RRSPs or TFSAs?
I would also want to just pay down as much of the mortgage as possible, but I still suspect that it's better to have the money where it is growing the fastest.
tl;dr:
how do I choose and buy an index fund in Canada?
Can I change how RRSP money is invested?
what have I been paying a financial advisor for?
we have an appointment to meet with the financial advisor next week - made with the aim of setting up an RESP for our son. That was the impetus that got me thinking about all of this!
When we were first married, we went to a financial consultant [investor's group], nodded along with whatever it was he said, and that was that.
I would like help to make a plan.
We currently have:
-An RRSP in my wife's name that is split up into 3 categories that I think are mutual funds ["income plus", "dividend" and "canadian equity income"] - About $30k
-a TFSA in my wife's name ["income plus"] - about $65k
-money sitting in the savings account - about $85k
The rate of return on the above has been something that I haven't paid attention to [we're paying someone to do that, right?], but now that I read the most recent report, we have been getting about 2.3% return on the RSP, 1.4% on the TFSA, and 1.25% in the savings account.
With the current inflation rate of ~2.5%, none of these are even keeping up with inflation!
I'd been living under the assumption that the invested money must have been outperforming the interest rate on our mortgage [3.6% or 2.6% depending on what line I'm looking at], too!
I've been reading some blogs about achieving financial independence, and there is this baked-in assumption that my money is invested in something that returns at least 5% above inflation. Index funds is the most common thing, but I don't know how to start with them.
Priorities as I see them [I realize that I may be wrong about all of these]
-move all of this money into better places.
-Things must be relatively simple. I would prefer to set one thing and just keep contributing. If I have to rebalance a portfolio every year I will probably just forget to do it.
-Open an RRSP in my name and a RESP in my son's name [though the rules about RRSPs are much more flexible about withdrawal, so if it makes sense to just keep a larger principal in the RSP accounts, we would do that]
-Open a TFSA in my name if we have a need / leftover money. To be extra clear - TFSAs can be things other than just cash in the bank, right?
-If this makes more sense, do a lump-sum mortgage payment? We can pay about $40k this year without penalty, and presumably a similar percentage every year.
What I think I want from one evening's worth of being confused on the internet is to find some index fund that returns a predictable, average, at-least-5%-above-inflation amount [which one? how do I buy it?] and transfer the RRSP, new RRSP, and TFSA[s] into that index fund. Are there rules against moving money inside of RRSPs or TFSAs?
I would also want to just pay down as much of the mortgage as possible, but I still suspect that it's better to have the money where it is growing the fastest.
tl;dr:
how do I choose and buy an index fund in Canada?
Can I change how RRSP money is invested?
what have I been paying a financial advisor for?
we have an appointment to meet with the financial advisor next week - made with the aim of setting up an RESP for our son. That was the impetus that got me thinking about all of this!
Best answer: Canadian mutual funds have very high fees and Investor's Group Mutual funds have some of the highest fees in Canada (also this article). They did recently get rid of their 7-year long deferred sales charges (and I hope that change is retroactive for you, but my digging suggests that it would not be).
1) Stop putting any more money into your IG accounts. Find out if the funds you in which you are invested have a deferred sales charge (DSC). IG's own documentation suggests that older funds would: "The DSC purchase option will continue to be available for pre-authorized contribution plans established before January 1, 2017 until on or about June 30, 2017. DSC fees will not apply to purchases under pre-authorized contribution arrangements after December 31, 2016."
2) Read Millionaire Teacher by Andrew Hallam and the Canadian Couch Potato articles to learn more about why and how to invest in index funds. Since index funds have much lower fees than mutual funds (about 0.5% versus 2.4%, respectively), index funds have a larger return for the same market performance. I have a mix (for example 70% equities, 30% fixed income) that I aim to keep, and I just buy whatever I need to stay within those targets. I have a similar balance that I like to keep of global and North American funds that I am also staying within. If I am in a position to buy, I just buy whatever funds I need to bring the balance back in line with my targets.
3) Open new investment and TFSA accounts with an online low-fee brokerage (like QuesTrade or QTrade). Both have a number of index funds that you can buy/sell without trading fees (if you are trading more than $1000). You can try to negotiate with them to cover transfer fees for your RRSPs (before you open an RRSP account with them). Again, you might not want to move your funds from IG until the deferred sales charge time period has lapsed, but you can start your new portfolio until then.
As for your last question: Unless you are seeing a fee-based, independent financial adviser (not at an advisor at a bank), you are just seeing a sales person. Hey. Everyone has to eat.
You've got time. You'll do a great job. Start with Millionaire Teacher.
posted by Sauter Vaguely at 2:16 PM on November 3, 2018 [4 favorites]
1) Stop putting any more money into your IG accounts. Find out if the funds you in which you are invested have a deferred sales charge (DSC). IG's own documentation suggests that older funds would: "The DSC purchase option will continue to be available for pre-authorized contribution plans established before January 1, 2017 until on or about June 30, 2017. DSC fees will not apply to purchases under pre-authorized contribution arrangements after December 31, 2016."
2) Read Millionaire Teacher by Andrew Hallam and the Canadian Couch Potato articles to learn more about why and how to invest in index funds. Since index funds have much lower fees than mutual funds (about 0.5% versus 2.4%, respectively), index funds have a larger return for the same market performance. I have a mix (for example 70% equities, 30% fixed income) that I aim to keep, and I just buy whatever I need to stay within those targets. I have a similar balance that I like to keep of global and North American funds that I am also staying within. If I am in a position to buy, I just buy whatever funds I need to bring the balance back in line with my targets.
3) Open new investment and TFSA accounts with an online low-fee brokerage (like QuesTrade or QTrade). Both have a number of index funds that you can buy/sell without trading fees (if you are trading more than $1000). You can try to negotiate with them to cover transfer fees for your RRSPs (before you open an RRSP account with them). Again, you might not want to move your funds from IG until the deferred sales charge time period has lapsed, but you can start your new portfolio until then.
As for your last question: Unless you are seeing a fee-based, independent financial adviser (not at an advisor at a bank), you are just seeing a sales person. Hey. Everyone has to eat.
You've got time. You'll do a great job. Start with Millionaire Teacher.
posted by Sauter Vaguely at 2:16 PM on November 3, 2018 [4 favorites]
Best answer: I think your priorities make sense. You can put basically any investment in a TFSA that you could in another account; in fact, the most aggressive stuff probably belongs in the TFSA, rather than getting 0.3% return on cash.
Money invested in something inside an RRSP, TFSA, RESP can be invested in something else whenever; the important thing from the government's perspective is when money goes in and when money comes out. You can transfer a registered account from one place to another (the new place will be more than happy to help) as long as it's done properly.
What I think I want from one evening's worth of being confused on the internet is to find some index fund that returns a predictable, average, at-least-5%-above-inflation amount
This doesn't exist. You can predictably get a couple of percent from GICs or bonds; you can unpredictably get returns that may be up 16% this year, down 9% the next but over 10 or 20 years will have averaged 5%+ if you keep invested and don't pull your money out the next time the market crashes. But you can't get something that will give you 6% this year, 6% next year and 6% the year after that guaranteed.
The Canadian Couch Potato site does a good job of laying out some of the basics; they have several model portfolios that are low fee and as straight forward as possible. Here's an article about their model portfolios, as well as the portfolios themselves which give an idea of what they've done historically.
A slight variation on the theme (which didn't exist at the end of last year, so isn't in the model portfolios for this reason) is the new Vanguard asset allocation ETFs, which are three very straightforward, low fee alternatives; very much like the Tangerine service, but slightly less friendly and substantially lower fees.
posted by Homeboy Trouble at 2:17 PM on November 3, 2018 [3 favorites]
Money invested in something inside an RRSP, TFSA, RESP can be invested in something else whenever; the important thing from the government's perspective is when money goes in and when money comes out. You can transfer a registered account from one place to another (the new place will be more than happy to help) as long as it's done properly.
What I think I want from one evening's worth of being confused on the internet is to find some index fund that returns a predictable, average, at-least-5%-above-inflation amount
This doesn't exist. You can predictably get a couple of percent from GICs or bonds; you can unpredictably get returns that may be up 16% this year, down 9% the next but over 10 or 20 years will have averaged 5%+ if you keep invested and don't pull your money out the next time the market crashes. But you can't get something that will give you 6% this year, 6% next year and 6% the year after that guaranteed.
The Canadian Couch Potato site does a good job of laying out some of the basics; they have several model portfolios that are low fee and as straight forward as possible. Here's an article about their model portfolios, as well as the portfolios themselves which give an idea of what they've done historically.
A slight variation on the theme (which didn't exist at the end of last year, so isn't in the model portfolios for this reason) is the new Vanguard asset allocation ETFs, which are three very straightforward, low fee alternatives; very much like the Tangerine service, but slightly less friendly and substantially lower fees.
posted by Homeboy Trouble at 2:17 PM on November 3, 2018 [3 favorites]
Best answer: Chiming back in on the RESP front: It makes sense to contribute $2000 a year to your son's RESP, because then you get $500 from the Federal Government. In BC, your son would also get $1200 when he turns 6, but you have to apply for it. This is a 20% 'return' right off the top. Any unused RESP money could roll into your RRSP in about 30 years.
Personally, I find that withdrawal from the TSFAs are the most straight-forward: you can pull money out without tax consequences, and put it back (in the next calendar year). Our strategy is to 1) put $2000 into the RESP each year, 2) max out both our TFSAs, aided by applying our RRSP tax refund to it. 3) I also try to max out our RRSPs, but because of *reasons* this is only a secondary priority (though I get close).
If you hold American-listed funds, holding those in your RRSP means you won't be charged US taxes on the dividends. But until you have large holdings, I actually just think using only Canadian listed index funds is just fine (and more efficient in terms of your time and now baby diminished brain capacity --Congrats!).
posted by Sauter Vaguely at 2:34 PM on November 3, 2018
Personally, I find that withdrawal from the TSFAs are the most straight-forward: you can pull money out without tax consequences, and put it back (in the next calendar year). Our strategy is to 1) put $2000 into the RESP each year, 2) max out both our TFSAs, aided by applying our RRSP tax refund to it. 3) I also try to max out our RRSPs, but because of *reasons* this is only a secondary priority (though I get close).
If you hold American-listed funds, holding those in your RRSP means you won't be charged US taxes on the dividends. But until you have large holdings, I actually just think using only Canadian listed index funds is just fine (and more efficient in terms of your time and now baby diminished brain capacity --Congrats!).
posted by Sauter Vaguely at 2:34 PM on November 3, 2018
I'm a huge proponent of paying down mortgages. It's a guaranteed return and in the long run reduces your living expenses. You don't want ALL your money in such a non liquid investment, and depending on whether you plan to move and what your housing market is like you may not want to put in much, but paying enough so you don't have to pay PMI seems like a no-brainer.
posted by metasarah at 4:37 PM on November 3, 2018
posted by metasarah at 4:37 PM on November 3, 2018
So in regards to your mortgage insurance, Cmhc fees are applied to a mortgage balance if you have less than 20% down (when you first got the mortgage). So unfortunately, there is no way to get rid of it, unlike how PMI works in the states. What's your mortgage interest rate like, and when is it up for renewal?
I'm a passive index find fan, and personally use a roboadvisor like Wealthsimple or Wealthbar to manage my portfolio. Much cheaper than an mutual fund, but the rebalancing is done automatically. Definitely check out the books recommended above, and the simple path to wealth by j Collins is awesome as well!
posted by snowysoul at 5:18 PM on November 3, 2018
I'm a passive index find fan, and personally use a roboadvisor like Wealthsimple or Wealthbar to manage my portfolio. Much cheaper than an mutual fund, but the rebalancing is done automatically. Definitely check out the books recommended above, and the simple path to wealth by j Collins is awesome as well!
posted by snowysoul at 5:18 PM on November 3, 2018
All of the major Cdn banks offer what they call a self-directed investment account - you might want to check what your bank has. It's an account for your RRSPs and your RESPs and your TFSAs, and you make your own investment decisions and trades. They may charge a small yearly administration fee (generally waived if your balance is large enough) and they will charge transaction fees when you make a trade. It sounds more complicated than it really is, especially if you park your money in an index ETF like the Vangard one mentioned above - your only trades then would be to buy more shares every so often, and you wouldn't have to worry about rebalancing. The nice thing about having your investment account with your main bank is that you can easily shift money from your chequing/savings accounts to your investment account - it's easy and painless.
You're in it for the long haul, so your best bet is to avoid fees (that's what's been draining you up til now, with IG) and stick with a plain old 60/40 index fund - keep it simple. RESP is a no-brainer, the government will give you free money (woohoo!) And maxing out your TFSAs every year will mean your money grows tax-free, you don't pay taxes on your withdrawals (woohoo!) unlike the taxes you gotta pay when you start to draw down your RRSPs/RIFs (boo!)
posted by Mary Ellen Carter at 7:24 PM on November 3, 2018
You're in it for the long haul, so your best bet is to avoid fees (that's what's been draining you up til now, with IG) and stick with a plain old 60/40 index fund - keep it simple. RESP is a no-brainer, the government will give you free money (woohoo!) And maxing out your TFSAs every year will mean your money grows tax-free, you don't pay taxes on your withdrawals (woohoo!) unlike the taxes you gotta pay when you start to draw down your RRSPs/RIFs (boo!)
posted by Mary Ellen Carter at 7:24 PM on November 3, 2018
Response by poster: I'll be spending today reading up on all of your suggestions.
The things that you're all saying make at least some sense to me, which is a good sign.
I bank with simplii financial, and I don't believe that they have a self-directed investment account, but I'll check into that, too.
Thanks for the guidance so far!
posted by Acari at 9:06 AM on November 4, 2018
The things that you're all saying make at least some sense to me, which is a good sign.
I bank with simplii financial, and I don't believe that they have a self-directed investment account, but I'll check into that, too.
Thanks for the guidance so far!
posted by Acari at 9:06 AM on November 4, 2018
Response by poster: okay - I think I have a better handle on things
I made this budget planning spreadsheet to try to get things straight - it is not very good because I don't know about most of the important things to know about, but it's at least a start.
The budget items are different in each of the three scenarios because our spending would have to be different - eg: if we both work full time, child care would be expensive!
I think anyone can comment on this link
My current plan is to:
-open an account with something like Qtrade. I'm looking at various options but that one seems like a reasonable one so far?
-with the money currently in savings, start an RESP for my son, an RRSP in my name, and a TFSA in my name
-buy some sort of index fund. Maybe just the S&P 500 index, a clean-energy version of the same, or one of the commission free ETFs on the list. I have come to understand that a 60/40 mix of stocks and bonds is a common decision amongst people who seem to share my goals.
-maybe that vanguard VBAL or VGRO instead? They are just things that anyone can buy from any brokerage account, right?
-wait for a few months to figure out if I have things understood correctly [can I make frequent auto-contributions, are the fees what I expected, etc]
-once things seem okay, transfer over the RRSP and TFSA that are in my wife's name and keep buying the same index fund things.
-make a calendar event so that I check in on this a few times per year.
-put off any lump-sum mortgage payments for now (despite what my heart tells me)
I'm not going to do any of this today, but I probably will do it this week while it is all still fresh in my mind.
Money has changed from a background concern [we can pay our bills, have a nice vacation, and buy fancy cheese, so everything must be okay] to become more "real" to me since the birth of our son.
Going back to work has been super hard, and I've been crying a lot even though I love my job. I want to know what can work for our family [especially how much we can reduce time away from home]. If that means working full time so that my wife can stay home, both working part time, or something else, it all seems to boil down to money...
posted by Acari at 3:02 PM on November 4, 2018 [1 favorite]
I made this budget planning spreadsheet to try to get things straight - it is not very good because I don't know about most of the important things to know about, but it's at least a start.
The budget items are different in each of the three scenarios because our spending would have to be different - eg: if we both work full time, child care would be expensive!
I think anyone can comment on this link
My current plan is to:
-open an account with something like Qtrade. I'm looking at various options but that one seems like a reasonable one so far?
-with the money currently in savings, start an RESP for my son, an RRSP in my name, and a TFSA in my name
-buy some sort of index fund. Maybe just the S&P 500 index, a clean-energy version of the same, or one of the commission free ETFs on the list. I have come to understand that a 60/40 mix of stocks and bonds is a common decision amongst people who seem to share my goals.
-maybe that vanguard VBAL or VGRO instead? They are just things that anyone can buy from any brokerage account, right?
-wait for a few months to figure out if I have things understood correctly [can I make frequent auto-contributions, are the fees what I expected, etc]
-once things seem okay, transfer over the RRSP and TFSA that are in my wife's name and keep buying the same index fund things.
-make a calendar event so that I check in on this a few times per year.
-put off any lump-sum mortgage payments for now (despite what my heart tells me)
I'm not going to do any of this today, but I probably will do it this week while it is all still fresh in my mind.
Money has changed from a background concern [we can pay our bills, have a nice vacation, and buy fancy cheese, so everything must be okay] to become more "real" to me since the birth of our son.
Going back to work has been super hard, and I've been crying a lot even though I love my job. I want to know what can work for our family [especially how much we can reduce time away from home]. If that means working full time so that my wife can stay home, both working part time, or something else, it all seems to boil down to money...
posted by Acari at 3:02 PM on November 4, 2018 [1 favorite]
RE your budget, just so you know, your expenses will likely be higher in the both-people-working scenarios than on the one-person-working scenario because it's likely you'll be spending more on convenience food, clothing, transportation, etc. But you have a big vacation budgeted in each scenario anyway, and reducing that if needed could cover those sorts of fluctuations.
posted by metasarah at 6:53 AM on November 5, 2018
posted by metasarah at 6:53 AM on November 5, 2018
This thread is closed to new comments.
posted by Acari at 12:48 PM on November 3, 2018