Canadians, DR BS4 question (CDN investing) - Mothering Forums

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#1 of 7 Old 06-20-2013, 06:31 AM - Thread Starter
 
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Dave Ramsey's Baby Step 4, investing 15% of your income in Roth IRAs.

What's the Canadian equivalent?

I'm actually hoping to be much more aggressive given that we've been working on BS3 for about 5 years while DH has been in school. Once we're both working we won't know what to do with ourselves (well, yes we do: kill BS3 and aggressively plow through BS4 by investing 50% of our income....still unsure of the HOW piece though, I.e. what to invest that money in).

Laurie, wife to guitar.gifDH (Aug/04), mom tobikenew.gifDS1 (Nov/05) and bfinfant.gifDS2 (June/12).

 

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#2 of 7 Old 06-20-2013, 05:53 PM - Thread Starter
 
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http://www.oregonwillstrustsprobate.com/2011/11/25/rrsps-rrifs-and-tfsas-canadian-cousins-to-iras-and-401ks/

Cool, but a TFSA has an interest rate of a whopping 1.25%. :/

Laurie, wife to guitar.gifDH (Aug/04), mom tobikenew.gifDS1 (Nov/05) and bfinfant.gifDS2 (June/12).

 

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#3 of 7 Old 06-20-2013, 08:43 PM
 
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Eirual - a TFSA doesn't have an interest rate.  It's much like an RRSP in that it's more like a bucket that you can put investments of all kinds into.  I have my emergency fund in a TFSA savings account (which doesn't earn much interest) but you could also hold Mutual Funds or ETFs or GICs in your TFSA.

 

However depending on how aggressive you are you will probably use up your TFSA room pretty quickly as I think the max right now is around $27,500 per person and then increases by $5,500 each year.

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#4 of 7 Old 06-21-2013, 11:22 AM - Thread Starter
 
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Thank you for that info.

Do you know the best way to invest a large sum of money?

Laurie, wife to guitar.gifDH (Aug/04), mom tobikenew.gifDS1 (Nov/05) and bfinfant.gifDS2 (June/12).

 

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#5 of 7 Old 06-22-2013, 05:19 AM
 
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I don't know the best way to invest a large sum of money (although it's a nice problem to have) and I'm sure if you asked 10 people you would get 10 different opinions.  I am no expert but I'll share a few things I have learned.

 

- if you haven't maxed out your RRSPs it might be something you want to look into.  You get the tax savings right away and it might make sense if you are currently in a higher income bracket.  However I do believe if you have a big chunk it might make sense to put it in over the space of a few years to get the maximum tax deduction.  Your money then grows tax free in an RRSP.  You have to remember though that the money is then taxed when you take it out after you retire.  If you continue to be in a higher tax bracket after the age when you have to start taking out money (either because of other investments or continuation of work) you will be taxed at that level on money coming out of your RRSP.

 

- I like the idea of maxing out TFSA's.  The difference with TFSA's is that you don't get the tax advantage when you put money in but then that money grows tax free *and* you don't get taxed on it when you take it out.

 

- Until now I've been very conservative and put my money into GICs.  This was great 10 years ago when the interest rates were higher but now it's hardly better than a savings account.  If you are thinking of risk-free GICs and are investing a large sum you may want to think about 'laddering' your investment.  This means if you have, for example, $9,000 you might put $3,000 each year into a 5 year GIC for three years.  This means that you have chunks coming available for investment again at different times to take advantage of any increases in interest rates.

 

- I've been starting to teach myself about more risky investments that also have the possibility of higher returns.  I know DR promotes mutual funds but I believe in Canada the fees you pay on mutual funds are much much higher.  Studies have shown that ETFs (exchange traded funds) have a better track record.  For a quick definition an ETF it's set up to basically track the exchange (like the Toronto Stock Exchange) so you get the same return that the market does overall.  This is in contrast to mutual funds where they are managed to try to 'beat' the overall return of the stock exchange.  The advantage of ETFs is that they often perform better *and* there are next to no fees associated with them because they aren't being actively managed.  It's reeeeeally hard to get your bank to talk to you about ETFs because they don't make money off of them.  I have to say that I'm not invested in mutual funds or ETFs yet - just learning about them myself.

 

- Final thought, GICs or mutual funds or ETFs can all be held within RRSP portfolios or TFSA portfolios or not in either of those.  I've heard some people say that it makes more sense to hold risk-free growth investments (like GICs) in your RRSP or TFSA because you don't get taxed on the growth and there is no chance of losing money.  You may want to hold more risky investments outside of a RRSP or TFSA because if a particular investment isn't doing well and you want to sell it at a loss you can claim that loss on your taxes and get a bit of a tax break.  You can't do that with investments inside of an RRSP or TFSA.

 

Okay - that's all a bit overwhelming but hopefully it gives you a good few points to start thinking about what might make sense for you.  If you have a large sum and want to talk to a real expert (which I'm not at all!) I would suggest looking up a fee-only financial planner in your area.  You pay them up front but it means that they give you the best advice for you instead of trying to sell you thinks that make them the most money.

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#6 of 7 Old 06-26-2013, 08:44 PM - Thread Starter
 
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Thank you yet again! Politics and finances are huge portions of my life right now and I don't much care for either. I need to understand them better!

Laurie, wife to guitar.gifDH (Aug/04), mom tobikenew.gifDS1 (Nov/05) and bfinfant.gifDS2 (June/12).

 

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#7 of 7 Old 06-29-2013, 04:33 AM
 
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Happy to help!

 

I'm working on teaching myself about money and I've been working on a money blog website that I might share here once I get some more content going and feel a bit less shy about it.  I've had to teach myself so much about money since getting divorced.  I was the one paying the bills before but there was always a 'safety net' of having two incomes and a lot of wiggle room.  Once I had to start planning for my own future on my own - I started to really pay attention!

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