Newbie asks for investment advice | General comparisons | Discussion forum

I use iTRADE for TFSA stocks and ETFs. You can also buy GICs but their rates can be on the low side. No fees, 24.99 sales commission (<=not the best), lots of commission free trades, all online, have EFT functions, and you can do an EFT from your TFSA cash (as a withdrawal not a transfer) to your bank or credit union.

For higher rate GICs. Oaken, PT, Accelerate, Hubert, Implicity and others as mentioned here. For best flexibility make sure if you buy a TFSA GIC that the institution also has an associated TFSA savings account.

Make sure you set up beneficiaries for every account/institution.

Safe...
Look at the insurance offered by the institution that will back up your investment.
Stocks and ETFs ... Look for dividends. Buy and hold. Review and reposition every year or two if needed. Look at Money Sense articles, a Canadian magazine, and the Morningstar Website and observe their ratings.

This is not to disagree with what others have said, BUT...

You said your goals are "safe investment with better rates than normal savings".
That's what we all want, of course, and that kind of thinking can be a trap that a new investor can get caught in, and often leads to desperate ill-considered decisions that are later regretted. Investments themselves are quite indifferent to your success.

You need to be aware, and never forget, that there is a close relationship between safety and return. The safer the investment, the lower the return; and the riskier the investment, the higher the potential (but not guaranteed) return.

So, the first question you ask yourself needs to be "how much risk can I or am I willing to take?" The answer to this will depend on your personal circumstances - things like your age, financial obligations, how much money you have, etc. Bank accounts and GICs from insured accounts, Treasury Bills issued by Federal Gov't, Federal Gov't bonds, and their ilk are the safest investments, and that's why they have the lowest returns. Some people would also say that diversifying into US$ similar accounts adds extra protection.

The next safest thing is probably a group of broadly diversified investments, so that if one doesn't do well, another likely will offset it. Doing this well requires a very good advisor or a lot of self-education, and it takes time, quite a bit of time. DON'T RUSH! The way in which you do this kind of investing depends very much on your personal circumstances.

Be very cautious. Remember that most people make some very foolish mistakes that cost them real money because they think too little, act too quickly, follow bad advice, think they know more than they do, and/or think they can outsmart the market.

All of that said, if you afford some risk, you could consider either the mutual funds offered by Tangerine Bank, where they will automatically rebalance them for you so you don't have to do anything (and they have had pretty good returns) or the Couch Potato system (google it) which is do-it-yourself (not very difficult) but requires that you actually have the discipline to follow it. These are pretty good for people who don't have a whole lot of money to invest and don't want to take unnecessary risk.

Remember though, that sooner or later interest rates will go up again, at which point stocks and bond funds will fall in value - maybe 20%, maybe more. They may also fall at other times for other reasons, but this much is predictable. If you don't have the stomach or time to ride that out, you shouldn't invest in the stock market or bond funds because you will not likely be able to resist the temptation to sell at the wrong time. These are for people with long term goals who can ride out the bumps.

Something else you must consider is fees and taxes. It does you no good to get "better returns" if they disappear. I think any investment other than a GIC or bank account is going to have some kind of fee attached to it, often more than one. So, you have to find out what those fees are, which is sometimes difficult, and deduct them from your "return".

Then you have to consider how the investment is taxed and your tax bracket. Bank account income and GICs are taxed at the highest rate, but they are not taxed at all in a TFSA, so some people prefer to keep their TFSAs stocked with GiCs and savings accounts. With RRSPs, you will eventually pay tax on every cent of it, and it will be considered in the same category as GICs and savings, no matter whether that's what you invested it in or not. If you want to get into stock market, either individual stocks or mutual funds, you will get better tax advantage if you do it outside of TFSA or RRSP, but this depends on your personal situation and it can sometimes be more difficult to do the required accounting because the income comes in different categories according to CRA's rules.

Good luck!

I'm sure many will have another approach, but here's an idea: Get an education that gets you a good job (ignore today's "follow your passion" mantra) with some kind of pension plan (that'll be your market exposure), work hard for 35 years or more, save as much as you can and don't overspend on a house, cars, travel, or other of life's frills, avoid debt like the plague (move to a town where house prices are reasonable, pay off mortgage asap, don't move again), and every time you save another $1000 or so get a 5-year GIC and make sure to roll them over when they mature (unless you need to cash a few to pay the extra taxes on the interest income). Take advantage of any "free" money such as matching employer contributions to a pension plan. Also, open a number of online high interest savings accounts so you can move any money in them to who has the best rate at any point in time. Use TFSAs to the max. If you do that (and, even better, if you get a wife who does the same and you stay married to her), you'll be set, zero risk, no sleepless nights, you'll have a boatload of GICs, plus max OAS & workplace pension, to live on after your working days. No point investing to make extra money just to get to higher tax rates, to OAS clawback territory, etc. I know many people say you're losing to inflation but I still say there's nothing like having a large pile of GICs to make a person happy. And there's no tax when you cash them in, it's all yours. And you've paid no fees along the way for those employed in the "investment" industry, it's all yours too. Just something to consider, you don't hear this from the investment industry and media.

Bill said

I'm sure many will have another approach, but here's an idea: Get an education that gets you a good job (ignore today's "follow your passion" mantra) with some kind of pension plan (that'll be your market exposure), work hard for 35 years or more, save as much as you can and don't overspend on a house, cars, travel, or other of life's frills, avoid debt like the plague (move to a town where house prices are reasonable, pay off mortgage asap, don't move again), .... If you do that (and, even better, if you get a wife who does the same and you stay married to her), you'll be set, zero risk, no sleepless nights, you'll have a boatload of GICs, plus max OAS & workplace pension, to live on after your working days. .... Just something to consider, you don't hear this from the investment industry and media.

I agree. I believe that, contrary to investment industry ads, people get most of their income from their jobs and inheritances. Most of the income does not come from investments.

As well, how much of that income one actually has at retirement depends more on the spending habits of oneself and one's spouse than it does one's investments.

Yatti420 said

I would probably speak to an advisor or begin to reasearch DIY investing.. I use Questrade for my TFSA/RRSP.. You can always try something like wealthsimple or something similiar..

Again speak to an advisor who will be best suited to answer these questions for you..

Before looking for an advisor, I would recommend investing some time reading these two books:

1. Where Are the Customers' Yachts? by Fred Schwed.
2. The Naked Investor: Why Almost Everbody But You Gets Rich on Your RRSP by John L Reynolds

They will help one learn to filter out lot of the nonsense that's in the investment industry. They will also help one learn to recognize when one is dealing with an actual advisor in contrast to a product salesperson pretending to be competent to give investment advice.

Everybody makes mistakes in investments. You have just made your first one, which is trusting the advice of someone at BMO about whom you know nothing and about whose recommendations you know nothing.

So, you are now paying the exorbitant MER for an investment that you don't know or understand and on which you may very well lose money, depending on how long you are prepared to keep it. The people who benefit most from this are almost certainly going to be at BMO.

A 5-yr GIC at BMO currently offer 1.5%
https://www.bmo.com/home/personal/banking/rates/gic-term-deposits
This is indeed a terrible return, and nobody should take it.

A 1-yr GIC at Peoples Trust pays 2.05%
http://www.peoplestrust.com/hi.....s-rates-2/
The person you spoke to would want to sell you a BMO GIC.
So, if he thinks a 5yr GIC at 1.5 makes some sense, surely a 1-yr at 2.05 would be at least as good, since he asserts that one must take a 5-yr in order to make it "worthwhile".
However,the advisor at BMO would never sell you this 1-yr GIC.

You said you wanted a safe investment. This one lost over 33% in 2008. Are you really prepared for this kind of volatility??? You are already worrying about a $50 loss, which is nothing compared to what might happen if things go bad, as they do periodically. This fund has a volatility of 12 SD (Standard Deviations) over 10 years, which, in my view, is unacceptably high for someone looking for a "safe" investment. (And, no, you shouldn't be fussing over daily returns. It's the risk tolerance and suitability of the investment for your financial planning that is at issue. I don't think you really know if this is suitable or not because you don't have a plan.)
The 10-yr average return on this fund (after MER deducted, presumably) is 2.74%. I presume this is exclusive of the monthly payout but that is not clear to me.
While we can't know how the fund will do over the next 5 or 10 years, a 5-yr GIC at Peoples Trust pays 2.45%.

Over the long term, this fund will probably be relatively safe, when all is said and done, but it's way too expensive (MER), and "long term" may mean more than 10 years. Were you prepared to not touch it for that long? (He said 2+ years, but that is not a long enough horizon for this kind of fund. You might get lucky over 2 or 3 years, but you might not - think how long it took to recover from 2008, and in my view we're not over it yet.) If you're not prepared to leave it alone for AT LEAST 10 years, it's not a good choice.

Do you know what this fund invests in? Did you read its Prospectus before you handed over your money? I doubt it, but these are ESSENTIAL before you invest in ANY mutual fund or ETF. If you even read the "Profile" for this fund online (not as detailed as the Prospectus), it says that it is low to medium risk and that you should be prepared to hold it for the medium to long term, which is substantially longer than 2 years. A Prospectus, or even a Profile, is a much more reliable source of information than an advisor whose job it is to sell you the fund. ALWAYS read before you buy. "Medium" risk is simply not what you said you were seeking, therefore not suitable, period.

It's likely that the MER (an annual cost, which may change annually) includes the other fee, but this should be clarified BEFORE you invest. See http://www.theglobeandmail.com.....le4099457/ However, MER is a hidden cost. In other words, the returns you see posted are measured AFTER the MER is paid out. It is supposed to pay for the expertise of the fund's managers and admin fees etc. However, study after study has shown that there is rarely any added value to be had from such management, and it is neither predictable nor guaranteed that there will be any even if the management team has done exceptionally well in the past. You need to be comparing the returns from this fund to its benchmark in order to see if there is any point in such a high management fee. It doesn't take a lot of work or skill to buy the generally-accepted relatively-safe investments that they seem to be invested in, so it's almost certainly not justified.

An ETF would be better. Did you ask your advisor if he would receive a commission from this sale and how it would be calculated? I don't happen to know how they operate, but you have a right to know the answer. I would think he benefits more from selling you a mutual fund than an ETF. Did he even discuss ETFs with you? You should at least have been made aware of an alternative. For example, the BMO US Equity funds have an MER of 0.36% MAXIMUM. The BMO US Dividend Equity Fund (ETF) includes a 1.5% investment in Verizon; the fund you bought has a 1% investment in Verizon. Would you rather pay less than .36% or would you rather pay 2.26% to invest in Verizon?

It appears that this fund is about equally divided between large cap US stocks and US bonds (corporate and gov't). They are putting an emphasis on "high yield" bonds, which is another word for "higher risk".

I would want to have a better understanding of how the money is drawn down in order to pay out the monthly income. It's quite possible that some of the high MER fee is going towards ensuring the monthly income. Probably they intend to take it first from dividends (from the stock portfolio) or from interest payouts from the bonds. But if that is not enough, they may need to take it from the investments themselves, i.e. pay you back with your own money. The "Profile" does not make the process that they will use clear to me. The other option is to reduce the "income" when the fund does not earn well in dividends/interest. Given that the reported payout on the "Profile" is 100% consistent month-to-month, I would presume that they might be willing to pay you with your own money. The Prospectus should clarify this.

In my limited experience, monthly income funds are best suited to people who are in the retirement phase, who need reliable regular income from their investments to live on. Since you are still acquiring RRSPs, I assume you are not retired or planning to use the income from this fund for your living expenses. It doesn't seem like the right fund for you. Among other things, you may be paying a high fee in order to organize the monthly income payouts which I don't think you need.

You should also have been advised of tax implications. This is a fund outside an RRSP and it is invested in US markets. Therefore you will be fully taxed on the income, just as if it were a GIC.
A better alternative might have been to invest in dividend-producers that include stocks listed on a Canadian stock exchange. This would allow you to claim the dividend tax credit and reduce your taxes. I am not clear why you wanted to keep this money in US$. It doesn't appear to be hedged, so you have some currency risk here as well. The US dollar is very high now in relation to ours but it won't always be that way. It goes up and down periodically, and when it goes down, you will lose with this fund. When we start getting a more truly diversified economy and get off the oil train, our dollar will come up. Right now, our dollar fluctuates with the price of oil, which is low, and that's why they call it the "petrodollar".

Some may disagree with some of what I have said and/or have other considerations to add. There are lots of people here who know more about this type of investing than I do. But you need to understand the issues and decide for yourself. There is a saying in the investment world that "nobody cares as much about your money as you do". This is very true, so, if you are going to get involved in it, you have no choice but to get educated.

Go back and re-read the advice you were given on this thread. And use it. It's a lot more reliable than what you have received at BMO. And PLEASE don't invest in another fund until you have learned more. It takes time and effort. We all learned what we know because we invested that time and effort and made mistakes. You can't depend on ANY advisor to do that for you. It's actually not their job. All we can really tell you in the end is how to educate yourself better. None of us knows everything.

It's frustrating to put the energy into giving you advice only to have you turn around and say you took the advice of some unknown at the bank at face value because you're a newbie, apparently without paying much attention to the advice we offered. Stop being a newbie, and learn how to protect yourself.

Honestly, Kyle, you took the easiest way out on this, not the best way. We probably should have warned you specifically not to just accept the advice of whoever is on duty at your local bank branch, but the advice about speaking to an advisor was just one small piece of a lengthy thread. Norman1, in particular, told you to do some reading before speaking to any advisor. And nobody specified a bank advisor as the way to go since, as Norman1 suggests, they fall into the "sales" category. Real informed advice is something you pay for, and, even then, may turn out to be wrong. In the end, you have to take control of the situation, even if you have a great advisor - and those are hard to find. There is no getting around this, no way at all.

There is so much you need to learn, it couldn't possibly all be covered in this thread.

I'm not sure your logic is correct in terms of buying US$ funds right now. The time to exchange US for Cdn money is precisely when the US$ is strong, because ultimately you will be spending it in Cdn unless you have plans to move to the US or spend a lot of time there spending money. You don't want to wait until it weakens. There are many valid reasons for choosing to stay in US$, but this is not one of them. The Cdn dollar may go even lower, and if you believe that is likely, then it's a valid reason. Another problem is that, since we know this is going to almost certainly have to be a long term investment, by the time you want to cash it in, you may be facing a huge currency premium. For this reason, personally, I think one is better off to stay in Cdn funds for longer term investments UNLESS one is buying in Cdn$ and the Cdn$ is high at the time, neither of which is the case here. Or buy a fund that is hedged to the Cdn $ as was suggested above.

Thanks for the info that you have upgraded your risk tolerance to "medium". I hope this isn't because the "advisor" suggested it.

NEVER NEVER NEVER trust an "advisor" because he seems like a nice person, patient, and professional. This is all veneer.
There are credentials, as kanaka has said, and he needs to have some, the more the better; best is CFA, Chartered Financial Analyst, but you won't get one of them unless you have at least 500,000 to invest, probably 1,000,000.
At the branch level, you are essentially dealing with a salesperson - see books recommended by Norman1. His job is to sell you mutual funds, no matter what you come in there thinking you want, and to build your trust. The more appealing he appears, the more successful he will be at selling you mutual funds and getting you to trust him so that you will do more business with him and with BMO. In a year or two, he will likely have moved on to another job. I get contacted by these people at my TD branch every year or so, and it is rare for the same person to call twice, as they move on.

He would not likely mention ETFs if he can sell you a mutual fund. If you'd have raised major doubts about mutual funds or shown that you knew where you could get a significantly better return on a GIC, he would have realized you were not completely naïve and might then have mentioned them. His goal in the first instance is to make sure you don't walk out the door with your money.

Yes, he's almost certainly making more money from selling you mutual funds than he would from ETFs. He's also focused on acquiring a longterm customer for the bank, so it makes sense to be patient. He wants you to think he's your friend. Also, there is a psychology involved in mutual funds which is not present with ETFs, or at least not to nearly the same degree. In due course, if he hasn't already, your bank branch advisor will try to tell you that such-and-such fund is "hot" and you should invest there because so-and-so is the manager and this manager is fantastic blah blah blah. They can't give you that line with ETFs, because managers don't have as much impact on them. All of this is meant to prey on our greed and has little to do with a positive impact on returns. And, as I said, in a year you'll likely be dealing with somebody else anyway, so there are no negative consequences for him. The next guy will say he can do better. And so on.

ETFs are, by definition, more objective, less subject to emotional manipulation. And of course they're cheaper. There may come a time when you have enough money that you want to get beyond ETFs and choose individual stocks and avoid others in the ETF basket, or you might even want a few carefully selected mutual funds. But I doubt you are there yet.

It is certainly possible to make 8-10% on a mutual fund, and some will do better than that in any given year most of the time. But it is not possible to predict which ones will succeed. And there's the problem. From what I have read, it seems that in the current climate, most people should expect to be happy with 4-5%, and may not get that much.

If you want to invest in a GIC at Peoples Trust, you should probably deal with them directly. You could ask your BMO guy if he sells that investment. If he does, he will get a cut on it from PT, which doesn't necessarily reduce the rate you get, although it might, but it does tie you to going back to BMO in future and will probably stick you with set-up fees for a new kind of investment account and BMO transfer-out fees. As of now, PT is one of the very few institutions that does not charge transfer-out fees for TFSA/RRSPs, but that could change.

Peoples will not sell you GIC in US funds. It's probable that you would have to switch to Cdn no matter where you go, even if buying US mutual funds or ETFs, within TFSA/RRSP, but I am not certain about that.

If you are going to invest with Peoples, or any institution for that matter, read all the threads for them on this site first. Each institution has its fans and detractors, and issues. With Peoples, for example, you need to be sure to get a written acknowledgement from them that they have received your Beneficiary or Successor Holder designation, as they will not necessarily provide any other confirmation. Do not invest more than 100,000 in RRSP due to insurance limits. (TFSA does not yet go up to the limit, which is 100,000.)

I don't know whether you should sell this fund that you have bought or not. If you keep it long enough, it should do all right and you will not lose. Personally, I don't think it is the right investment for you, from what you have shared with us. All other considerations aside, the MER is excessive, and this adds up over time. If the fund earns, for example, 6% before MER, then you are losing more than one-third of your earnings to the MER off the top.
If you're going to sell it, don't make the decision solely on the basis of whether it goes down in the next month or two. The point of a long-term investment commitment is that you leave it there and don't fuss about the shortterm. All market investments fluctuate, and this means they sometimes go down. It sounds like you don't have the stomach for that, in which case it is not a suitable investment for you for that reason as well. And your assertion that you are OK with "medium" risk does not hold water.
This is not to criticize you for not having an iron gut. It's perfectly OK to be who you are. The trick is to know who you really are and what is your real risk tolerance. No advisor can tell you that, but many like to convince people that their risk tolerance is higher than it really is as it comes across as a kind of macho flattery, for want of a better word - i.e. "I'm tough. We're all tough. I can handle it. I'm not a wimp." Never forget that this is all a psychological game that they play with you. They are salespeople. They learn sales techniques. The ones that learn them best are most successful financially - for themselves.

If it were me, I would never have bought it because of the high MER if for no other reason. If I had it, would I sell it now? I am retired, so the monthly income idea would fit me better than it probably fits you. But I would probably get rid of it and look for something better. Before you cash out, if you do, check on any fees that may be involved. Often there is a minimum time period to avoid penalties. However, this one does not have the load fees to which kanaka alluded, which are deadly. And be prepared for a lot of push-back from your advisor. He will try to "hold your hand" and tell you not to worry about the short term results (which is valid) and emphasize the long term. But it is only you who can identify your risk tolerance, never mind the various reasons why this particular longterm investment is not suitable.

Read more! much more.