Newbie asks for investment advice | Page 2 | General comparisons | Discussion forum

Kyle.....let's go back to basics. Easy, secure and insured investments.

A GIC preferably in a TFSA.
I'll guess you are 20 and will give you $10,000 a GIC compounding for 35 years at today's current rates.

Hubert at 2.5000% nets $23,732.05.
BMO at 1.5000% nets $16,838.81.
With BMO you loose $6,893.24.

Hopefully we will see the rates increase.

BMO will even recommend a rate riser GIC.....both of the advisers I have had give a flat outright "not worth the time to invest in".

BMO Savings Account rate.... .05% ..... 1.75% less than Accelerate or Hubert
Accelerate or Hubert Savings Account rate......1.8% .... .3% higher than a 5 year BMO GIC rate!!!

I do all of the financial investing and my wife is not that interested, but kept up to date. She just laughs when we leave BMO and will say "I guess she won't be doing any of our investments".

I am not knocking all Financial institutions with "advisers" as some of the Credit Unions have good advisers...but you always want to skip the side counter. I know this as a fact...some of the ladies that work in the banks get a bit of a certification and are expected to make sales of financial products even if they don't believe they are good. They hope to move up in the business but falter.....they are often chastised and either leave or are reassigned a lower paying and lower hours per week positions. So did you talk to one with that gun being held to her head or one that is playing politics to move up in the company at your expense? And like I said look for good credentials after their name.

You need to be able to deal with someone that is free to sell or suggest products without their employer overseeing or limiting to what products are being offered or have been given goals or thresholds to sell a specific product(s).

The big 5 are consistently giving less while they make huge gains at YOUR expense. Listen to us and we will show you how maximize YOUR investment GAINS. We are not under the employ or take proceeds from a financial institution...and any one that is should say so.

BMO markets their products.......one should not fall for slick marketing gimmicks and smooth or confident talking. If in doubt walk away and say you will think about it. If a mutual fund or ETF is a BMO product, look at the MER and ask if there are any front or back load fees on top.

I was not quite up to date and didn't realize Hubert and Accelerate were a little better than Peoples at this time. These rates can change at any time. So I agree with kanaka's recommendation if you want a GIC. I also think that Hubert is a bit easier to deal with than Peoples but have not dealt with Accelerate. I know Accelerate will hold a rate for about 2 weeks or so until your money arrives - get a confirmation on that by email (so that you have a record) before you choose either of these as they must be done by mail.

The basic deal with the Big Banks is that the more money you have, the better quality of advice you are likely to qualify for. The banks employ many levels of people to advise/sell products. The best ones are not found in most branches but in their Wealth Management departments. That said, you can get good or bad advice and decision-making from any of them. However, you can't afford to just go by what any of them says. We are all vulnerable to our own biases, and advisors are no exception. This advice is all the more compromised when the advisor is receiving commissions, promotions, bonuses or saving her/his job by endorsing certain products.

You could, as kanaka suggests, ask for an advisor who is able to sell non-BMO products. We don't know if the person you dealt with can do that. If you do, this will likely involve setting up another kind of account, with some fees, although not necessarily a lot. However, BMO has a reasonable selection of in-house funds, and you can probably meet your current needs there. Alternatively, you could invest independently of the bank. For example, you might choose to invest in iShares ETFs, but that is only one example - they have been in the ETF market since the beginning and have a lot of funds.

Visit your local library; read more; it's free!

Disclaimer: I have never worked in the financial services industry and do not own any stocks/mutualfunds/ETFs at this time. I have read quite a few books and still don't feel I know very much, but I know a lot more than I once did!

Kyle, we might be able to help you narrow down the advice if you are able to give us an idea of how much money we are talking about and how old you are and when you expect to need access to the money, because these things make a huge difference to your choice of strategy.

In the absence of other info, I am assuming you are young (under 25) and don't yet have a lot of money. I'm guessing in the 20 - 50K range altogether, which is enough to make you start worrying about your returns. But this is only a wild guess. I'm also assuming it's all savings or rainy-day money which you don't plan to spend too soon.
You wrote earlier, " I am planning buy RRSP via TFSA for the tax deduction of 2015." I assume this means you either have money in a TFSA or are planning to put it there short term prior to moving it to an RRSP for the 2015 tax year - which doesn't give you very much time.

If my assumptions are correct, more or less, and if you have decided that you want to be into the markets (sounds like you have made this decision), then this is what I suggest:

You need to keep some rainy day money which is not invested in long-term instruments. It needs to be accessible. It should probably go into a TFSA and stay there, to your maximum. Your contribution room limit might be limited by your age if you are quite young. The experts suggest that everyone should have between 3 and 6 months of living expenses set aside for emergencies such as loss of job etc. Opinions differ on 3 or 6 months, but more is always better.

I would put all of this rainy day money into several 1 yr GICs at Hubert. I suggest Hubert in particular because they have excellent rates (as these things go), are insured by Manitoba Deposit Insurance Corp, and they will allow you to cash them any time during that year without imposing an extra penalty. They pay out escalating interest every 3 months, so it is compounded every 3 months. The limitation is that if you should cash it at, for example, 5 months, you would only get the interest up to the end of the 3rd month; similarly if you cashed at 7 months, you would only get interest up to 6 months. So, if there is a need to cash it, try to make it right after an interest payment if possible. I suggest several smaller GICs rather than one big one because, if you need to access some but not all of it, the rest can then remain invested. The insurance offered through Manitoba is as good as any in my opinion and I think in the opinion of most people on this forum.

You ask why these less well known institutions can offer rates that are so much better. It's a valid question that has puzzled many people. It has been going on for years, and still only a minority of people choose this route or know about it. One answer might be that they spend far less money on advertising. Hubert is the online division of a credit union, and thus does not have stock market investors to satisfy or pay dividends to; it is accountable to its members - you and I. It has very few offices and no branches to maintain. etc etc.
There are no weird rules or catches with banks or credit unions like PT and Hubert. With the credit unions you will have to deposit a very small membership fee, but that's all. I believe you get it back if you leave. It's in the range of $5 to $20. They all have their fee schedules listed online. PT has almost none. I have accounts with PT and Hubert and there have never been any fees except the Hubert membership.

BMO is not going to be able to offer you a match on the GIC rates. if you want to shop around for rates through a financial institution, you would need to go to a rate broker. I have dealt with one of those but find that usually I can do better without them and I no longer use one.

Next, I would take your remaining investable money and, since you appear to want to put it into the markets and you want to have an RRSP, I would put in as much as you can and put it in one of the following:

1. the Balanced Growth Fund at Tangerine Bank. https://www.tangerine.ca/en/investing/investment-funds/investment-fund/index.html# (You can take their quiz to see if this is the right fund for you as they do have choices.) Tangerine is wholly owned by the Bank of Nova Scotia. The advantage of their funds are that they automatically rebalance them quarterly so you don't have to do a thing, since you are obviously very busy. They have a pretty good track record and are often recommended for beginners. When you have more money, say in the high 5 figures, you will probably want more diversification than Tangerine provides. Their MER is a bit higher than what you would pay for the corresponding underlying ETFs, but not exorbitant;, on the other hand, you don't have to lift a finger after you put the money in. I honestly think this would be the best of my 3 options, for you, because it looks like you are going to be watching these investments very closely, too closely. People who are new at it and who do that usually make the same common mistakes, namely cashing in at the wrong time. With the Tangerine portfolio, you never have to make those decisions, so it protects you from your own weaknesses.

2. You could set up a portfolio of ETFs such as those issued by Vanguard or iShares. I am not the person to ask for the details about how to go about this, but I think it's a reasonable strategy and you could do it through Investorline, I think. Keep it simple at this stage. Diversification is the key but not too much of it. You probably don't want to have more than 4 or 5 funds max at this time. Kanaka or others can suggest how to go about this. HOWEVER, if you are going to pursue this, or my 3rd suggestion, I insist that you MUST do some reading, for your own protection. The time you are going to spend on the internet watching these funds go up and down and wondering if you should bail out would be FAR better spent educating yourself. I always find it interesting what people manage to have time for. 20 pages takes me up to an hour, depending on what kind of reading it is. If you truly don't have the time for it, then stick with Tangerine.

3. You could stay with ETFs issued by BMO. You may be able to avoid setting up an investing account by doing it this way; I'm not sure, as it's many years since I've done this. Keep an eye on MERs, benchmarks, and diversification (again, necessary, but not too much). For this, the person you are seeing this week can probably handle it. Just beware of any exotic suggestions. For example, you don't need an "Emerging markets" fund at this stage or a "Resources" fund or a "Precious metals" fund and you don't have to specialize in large caps or small. Just stick with Cdn equities, US equities, a broad international or European fund, maybe a Cdn bond fund although you already have that more or less covered with the emergency fund. Depends again on how much money you have. Be prepared to let it sit there for a number of years until you have enough money in the account to warrant moving on to more complicated scenarios, but rebalance them regularly - 6 months or a year or whenever there is a significant change in the markets is what is usually recommended. This kind of fund should not need any action on your part unless it is not keeping up with its benchmark, in which case you should sell it and buy one that is.

Bear in mind that some people now think that RRSPs may not be the greatest strategy in the long term.
First, TFSAs are cumulative, and that is usually a better place to put it over time because you only ever pay tax on the principal that you invested whereas with RRSP you will eventually pay tax on all of it and at full rates.
Second, it can happen that by the time you get around to withdrawing it, you will find yourself in a higher tax bracket than now, or at least equal, so, in the end, you might come out about the same or be worse off. Who knows what tax rates are going to be 40 or 50 years from now. Really, it's beyond our ability to imagine, as government budgets respond to changing realities. This risk may become a bigger concern if you marry because, when the first spouse dies, the remaining one acquires the RRSPs of both, which can really bump up your mandatory withdrawals and tax bracket in a hurry. I know it[s a long way off, but something to think about.

I think you should also set up a day-to-day savings account which offers chequing at low or no cost but a high rate for savings. Keep your BMO account because you will need it as a base when dealing with the smaller banks and CUs, most of which require you to have one in order to send money back and forth to you. Accelerate offers one of these, but I have not used it. Others can comment on their choices for this purpose. I have a no-fee seniors account at Big Bank so don't require the chequing feature. PC Financial and Tangerine also offer this. With Tangerine, you would need both a savings and chequing account, but the chequing account does offer some miniscule interest; not sure of the arrangements at PC. PC and Tang often have "rate specials" where you can do much better than their prevailing advertised rate (currently there are two deals running at 3% for those who accessed it earlier.) But these require some attention from you in order to make sure you continue to qualify for their special rates, so you might find that too time-consuming.

If there are any savings left after your emergency fund in your TFSA and your RRSP, and you still want to invest it, I would suggest you look at "eligible" Canadian dividend-producing stocks as defined by CRA. I'm sure there is a good fund out there that will cover these and someone here can recommend it. With a dividend fund, you will get a much better tax break than on capital gains (growth stock), although it will still get bumped up in terms of tax bracket for your income. But the main reason is that you still want lower risk investments, and that is one of the better ways to achieve this goal.
Alternatively, you could keep your US$ and put them directly into a US$ investment, I suppose, as you just did. Presumably there is an ETF that would work for that purpose at BMO, or you could split it between a US equity fund and a US bond fund if you want, as that's what the current fund holds.

However, if you do as I suggest, you are probably going to need to use mostly Cdn $, so hanging on to your US$ may be difficult. You can't put them directly into a GIC and I don't think (but am not certain) that you can put them directly into an RRSP investment either. You can inquire about the latter, but it's likely you would have to convert it to Cdn and then you could convert it back again once it was in the RRSP in order to buy a US-denominated fund; these conversions will cost you. You also need to consider whether you want that money hedged to the Cdn $.

I hope my assumptions were more or less correct and that therefore this advice applies, and that it breaks things down for you a little more. I think all of the advice you have been given by other posters is relevant, not as contradictory as it may seem to you.
If, on the other hand, you are older and significantly wealthier, well, that's another ball game entirely.

P.S. Bottom line, the reason you are finding this so difficult is simply because you know so little. There are two ways out of that. Either you learn by experience, which usually involves some very regrettable mistakes (you are already regretting your first decision); or you take the time to educate yourself. You might get lucky and find a great advisor by accident. That wasn't the way it worked for most of us though. All of these except getting lucky eventually involve spending time educating yourself. You can do it now, before you lose money, or later, after you have. I assure you that in the latter case you will find yourself very highly motivated.

All the best!

I think that's a pretty good fund too, as these things go. You could use it instead of the Tangerine one if you wanted. With Mawer, you would need, I gather, to set up a brokerage account. Note that it is deemed suitable for registered accounts, e.g. RRSP.
With Tangerine, you can do it directly with the bank. Not much difference, overall. Mawer may have a better track record in terms of returns though - you should check on that.

I agree with you for the most part, AltaRed. I am noting my agreements with what other people are saying so that Kyle doesn't think he's getting contradictory advice.

But he has made it clear that he is not likely to do the reading until forced to do so, and he IS going to make the investments - as he already has made one that he already has changed his mind about.

I think you would agree that the decision about how diverse to make one's investments depends on how much money one has and where one perceives the cutoffs to be which make further diversification worthwhile.

I don't know where your cut-off would be, but I think that it is OK to have accounts in various places if they are not too complicated and give you best advantage in each category, even if you don't have 100K, knowing the difference in results will not be huge in absolute dollars. Once set up, they can ride for several years until he has enough money to warrant changes.

Of course, for all we know, he may have just inherited 500K, which would suggest a more diversified portfolio and a somewhat different approach.

I am doubtful about his idea of buying several different ETFs (at least I think that's what he's saying) until he has more money than I assume he has. Bill has a good idea on that, with just one fund, suitable for the RRSP. As you say, he hasn't told us how much he's playing with, and it does make a difference, as does his age.

I think there are a lot of people in Kyle's situation, people who feel desperate to find a way to get a better return, don't want to do the homework, and want someone to hand them the magic bullet. There are infinite numbers of people out there who will be willing to take his money, but he is a sitting duck if he doesn't have the tools to take a critical view of what they suggest. If he were to read the books etc., he would see how his behaviour fits into a pattern, and might change it for the better.

He's also a sitting duck for one of the other most common investment errors because he is going to be watching these investments too closely and will likely pull the plug on them while they are down, just as he wants to hang on to the US dollars when they are up. He has already shown that he is intolerant of a short-term dip, so how will he cope with the inevitable vacillations of 'medium' or even 'low' risk funds?

So much to learn!

Credit unions are not covered by CDIC. They are covered by provincial deposit insurance corporations of their own. There are previous threads on this. The general consensus seems to have been that the coverage is adequate. I think Brian probably disagrees, as I believe he posted recently that he felt more negatively towards at least some of the credit unions.