How to invest $10000 windfall | Page 2 | General financial discussion | Discussion forum

I agree with everything Brian has said, in principle, with the exception that I am not convinced that CDIC is necessarily better insurance than Manitoba Deposit Corp. They are hard to compare because the structures are different. There is another thread which discusses the viability of MB Deposit insurance. I do have significant money in a MB credit union. (You have a right to know that since I am suggesting that it is a sound investment.)

I wouldn't assume the Feds will necessarily bail out the credit unions, especially the current government. It is the MB government who would be more likely to try to help, although their resources are limited as a province with a small population. I read once that something in the order of 50% of Manitobans bank with their credit unions (sorry, can't cite a source), which is a huge percentage, so it would have a big impact on the MB economy if there was a failure big enough that systems already in place couldn't handle it. The Feds would only get involved to the extent that they think it might help them win elections, and are more favourably oriented towards big banks than towards credit unions.

As regards RRSPs, there can be an advantage in contributing even if you don't yet need the income tax benefit. http://www.cra-arc.gc.ca/tx/nd.....s-eng.html states that you can carry the deduction forward to at least 2014 if you had contributed in previous years.
What I am not clear about is whether you can carry it forward beyond 2014, and that would be worth a phone call to CRA. This article says you can carry it forward indefinitely.http://business.financialpost......deduction/ I believe that is correct but would like to confirm with CRA since rules can change.
Assuming the indefinite carry-forward, then you can benefit from having the money tucked away now and use the deduction later without having to worry about being taxed on the money itself or the income from it before you are old. It could be tapped later to help you buy a house or condo, although has to be paid back eventually, although in the longer term an RRSP isn't the best solution for everyone, as that depends on your income in your senior years, and I suppose there is always the risk that they would change the mandatory withdrawal levels (although my guess o n that is that if they changed them, it would more likely be to lower them rather than to raise them, as people are living longer now, so the money needs to last longer). With the price of houses the way they are right now though, you might really want a bit of help from your RRSP when the time comes.

With any government plan, and this is advice I would give to anyone, you need to consider if it is to your advantage, and, if it is, you need to take advantage of it now, because governments come and go and legislation comes and goes. What's available today might not be quite the same tomorrow. I have seen this happen many times, especially in regards to income tax provisions. While nobody is talking about getting rid of RRSPs yet, as far as I know, they might be modified, especially with provinces now getting into the pension game. In reality, RRSPs have not been as well used as was originally hoped. Most people still can't afford to contribute to them. This is partly why TFSAs were introduced, as they are more flexible (you can accumulate contribution limits indefinitely, you can take money out whenever you need to and replace it the following year, etc.) So, it's possible in my mind at least that RRSPs could be phased out or substantially changed, and almost certainly will be sometime during Jon's lifetime. Whatever you have already done at that point will typically be protected or "grandfathered". So, in general, do it while you can! - but not necessarily right now, as you are still very young and don't appear to have any significant earned income upon which to base it yet, which is essential.

Brian's concern about trying to time the market for a downturn is well placed. The same can be said for trying to time interest rates. And this is why ladders are valuable as a strategy. It is said to be a common error of the inexperienced, to think that they can time the markets, although on the surface it can seem so simple and tempting.

Here's my 2¢
If I had 10k when I was 18 and I knew what I know now (at 21) I would do the following.
Keep it as an emergency fun or if you already have one...
Invest it and keep it as a nest egg for RETIREMENT in a tfsa. Yes it's far away, but...
Being in gen y the cost of living and retirement is going to be absurd for us so we need to start now or else hope (sadly) to inheret our retirement income.

Now by age 25 if you could save 50k, by the time you are 73 you will have over a $1.5million! (With some luck and perserverence) Assuming 7% returns. The new retirement age is 73 apparently.
Now historically speaking the only way to get that good a return is with a diversified oortfolio. My recommendation the complete couch potatoe. But in this case you rebalance tactically when thresholds are reached and only have 100-age in bonds (ideally, but only if you can stomach that.)
I know, I know, you said no stocks, but a well diversified index fund is slightly less risky than a stock. You shouldn't lose all of it, at most half, so if that is ok to you becuase you don't need it soon, then go for it!
Maybe it's a foolish plan, if so please poke holes, but the way I see it options are limited.

Please do us all a favour and tell us about everything that I have said that is "misleading", Brian, because I, for one, would like to know, and you have a moral obligation to do more than just present innuendo. I offer what I can in good faith and have gone out of my way to suggest ways in which Jon should be cautious. I did indeed ask for critical input on an idea I read elsewhere and have yet to hear why it could not be done. Isn't that what this form is about, namely kicking around ideas and seeing what others think?

I will respond to what little you have actually presented. Withholding tax is an understandable concern, but not a major problem. If you made the RRSP contribution at the end of February for the previous year, and then submitted your tax return right away, which you could do, the withholding period would be quite short. You will get all of it back in short order. Forgoing a month's interest would be more than offset by the tax deduction down the road. Surely anyone with a financial background knows this.

As I warned in post #30 above, paragraph 4, "If you really wanted to build an RRSP, then this would not be the way to do it, but that would indeed be taxed down the road. And that may be the weakness of the strategy. This is for people who aren't too impressed with RRSPs as a strategy or who don't plan to invest in them until they have maxed out their TSFAs etc." Thus, I have not "misled" anyone on the question of contribution room.

I have advised Jon to contact CRA, and he has said that he would.

And, by the way, I will have no personal need for this strategy, nor anyone in my family. It's really only conceivable for people in post-secondary schooling. I put it out there for others to consider.

There is tons of bad advice to be had from people with financial backgrounds and even established professionals, just as there is good advice. Similarly with non-professionals.
Personally, what I look for in anyone giving advice is, among other things, a respectful attitude and the ability to listen carefully and accurately, as well as reliable information. ALL advice on any forum needs to be corroborated before taking it.

I dug out the response I received from Oaken regarding the 2% cashable GIC, as follows:

"There is no penalty for cashing in the 1 year cashable after 90 days. Interest is pro-rated for the number of days held at the same annual rate (i.e. 2%) at maturity or when you cash it in."

Have you had any problem with interest received in cashing an Oaken cashable GIC after the 90 day period, Jack? I know that some, like Hubert, will only give you the interest up to a specified date, after which you must wait for the next specified date, but I didn't get this impression with Oaken, as per above email.
Sometimes, in fact often, it is difficult to extract the exact terms from these institutions before you buy. Buyer beware!