Newbie**sold house, have $150,000 cash. Now what? | General financial discussion | Discussion forum

6. Buy booze and drugs stocks. (I have a moral objection to girls stocks.)

jonny5oh said

Thanks for your reply! So let me remind you, all toys are long been paid off....just my 6 month old truck is a monthly payment, bought at cost (buddy is high up at the dealer, I saw the books!) at ZERO % interest...but yes, I am aware that more often than not, in other situations, these 'zero' % loans have the interest hidden.
My new mortgage is $189,000....I put $59500 down on it....I am unsure what having a paid off mortgage will do vs. having that money now?
What is Manitoba's FI? Link?
For #2, 3 and 4, how much money for each?
#5 would be awesome! LOL!

Thank you again  

How are your long-term retirement savings (i.e., RRSP or TFSA) and/or children's post-secondary education savings looking?

Do you have access to either a low rate unsecured personal line of credit or HELOC attached to your collateral mortgage that you could use as an "emergency fund"?

Depending on the highest marginal tax rate for you and/or your spouse, a contribution to either of your RRSP, spousal RRSP or TFSAs would make sense first. How much contribution room have you used thus far in either?

If you've used up most of your "room" in either you & your spouse's RRSPs or TFSAs, then my preference would to see you open an Alterna Bank eSavings account with their "no haggle" top-tier high rate of interest at 1.95% and no fees as well as surcharge-free access to The Exchange ATM Network. The process to "link" your external CIBC bank account is not electronic as of yet but reports on this and other forums indicate their customer service is superior to that of EQ Bank. As well, you'll benefit from the greatest statement detail and transaction "narratives". Plus, there's no "maximum balance" restriction that EQ Bank has. 🙂

You could pay down your mortgage and I'd probably recommend that if you are fully contributed to yours and/or your spouse's RRSPs and TFSAs but, given the growth potential over time and the historically low borrowing costs, I'd have a strong bias/preference to long-term investment contributions. Justin Bender has some excellent, super cheap "model portfolios" of ETFs you could set up with multiple asset allocations based on your risk tolerance and time horizon at any discount broker. Google "Canadian Portfolio Manager Blog" and/or "Canadian Portfolio Manager Blog"+"Justin Bender". 🙂

These are low cost ETFs that track market indexes that have, over the past 100 years, been proven to outperform 80% of actively-managed mutual funds at a much lower cost. If you don't want to handle this yourself, I'd recommend consolidating your retirement plan assets with a robo-advisor like Justwealth Financial, one of the cheapest (and arguably the best), which is basically a registered portfolio manager held to a higher fiduciary standard of care than typical stock brokers or mutual fund sales representatives you might see in a bank branch. They charge an "all in" portfolio management fee of between 0.40-0.50% of plan assets and they absorb any trading/administrative costs charged by their custodian/carrying broker. This fee, unlike the MER of mutual funds which average 2-2.50%, is also fully tax deductible in any non-registered accounts. 🙂

Justwealth's minimum account size is only $5000 and, again, they're a registered portfolio manager, not a broker or mutual fund dealer, who are only held to a "suitability" standard. Most mutual funds either track their benchmark index or significant underperform over the long term.

As far as Manitoba CUs go, my preference, currently, is with either Implicity Financial or Hubert Financial. No account minimums or fees and each pay 1.70%. 🙂

Cheers,
Doug

jonny5oh said

The house was $238,000....  

You're only 43 so kudos to you for having only roughly 50% owing on your house...I'm guessing you've either downsized or moved to a different city with lower housing prices?

At any rate, as you mentioned, you've paid off all of your unsecured debt, which I would definitely advocate paying off before investing/savings, absolutely. However, because of that, it seems you're managing your debt prudently.

By any measure, debt-to-income, loan-to-value or debt service ratios, you seem to be well on your way, again, assuming you've also started saving for retirement.

With all due respect to Winnie, to Loonie and others here, you will find very "debt averse" forum members here, who eschew all forms of debt at all costs. It's important to understand "good" debt (i.e., a mortgage, provided you're not over-extended and you don't appear to be) and "bad" debt (i.e., an auto loan on a quad/motorbike/snowmobile or credit card debt), of which you've said you have none. What do you have in terms of retirement plan assets? If you haven't started much, I'd definitely and strongly advise you to consider my above idea(s) or some combination (i.e., use your tax refund and your spouse's tax refund to apply as a bulk payment towards your mortgage or if you have a Christmas/annual bonus, sock that towards the mortgage). 🙂

Cheers,
Doug

jonny5oh said
Thanks Doug, I am listening carefully!
I do not have any savings, no RRSP's, etc....

OK...then I definitely think you should be focusing a large portion towards long-term retirement savings, probably in your TFSA first as you're kind of in what I'd call the exact "middle class" and within the 2nd or 3rd (of 5 or 6) marginal tax brackets. No deduction but you can withdraw from it tax-free and, so long as you're not trading every day (once or twice a month is considered fine, especially as part of pre-authorized regular contributions!).

Income is $65,000 a yr, but quitting that end of June for about 10 months. Wife won't be working either. No savings for kids (they're hers from 2 others!)

May I ask why you're quitting, is it for school? At any rate, because of that, while I'd normally advocate maxing out yours and your wife's TFSAs probably, I'm going to suggest starting with maybe only $11000 in each of your TFSAs or $15,000-20,000 in just yours, whatever is affordable for you both. Keep the rest in a non-registered high-interest savings account, like one of those I mentioned if you'll need that for living expenses.

I'd also suggest drawing up a budget for the period where you won't be working and figuring out "bare essentials" you need to survive - what can you cut out? Go through everything from utilities including cable and Internet packages, yes, but especially cell phones. Could you get away with a "basic" DSL package and Netflix for 10-12 months and also think of how you'll explain this to her kids in a way they're be understanding and accepting? Look at food expenses, not just eating out but what you're eating. Make sure you have a library card - many libraries offer streaming movies and TV shows through IndieFlix or have DVDs available to rent for free. Can you take advantage of free wifi at the library to get your daily Internet routines done?

I do not have a line of credit.

Is your mortgage a "collateral charge" mortgage or "conventional" mortgage (i.e., has the bank registered a charge greater than the value of your current mortgage on your current property? If so, it may be as simple as calling them up and requesting a line of credit be attached to your chequing account like at the bank's "prime" rate (around 2.60%, I think) or prime+0.50-1%. I'd recommend having this in place before you quit, should you need to tap it for essential household expenditures and then repay it first or with a fixed 12-24 month repayment schedule when you resume working.

As for the mortgage, I'm kinda going with 'use the money now' sorta thing and just have the small payment for a mortgage.

Good plan.

As for ETFs, etc, how would you divide $100 grand up between these?
I will read up on the links you've provided, thank you.  

It sounds like you're fairly new to investing or have you held investments (i.e., mutual funds) before?

In any case, I'd definitely recommend going with a robo-advisor versus a bank mutual fund representative, who will likely sell you high cost actively managed mutual funds that will likely merely track or underperform low-cost passive index funds or ETFs and significantly eat into your "total return" over time. 🙂

Even if you opt to go self-directed if you feel your investment knowledge is sufficient, run through their basic questions but quit before you get to their "sign up" screen where they ask for your e-mail address, just to get their "portfolio recommendation". Once it recommends certain percentages to you in terms of Canadian or U.S. Equity, International Equity, Emerging Markets (if any), Alternatives (if any) and Fixed Income, come back here and let us know and we'll try and steer you in the right direction.

Going the self-directed route (like me), you'll want to contribute once (maybe twice) a year to minimize trading costs. With a robo-advisor, since assume all trading costs, you can contribute as often as you like.

In terms of your "risk tolerance," though, ask yourself this: "If the value of my portfolio declined at least 20% on a single day, I would...
(a) probably sell all or most of my portfolio;
(b) maybe "flinch" a bit but still be confident enough knowing that I am investing for the long term, i.e. greater than 15-20 years;
(c) feel confident to even higher degree and maybe even buy more, to lower my overall "cost base," assuming I have the available capital to do so; or,
(d) [some other response/emotion/feeling - insert here]"

Hope that helps! 🙂

Cheers,
Doug

I'm sure no expert but I'm old and have been down that road.
One thing I've always done is pay down loans and mortgages ASAP. Compounding interest is a b*tch.
Renting out homes is hit and miss. Many found it not worth the worry and heartache associated with renters and the mayhem they can inflict. Can be a great revenue stream and real estate can be your best investment.
You could load up on RSP, TFSA, GIC for safe investing. Manitoba credit unions offer the best rates.
Be very wary of banks or investment firms that want to sign you up for stock/bond portfolios. These are a scam as far as I'm concerned. You assume all the risk and the bank and associated firm make money. NO guarantees for you.
Happy investing!

I'm unclear what you are planning on living off while you take the next year off. Perhaps your wife has a job that you can both live on? Getting another job in your mid-40s can sometimes be tough, especially if you've been relaxing for a year.

It's nice that you have netted some cash, and I'm sure that feels good, but you are not debt free as long as you owe money. You do owe money, on both your truck and your house. The truck may not bear obvious interest, but it is an asset with declining value. You don't want to still be paying 800/month when it's only worth 5K (or whatever your particular scenario is).

Doug asked some important questions that you haven't answered yet.

I would not relax just yet unless you have skills that guarantee you a reliable future income.
And don't forget that you are vulnerable as long as you're not working, to disability. If you're working, you can carry and get disability insurance, but if you're not, you have nothing behind you. An unexpected catastrophe can kill your future earnings and then you still have the debt to worry about. So, get rid of the debt. Get a part time job if you can't bear a fulltime one right now.

Your instinct to put it all in high interest savings for now does make some sense, at least until you are clear on a plan - use AlternaBank and put it in a joint account with your wife as EQ doesn't offer joint accounts and Manitoba CUs don't pay as much. You can max out TFSAs if you don't have that already, so that you won't pay tax on the interest. Just be careful about following the rules for withdrawals and reinvestments.

But you need to reduce your debt, as some have already said. You are paying mortgage interest in after-tax dollars, which means it is costing you more than it appears.

The main thing you need to realize is that you are not home-free yet. 150K is not a windfall; it's money you owe.

I wouldn't go anywhere near stocks yet. The first rule is to get rid of your debt.

So, I would set aside enough for emergency funds and whatever you are going to need to live on during period of unemployment. Put that in TFSAs at Alterna if you don't already have TFSAs, or put it in savings at Alterna if you do. Withdraw as needed.
Then I would use the rest to pay down the mortgage. Are you already locked in to your mortgage terms or can you reduce the loan from the start? If you're locked in, then maximize your pay down privileges and pay it off at the first renewal opportunity.

It isn't glamorous, but it's what you need to do.

When you start earning again, you will be able to pay off the rest of the mortgage fairly quickly, if your wife hasn't already done so. Then, and only then, you can start thinking about setting aside money for longer term investing. At that point, you should start with TFSAs if you don't already have them or need to re-fill them.

Stay away from rental properties for now. They can prove a good investment, but unless you are a general contractor, stay away until you have a lot more behind you. Houses, especially inexpensive ones, demand a lot in terms of repair and problems with tenants.

I'm old enough to be your parent. This approach has worked very well for me.

Rick said
150K? Easy;
55K each in a HISA TFSA - now you have a good start on retirement savings
12K 1 year GIC - now you got next years contribution covered
18K in a HISA - now you have a fund for emergencies and expenses
10K - go on a nice vacation or buy yourself something
Keep all accounts in the positive and try to max out the TFSA contributions every year and you'll be laughing  

I was hesitant to advise maxing out his TFSA and I thought he said he had "around $100,000," net of a bulk mortgage payment he's already made, no? I could've misread it, though. 😉

At any rate, the reason why I say to make sure you have a low rate line of credit in place is for essential household expenses that you can tap (you won't qualify for one when you're not working) and have a fixed repayment plan when you do resume working. Ultimately, it'll be your choice whether to tap your savings, the line of credit or some combination of the two. 🙂

Given that he and his spouse will be not working, and likely not EI eligible for 10-12 months, I'd advise only putting $15-20,000 in each of their TFSAs (i.e., $30,000-$40,000), at least for now, and parking the rest in one of the "top tier" HISAs - whether it be Alterna Bank, EQ Bank, Implicity Financial or Hubert Financial.

The idea of using some for a vacation is a good one and I'd agree with that completely but would like to see him "park" that in a HISA until about 4-6 weeks before he or his wife is to resume working, so as not to run themselves short and then that can serve as a personal "reward" for getting their savings and investment schemes underway. 🙂

Longer term, if no defined benefit pension plan for both or either of you, I'd like to see each of you save, ideally, 20% of your gross biweekly or semi-monthly earnings in a TFSA or RRSP (whichever you prefer, or some combination of both) in order to have sufficient income sources in retirement when combined with OAS+CPP. 🙂

Cheers,
Doug