Opening First TFSA | Tax Free Savings Accounts | Discussion forum

To see how compound interest works....... http://www.moneychimp.com/calc.....ulator.htm

Investing in mutual funds with a bank....not a good idea.
To invest in mutual funds.....not a good idea.

Acclerate is good. Look at five year GIC laddering.

I am retired and if I had hindsight and more knowledge before hand I would have never invested in mutual funds or ETFs.

Assuming your mutual funds are RRSP or better yet...just to ask. If you do invest in RRSP what do you do with the income tax savings from the RRSP deposit?

Litre said

kanaka said
I am retired and if I had hindsight and more knowledge before hand I would have never invested in mutual funds or ETFs.

I'm 28 and received some inheritance so I'm trying to make smart decisions with it rather than blowing it on a nice car, haha.
I'm extremely new to all of this so it's a little bit overwhelming at first trying to find the right way to save/invest.

a car with a heater and radio that can transport you from A to B is all you need unless you like being flashy and waste full....which you are not.

Depending how much TFSA room do you have and how much the inheritance is you should look into a ladder. Ie. $25.000 and put $5000 in a 1, 2, 3, 4 and 5 year GIC. If you need funds....you will have $5000 available every year. If you don't need, reinvest for 5 years. And in 5 years or so you will have every GIC collecting the highest 5 year rate.

Which province are you in? It makes a difference as to which institutions will serve you.

Litre said

So would it be smart to pull my mutual fund deal and place it in a tfsa gic?

You are young. You may be able to afford to wait until the markets are up to cash your mutual funds. It may depend too on exactly which fund(s).
Before cashing them, take a look at how much they cost you in the first place and how much they are worth now. The basic point of investing is to make money. If cashing them would not make you any money, then I would postpone it until it does. The most popular way to get bad results from mutual funds and other stock market investments is to cash them at the wrong time.
However, in most cases the mutual funds should not be thought of as something you can access in the short term, period.
Another factor is, how much money you have invested in them.

Is your inheritance big enough to fully fund your TFSA? I think the maximum, for someone who has never had one before is now about 47,000, but need to check on specifically how much. If it is big enough, then you don't need to mess with your existing mutual funds right now.

I am sympathetic to kanaka's point of view, but you need to be aware that most professional advisors would suggest that you should keep some portion of your funds in the stock market. I'm not saying they're right, but this is what they would say. You do need to remember that the stock market is always a longterm strategy, not for people who might need the cash in the next 5 to 10 years. Many of these advisors will not bother to tell you that.

You will get a variety of answers for what is the best TFSA. But first you need to confirm the maximum that you are allowed to contribute. Have you been in Canada since 2009? If yes, since you are 28 and this is your first TFSA, your limit is $46,500. If you did not file an income tax return for 2009 or later, you might need to do so to establish your entitlement, according to the CRA website.

Even though TFSA stands for Tax Free Savings Account, the word 'Savings' is misleading since you can also invest in stocks, bonds, mutual funds, etc. In my opinion, the best type of investment for a TFSA is a broadly based global stock ETF (exchange traded fund), the worst is a GIC, and a high interest savings account is in between. Many people treat the TFSA as a sort of emergency fund, or saving for a particular large purchase, in which case a savings account is OK. However, especially since this was an inheritance, I recommend that you put it away in an ETF for the long term. Even if it goes down in value in the short term, when you look at the statement, you will think of the person who left you the money and be happy that s/he thought of you.

High-interest savings accounts, GIC's, mutual funds, and stocks may not be the best that one could do, Litre. It really depends on one's situation.

For example, if one had $20,000 of credit card debt at 19%, then one would much further ahead by paying off the 19% debt immediately and directing the former monthly credit card payments to savings or investments. In the same time it would have taken to pay off the credit card, one would end up with the original $20,000 plus the 19% per annum that would have gone to the bank! No stocks, mutual funds, or bonds these days can reliably return 19% per annum after taxes.

Also, most people's wealth does not come from investment returns. Instead, it comes from their job or careers. If that $20,000 were spent on training that boosts one's skills and leads to $5,000 more a year in pay, then that would be a much better choice than trying for the 5% to 7% one could expect from equity investments.

Some of the money could be used to increase one's happiness by eliminating some irritants in one's life. Perhaps, one is not at their best from not sleeping well because of a lumpy, worn out mattress. That could be fixed for under $1,000. That approach to money and happiness is explored in the Maclean's (February 13, 2006) article Money Really Can Buy Happiness, Study Shows.

As Bill says, there's no hurry. One could park the money for a year in a GIC while one looks for the best way to deploy the inheritance.

SavingIsGood mentioned those one-year term deposits at Hubert Financial. They can be cashed every three months, after the quarterly interest payment, without penalty.

OK, I see you have a relatively low-risk balanced mutual fund. Performance has been a bit lacklustre, but not fatal.
It lost over 3% in the last year but will almost certainly eventually recover and go forward. I would not cash it right now; neither would I add any more to it. You need to have more of an overall financial plan before you get further into mutual funds or ETFs, and that plan needs to take into account your entire financial situation and personal goals.
There are reasons pro and con as to whether you would want to move this mutual fund to your TFSA. It's not a huge amount. I would just leave it as it is for now and just wait until you have a more comprehensive plan before you make any changes to it.

I know Bill has a mutual fund that he likes which is also balanced and has delivered better returns and has had a good reputation for a long time. It might be a better bet. However, there may be a minimum deposit and it may require a brokerage account. You could ask him about it, but that, in my mind, would be a consideration for the future when you have saved up more money to invest. In principle, a balanced fund is good way to start when you don't have a lot of money to invest, if you are choosing to invest in the stock market. After you have accumulated significantly more money, you can think about diversifying further.

Nobody can really tell you whether it is a good idea to invest in the stock market. Some will point out that, historically, the stock market in Canada and the US has, if you wait long enough, always gone up. This is true. The problem is, how long will you have to wait, will history repeat itself, and will your particular investment(s) benefit. There have been situations in other countries where the recovery never happened, and those are now long forgotten.
Some people just never develop the stomach for the stock market, and will never be able to sleep at night with investments there as they can't tolerate any volatility.
There is also some research that suggests you might do as well with GICs and bonds. Much depends on when exactly you put your money into the investment and when you take it out. Most losses occur when people take it out at the wrong time.
However, you appear to have some level of (conservative) comfort with it, as you have already begun to invest in it.

So, hang tight, read and learn as much as you can, and take a year or so to develop a more comprehensive plan. Leave the mutual fund where it is. Buy a mattress if you need one, and sleep well. Pay down debt if that is a burden, and replenish with future savings. If the inheritance is still available, put in TFSA GIC at DUCA with right to withdraw in 1 year at 2%. Don't even think about RSPs until you have maximized your TFSA contributions and got your financial plan in order.

Bill is right that opinions from strangers have to be understood as such. Still, for what it's worth, I think there are many useful comments in this thread. Personally, I always try to give the best advice I can come up with to people on this forum. But, still, you don't know me or, I presume, anyone else here, and you must satisfy yourself that any advice you follow is sound. My personal background is not in banking or investing. I am retired, very cautious, and doing OK. Many here would say I am too cautious, no doubt!, but I don't feel any need to take greater risks.

Norman is also absolutely correct that most people's wealth is from their own earnings. It's a sobering thought, but true. In other words, the best way to save money is to save money.