Need down payment, Canadian investment options?

[Coldjeremy]

My family is working on being frugal and we are new and confused about investing. I've looked at the article from Mr. Frugal toque about investing in Canada and of course will be doing my own up to date research, however with my goals I'm still not sure how to invest, so here we go.
We've got about $35k to start and need to save a down payment for a house. We live in Calgary so a decent house for a family of five starts around $400k and up even in a cheaper neighbourhood (we're looking into moving, possibly the U.S.). Should I put my money into a TFSA? Is it wise to buy ETF's through questrade how much do they charge when I sell or cash out? And I literally don't know how to invest, are brokerages like questrade available through my bank?

[Freedomin5]

My sense is that Calgary real estate is starting to tank given the state of affairs with oil prices, so you may be able to get a better deal if you hold out on buying for a bit and just keep an eye on the real estate trends. If I had someone I could trust to help me manage properties, I would seriously consider buying in Calgary in a year or so.

This is just my personal experience, but when DH and I were saving up to buy in Toronto, we simply put our funds in GICs because we knew we would be pulling it out in a year or two, and we wanted to be able to do so without penalty.

I know that brokerages are available through the major banks. For example, I'm with TD, and I know for sure TD has a brokerage -- they keep sending me emails to invest my extra  cash with them.  It might also be helpful to look at your RRSPs - I vaguely remember the option to pull money out to finance your first home purchase - but don't quote me on that.

Sorry I can't answer about half the questions you asked; hopefully my post will bump your question up so that more knowledgeable people can chime in.

Good luck!

[Mmm_Donuts]

You can pull out up to 25k per person from your RRSPs, it's called the Home Buyer's Plan. But if you don't have much in your rrsp yet then it might not be worth wiping it all out.

Personally I would not buy ETFs or any investments with money I plan on using in less than 5 years. If the market goes down when you need it, then you are SOL. I would buy GICs. You can certainly use your TFSA, to avoid paying taxes on the tiny interest, but try not to get used to using your TFSA as a short term savings account. The TFSA is best when used for long term investing, to allow for more tax free growth.

I would not rush into buying a house in Calgary. Wait till you have the 20% downpayment to avoid cmhc fees. By then, hopefully the market will have cooled off even further.

[RichMoose]

My family is working on being frugal and we are new and confused about investing. I've looked at the article from Mr. Frugal toque about investing in Canada and of course will be doing my own up to date research, however with my goals I'm still not sure how to invest, so here we go.
We've got about $35k to start and need to save a down payment for a house. We live in Calgary so a decent house for a family of five starts around $400k and up even in a cheaper neighbourhood (we're looking into moving, possibly the U.S.). Should I put my money into a TFSA? Is it wise to buy ETF's through questrade how much do they charge when I sell or cash out? And I literally don't know how to invest, are brokerages like questrade available through my bank?

You should only invest through a TFSA or RRSP if you plan to hold your investments for a long time (think life). If you're simply saving for a downpayment, maybe just put the money in a higher interest savings account for now. The exception to this might be an RRSP if you earn a higher income. You can invest in low risk bonds like VSB.TO (Vanguard Short-Term Bond Index ETF) and use the tax return from investing in an RRSP to boost your savings. Then you can use the RRSP Home Buyers Plan for part of your down payment. This is a little more complex of course.

Questrade is an independent brokerage, so you they don't work through your bank. Questrade is a good option because ETF investments are free to purchase. There are selling commissions though (about $10 per trade).

Some info on the RRSP Home Buyers Plan:

http://www.taxtips.ca/rrsp/homebuyersplan.htm

[max924]

For some good info on canadian investing (passive) check out www.canadiancouchpotato.com there are some model portfolios there to get you started.

[Retire-Canada]

My family is working on being frugal and we are new and confused about investing. I've looked at the article from Mr. Frugal toque about investing in Canada and of course will be doing my own up to date research, however with my goals I'm still not sure how to invest, so here we go.
We've got about $35k to start and need to save a down payment for a house. We live in Calgary so a decent house for a family of five starts around $400k and up even in a cheaper neighbourhood (we're looking into moving, possibly the U.S.). Should I put my money into a TFSA? Is it wise to buy ETF's through questrade how much do they charge when I sell or cash out? And I literally don't know how to invest, are brokerages like questrade available through my bank?

You need 5% to buy a house so you already have enough saved for a $700K house. How much are you planning to save and over what time frame?

Questrade charges nothing to buy ETFs and and ~$5-$10 to sell. You have to open a QT account directly with them. You can transfer $$ or investments to them from your bank or another broker.

The conventional wisdom is don't invest in the stock market for time horizons under 5yrs. My own feeling is that unless you have a firm plan put your money in the market so it's working for you as hard as possible. If you at a later time decide on a firm plan of attack you can sell the investments and move them to something less volatile as appropriate for your firm time frame.

If you do invest in the market you do have to accept the risk of a market crash happening at an inconvenient time right when you would like to access those $$. That would likely force you to defer you plans for 1-5 years while your investments recover.

Based on what little you wrote in your post it does not sound like you have a firm plan at this point.

If you invest in a TFSA you can do whatever you want with that money later with no tax consequences. If you invest in a RRSP you can take some money out for purchasing your 1st home, but there are limits on the amount and you have to pay the money back within a fixed period of time.

[Sarnia Saver]

If you need the down payment in a reasonably short amount of time, you do not want to invest these funds.  Figure out your appropriate time frame and hold some GICs inside a TFSA (this is a container, not an investment, you can hold any type of a security inside a TFSA).  Every adult who has yet to put any money inside a TFSA has $40,500 of space available, the gains inside a TFSA are non taxable and any contribution space withdrawn from the account is added back to the contribution room on January 1st of the next year.

High interest savings accounts pay almost nothing and are prone to income tax at your highest marginal rate.  RRSP withdrawals through the HBP are subject to repayment and penalties if rules are not followed.

Once you have some money free for investing (this does NOT include money you need for a home down payment) a good place to start in Canada is to go to TD bank and open up a Mutual Fund TFSA or RRSP, depending on your income level.  Do not place any money into the account with the Mutual Fund Slinger, then fill out this form https://www.tdcanadatrust.com/document/PDF/mutualfunds/tdeseriesfunds/tdct-mutualfunds-tdeseriesfunds-convertaccount.pdf and start buying their e-series funds, a cheap economical way to make automatic contributions without having a lot of money to invest at once.  There is a lot of info out there about these funds, they are a low cost simple solution.

[Sarnia Saver]

Must agree with others on this thread that now may not be the best time to buy real estate in Calgary, the oil shock is still ongoing, and the longer it lasts the more pain may be seen in Alberta.  Also add to that the assumption that interest rates, at least in the US, may be rising shortly which are likely to cause some added strain to stretched out homeowners.  You may be better off renting for the short term as you may be able to find a great place to rent for less than the interest portion of a potential mortgage.  At 400k, with an interest rate of 3%, that would be $1000/month in just interest!  Add in transfer taxes, CMHC premiums, not to mention repairs/renovations and you may be better off to rent.  Especially if moving is a possibility, the 6% realtor commission would amount to 24k when you move (assuming the price stays the same).

[Coldjeremy]

Thanks for the replies everyone. I will look into GIC's. I should have mentioned in the post that we recently sold our home (so this is not our first). Our family will be living abroad for the next year, and are currently renting. We're pretty familiar with real estate, and there is definitely no hurry to buy right now. I also should mention that we're not in a position to use our RRSP's for down payment; considering that, I was hoping to get my savings working a little harder. However, being that I'm risk averse I'm glad to be discouraged away from EFT's. I guess I'll just have to work harder instead.

[Goldielocks]

Definitely use a TFSA to save for big purchases, especially if you buy term deposits or GICs. The interest is then tax free and no penalties. If you don't buy stocks or ETFs then bank branch can set it up, but nice to plan ahead and set it up with a low fee brokerage like TD. Tangerine or quests are ( assuming questrade has GICs).

Here is my horror story, DH was scared about being priced out of the market, so convinced me to put the house savings in equities ( stocks) so our money would grow with inflation.   The year was 2006/ 2007 and we had to take out most of it in 2009.

Do not do this!!!!  Nice safe GICs for near term savings unless you can avoid money withdra during the dips.