Author Topic: I've saved up $200,000 CAD and don't know / am too scared about what to do  (Read 2823 times)

Denny

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Hi,

(note: I'm sorry if I've said anything ridiculous below. If it's not obvious I don't really know what I'm doing.)

I'm 24 and have been working since I was 16 mostly full time as a software engineer and have saved up this money. The $200,000 is sitting in an RBC savings account not really earning anything (like $70 in interest each month...). I am saving most of my current income and living as cheaply as I can as well. My goals are to invest the money responsibly so that I don't lose money, but so I beat inflation and also gain abit (as much) extra as I can I guess.

Anyway... in the financial crisis my dad lost a big part of his savings. Due in part to this I am horrified of doing much with my money and taking on risk, but at the same time I also feel sick parking it in an account where it's going to lose money to inflation and lack of growth beyond that. My dad's advice btw is to shop around for the best savings account I can find and put all my money there and leave it. From what I can tell the best savings account I can find is 2.3% from EQ bank although I'm not sure if that will be able to remain at 2.3% consistently.

I was wondering what you guys think I should do. The MMM blog suggests VTSMX (am I able to do that from Canada in CAD?) and to also look into what TD has for Canadian total market index funds too (should I call TD and make an appointment? I did this with RBC and they pushed their own funds really aggressively which aren't so good).

I obviously don't know what I'm doing but to me the most responsible thing to do seems to be to put all of it into vanguard's fund that follows the S&P500, assuming I can figure out if that's possible even though I have CAD, and if I can figure out if it's better to buy VTI, VTSMX, VTSAX.

Also, I don't even really know if I understand the risks in moving all my money into VTI or something. I guess I would really move 150k and keep 50k for an emergency fund but regardless, I understand that the responsible thing for me to do is to invest this money but I also would like to be as comfortable as possible with the risk to reward ratio if that makes sense.

Frankies Girl

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You've done a great job saving! But yeah, investing is the next big step to figure out. We all started with zero knowledge, so don't worry about feeling weird asking questions. You're asking and you're interested in learning so that already puts you waaaaay ahead of 90% of the population out there. ;)

I am in the U.S. so I won't give you specific investing advice as I know zilch about Canadian investing stuff. But I can recommend you to read Jim Collins' stock series (either read the blog posts, or get his nifty book) so you can get a great handle on how the market works and learn the basics on index investing. Granted, it is from a U.S. point of view, but it will still get you most of the way there, and there are plenty of super smart Canadian investors on here that can answer all the questions you may have.

There is also the Bogleheads site - the home of all the things you ever wanted to know about index investing - which has the details and lots of recommendations - you could spend weeks reading on there!

Good luck!

lostamonkey

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There's a few choices:

1. What city do you live in? Do you want to buy real estate in the immediate future?

2. If you invested in only stocks before the financial crisis, yes you would have "lost" a significant portion of your savings. But if you were willing to hold out and not sell, you would have relatively quickly recovered all your losses.

Look up Canadian Couch Potato's blog. They have some pretty good advice as to investing in Canada. You should obviously hold a significant amount of bonds in your portfolio to minimize the swings in the value of your savings due to stock market fluctuations. If you want specific advice as to which funds to invest in, which bank to use, and what types of accounts to use, send me a PM.

lifeanon269

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The fact that you have $200,000 saved up at 24 yrs old is amazing. Very nice job. You're way ahead of the curve and you've got a great start to the rest of your life for sure.

I guess I would ask the question about what you see your working career like. Are you planning on retiring around 30 or do you see yourself working beyond that into your 40's. What are your retirement goals like? If you plan on working for the foreseeable future and don't plan on touching that money, then no matter what the outlook for the economy looks like, you really can't beat the stock market. I understand your Dad's experience makes him risk averse and that's understandable, but under any longer time frame (decades), the up and down noise of the stock market levels out and goes no where but up.

If you plan on retiring earlier though, say around 30, then maybe having a quarter of it in something more stable would be wise since the returns over a shorter period aren't going to be a big difference maker anyway. Plus, since this is all after tax money, this will probably be the money you spend first in your retirement. So it probably won't have much chance to grow deeper into your retirement, especially if you retire early.

Don't know specifics about Canada though and I'm not the best investor, but that's my advice anyway.

mxt0133

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My goals are to invest the money responsibly so that I don't lose money, but so I beat inflation and also gain abit (as much) extra as I can I guess.

The word invest is incompatible with the words "don't lose money."  Once you accept that I think the path forward for you will be easier.  Any type of investing contains risk even if you just put it onto a bank account that earns 2% a year you risk loosing purchasing power due to inflation.

As other have suggest educating yourself would be one of the best way to knowing what to do with your assets.  Don't feel like you have to put everything into Vanguard right now.  The worst possible thing you could do would be to do something you are not committed to, have it go down in value and then take the money out, like what you dad went through.  Those that invest with a strategy and do it with discipline do better.

You say you dad lost most of his savings, how?  If you can dissect what he did and how he could have done better it's an experience you can learn from and not have to experience first hand.  Try to learn from it instead of it paralyzing you into taking your own actions.

COEE

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The fact that you have $200,000 saved up at 24 yrs old is amazing. Very nice job. You're way ahead of the curve and you've got a great start to the rest of your life for sure.
 

I just want to echo this.  Wow... good work.  I'm 35 and behind you a bit!

Watch this video series for the basic idea around indexed investing.  That is the investing strategy most of people around here and Bogleheads do.
https://www.bogleheads.org/wiki/Video:Bogleheads%C2%AE_investment_philosophy

My dad had a similar experience to yours.  He was able to accidentally time the market and keep some of his gains - but he lost a lot too.  I remember talking to him in 2008 about taking my money out of my 401k and stuffing it in the mattress.
 Thank God I didn't.  Two things to keep in mind when the market tanks. 1) You still have the same # of shares - and over long periods of time you will make money with those shares.  Even today 10 years after the 08 crash the market is back to life and has been on a bull run since the election.  It takes time - but it will bounce back.  2) When the market tanks - shares of the market on sale.  Find every penny you can and buy.  You will still have the shares 10 years from now, but you've bought them at a reduced price.

Try to imagine putting all of your money into the market today, and imagine it being worth half of what it is two months from now.  The hard part is letting it ride.  Can you handle it?  There are ways to soften the blow (buying bonds or real estate are two popular options), but it really could be worth half or less two months from now.  Nobody knows - but you have to have the will power to 1) stay the course and 2) buy more.


Frugal Lizard

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Wow Denny
That is amazing
I am working on learning about investing and have gotten a lot of information on this thread:
forum.mrmoneymustache.com/investor-alley/should-i-use-a-canadian-robo-advisor-if-so-which-one

I started reading Millionaire Teacher by Andrew Hallman.   I opened a TFSA on Virtual broker and bought a few shares of stuff.  My partner did the research on the buys but using the recommendations from this forum and the Globe and Mail and some of the columnist's sites that various links led him too.
Just a heads up - it took me almost three months from when I first tried to open the VB account to my first purchases and several calls to their help line. If I can figure this stuff out - anyone can.
Best wishes for your continued savings and starting to get your little soldiers working a little harder for you.

KelStache

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Congrats! I'm 24 and in Canada as well.

I'd recommend Questrade to invest in ETFs. We invest in mostly Vanguard funds (some ishares) but it's worthwhile to do your own research and read differing opinions on fund allocation. Some good recommendations for resources have already been made.

It's scary at first, but statistically investing is the smart thing to do. Don't forget that you're looking at a long timeframe. Read more MMM articles to get yourself comfortable with the statistics.

You're on the right path, but don't let your money be eaten away by inflation for much longer. Good luck!

Denny

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The fact that you have $200,000 saved up at 24 yrs old is amazing. Very nice job. You're way ahead of the curve and you've got a great start to the rest of your life for sure.

I guess I would ask the question about what you see your working career like. Are you planning on retiring around 30 or do you see yourself working beyond that into your 40's. What are your retirement goals like? If you plan on working for the foreseeable future and don't plan on touching that money, then no matter what the outlook for the economy looks like, you really can't beat the stock market. I understand your Dad's experience makes him risk averse and that's understandable, but under any longer time frame (decades), the up and down noise of the stock market levels out and goes no where but up.

If you plan on retiring earlier though, say around 30, then maybe having a quarter of it in something more stable would be wise since the returns over a shorter period aren't going to be a big difference maker anyway. Plus, since this is all after tax money, this will probably be the money you spend first in your retirement. So it probably won't have much chance to grow deeper into your retirement, especially if you retire early.

Don't know specifics about Canada though and I'm not the best investor, but that's my advice anyway.

By the time I'm 30 I want to be able to keep working but just have the freedom work for myself and take more career risks (I'm a software engineer) so I was thinking it might be nice to have a good amount of money saved by 30 as a safety net to allow me to do this. Since I have no dependents and don't spend much I think I could park it into a S&P500 and could stay in as it goes down and recovers but I would just be worried that it might never recover.

There's a few choices:

1. What city do you live in? Do you want to buy real estate in the immediate future?

2. If you invested in only stocks before the financial crisis, yes you would have "lost" a significant portion of your savings. But if you were willing to hold out and not sell, you would have relatively quickly recovered all your losses.

Look up Canadian Couch Potato's blog. They have some pretty good advice as to investing in Canada. You should obviously hold a significant amount of bonds in your portfolio to minimize the swings in the value of your savings due to stock market fluctuations. If you want specific advice as to which funds to invest in, which bank to use, and what types of accounts to use, send me a PM.

I'm in Nova Scotia and no I wasn't planning on buying real estate soon or anything. I found this on couch potato http://canadiancouchpotato.com/wp-content/uploads/2015/01/CCP-Model-Portfolios-ETFs-2016.pdf but I'm not sure how realistic a 7.5% return is (I'm not sure what the fees are for the 3 ETFs they're showing). Do you think it would be possible to get a bond that returns higher than inflation?

You've done a great job saving! But yeah, investing is the next big step to figure out. We all started with zero knowledge, so don't worry about feeling weird asking questions. You're asking and you're interested in learning so that already puts you waaaaay ahead of 90% of the population out there. ;)

I am in the U.S. so I won't give you specific investing advice as I know zilch about Canadian investing stuff. But I can recommend you to read Jim Collins' stock series (either read the blog posts, or get his nifty book) so you can get a great handle on how the market works and learn the basics on index investing. Granted, it is from a U.S. point of view, but it will still get you most of the way there, and there are plenty of super smart Canadian investors on here that can answer all the questions you may have.

There is also the Bogleheads site - the home of all the things you ever wanted to know about index investing - which has the details and lots of recommendations - you could spend weeks reading on there!

Good luck!

thanks, I'll check those two websites out and do some reading/learning!

My goals are to invest the money responsibly so that I don't lose money, but so I beat inflation and also gain abit (as much) extra as I can I guess.

The word invest is incompatible with the words "don't lose money."  Once you accept that I think the path forward for you will be easier.  Any type of investing contains risk even if you just put it onto a bank account that earns 2% a year you risk loosing purchasing power due to inflation.

As other have suggest educating yourself would be one of the best way to knowing what to do with your assets.  Don't feel like you have to put everything into Vanguard right now.  The worst possible thing you could do would be to do something you are not committed to, have it go down in value and then take the money out, like what you dad went through.  Those that invest with a strategy and do it with discipline do better.

You say you dad lost most of his savings, how?  If you can dissect what he did and how he could have done better it's an experience you can learn from and not have to experience first hand.  Try to learn from it instead of it paralyzing you into taking your own actions.

That's true. I've been thinking about maybe buying very small amounts of safe stocks like RY and BCE and reading a lot more about investments but it's just hard to find the time to do so away from my work. But like you said I'm losing money to inflation as it stands right now.

The fact that you have $200,000 saved up at 24 yrs old is amazing. Very nice job. You're way ahead of the curve and you've got a great start to the rest of your life for sure.
 

I just want to echo this.  Wow... good work.  I'm 35 and behind you a bit!

Watch this video series for the basic idea around indexed investing.  That is the investing strategy most of people around here and Bogleheads do.
https://www.bogleheads.org/wiki/Video:Bogleheads%C2%AE_investment_philosophy

My dad had a similar experience to yours.  He was able to accidentally time the market and keep some of his gains - but he lost a lot too.  I remember talking to him in 2008 about taking my money out of my 401k and stuffing it in the mattress.
 Thank God I didn't.  Two things to keep in mind when the market tanks. 1) You still have the same # of shares - and over long periods of time you will make money with those shares.  Even today 10 years after the 08 crash the market is back to life and has been on a bull run since the election.  It takes time - but it will bounce back.  2) When the market tanks - shares of the market on sale.  Find every penny you can and buy.  You will still have the shares 10 years from now, but you've bought them at a reduced price.

Try to imagine putting all of your money into the market today, and imagine it being worth half of what it is two months from now.  The hard part is letting it ride.  Can you handle it?  There are ways to soften the blow (buying bonds or real estate are two popular options), but it really could be worth half or less two months from now.  Nobody knows - but you have to have the will power to 1) stay the course and 2) buy more.

It would horrify me but I guess it's true that the whole market has never gone down and stayed down forever (yet), right? I think it's just the unpredictability that worries me.

Congrats! I'm 24 and in Canada as well.

I'd recommend Questrade to invest in ETFs. We invest in mostly Vanguard funds (some ishares) but it's worthwhile to do your own research and read differing opinions on fund allocation. Some good recommendations for resources have already been made.

It's scary at first, but statistically investing is the smart thing to do. Don't forget that you're looking at a long timeframe. Read more MMM articles to get yourself comfortable with the statistics.

You're on the right path, but don't let your money be eaten away by inflation for much longer. Good luck!

Thanks, I'll check Questrade out. I'm sorry for asking such a silly question but does that let you buy stuff like VTI in CAD? Also, do you know if Questrade charges high fees?

Wow Denny
That is amazing
I am working on learning about investing and have gotten a lot of information on this thread:
forum.mrmoneymustache.com/investor-alley/should-i-use-a-canadian-robo-advisor-if-so-which-one

I started reading Millionaire Teacher by Andrew Hallman.   I opened a TFSA on Virtual broker and bought a few shares of stuff.  My partner did the research on the buys but using the recommendations from this forum and the Globe and Mail and some of the columnist's sites that various links led him too.
Just a heads up - it took me almost three months from when I first tried to open the VB account to my first purchases and several calls to their help line. If I can figure this stuff out - anyone can.
Best wishes for your continued savings and starting to get your little soldiers working a little harder for you.

thanks, I will check this out :)
« Last Edit: May 12, 2017, 03:31:20 PM by Denny »

dreadmoose

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Hi Denny,

I second giving a quick read through this forum post. Blissful Biker has went through the process of learning a ton very transparently specific to Canada.

forum.mrmoneymustache.com/investor-alley/should-i-use-a-canadian-robo-advisor-if-so-which-one

I will also second going through Questrade. They charge nothing to buy index funds and allow you buy any index fund (I buy all in CAD).

Being stoic with the market fluctuations will pay off big down the road, when the value of your stocks goes down the only way your portfolio suffers is if you sell. If you hold it will come back.

I buy through Questrade and have had a great experience. If you're scared of the market fluctuations you can increase the percentage of bonds you buy (will drag your profits but could prove more emotionally beneficial - I am currently 100% equity).


Frankies Girl

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Quote
That's true. I've been thinking about maybe buying very small amounts of safe stocks like RY and BCE and reading a lot more about investments but it's just hard to find the time to do so away from my work. But like you said I'm losing money to inflation as it stands right now.

Gotta jump back in here and point out the part I bolded.

Don't do this. If you don't understand how the market works, do not buy things at all until you have a general grasp on why you bought it, what happens to it during good times and bad, and how it works in detail. Things like: what are the expense ratios? What is your proposed asset allocation? What are your short term/long term goals? Do you understand how to write out an Investment Policy Statement? What about the difference between market volatility and actual risk (which is what you would be taking on by following your idea of buying one or two bank ETFs/mutual funds).

Buying just a few individual exchange traded funds or mutual funds that are only composed of one company or limited to one type of investment sector (like banking) is very risky - even if it is a "safe" fund like a bank. You're putting all of your eggs in one or two baskets and if those baskets get crushed even if it is for a short term, you'll be devastated, and it can turn you off of investing in general. That's likely what screwed over your dad, along with panicking when the market dropped significantly because he didn't understand how the market in general worked and didn't have a real gameplan on what to do and when to do it along with not really getting the funds he invested in.

There's no harm in taking a month or two to do some reading and research, and figuring out all this stuff now while the money chills in your savings a bit longer. You want to know with confidence that this or that decision is good for you and your goals and have a basic understanding of the market before jumping in.

I say this as a person that literally knew NOTHING just a few years ago. I can look back at my beginning posts on this forum and see I was so afraid of the market and investing that I was sure I'd need to pay a professional to invest for me for the rest of my life and despaired of ever understanding all this scary stuff. The Collins stock series and Bogleheads site, along with some very awesome folks on this forum gave me a great education and it didn't take that long either considering the payoff in being able to invest with the knowledge that I understood what and why I do what I do. I manage my own portfolio now, and even took over my mother's as well. I also give advice to strangers on the internet with complete confidence that most of what I'm saying is helpful. ;)

lostamonkey

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Take a look at that Canadian Couch Potato thing you linked to:

The fees are shown in the weighted average MER line. This is the percentage of your investment that the investment company takes as fees.

Look at the conservative option shown. The worst loss in a single year was only negative 8% while the annualized return over the last 20 years is over 6%. So even if another financial crisis happens, you won't lose much money and will make it back extremely quickly.

COEE

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It would horrify me but I guess it's true that the whole market has never gone down and stayed down forever (yet), right? I think it's just the unpredictability that worries me.

Be aware that it is possible that all stock markets fail to exist and you lose everything in you index funds.  I personally believe this would be due to a single world government, world wide nuclear war, eradication of the human race, or something of that nature.  Pretty extreme stuff.  While I think it's possible, I don't think it's probable.  And if those things happen - I believe I have more things to worry about than the price of my stock.

While that's not probable - many companies go out of business on a regular basis.  You're probably too young to remember Enron - but I worked in the housing sector in Houston when it happened - it was my job to let people know they were behind on their mortgage and their mortgage company wanted to talk to them.  It was sad to see many successful people broke, quite literally, overnight.  That's why it's much more risky to own individual stocks than index funds - which track the entire market - having just a little bit of many publicly traded companies.

As someone else said, if you don't understand all of these things though - please don't invest.  Take your time.  I read one chapter of a jack bogle's book and decided he was right - I didn't need to read the other 450 pages.

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Freedomin5

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Fellow Canadian here.

I second (third?) poring over the Canadian Couch Potato site. Also, Jack Bogle's book "The Boglehead's Guide to Investing".

I started out knowing Nothing about investing in late 2015, and over the past year have gotten comfortable opening a direct investing account at TD, and investing in mutual funds and ETFs. If you're worried about dumping all your money at one time, consider using dollar cost averaging (DCA) to put in a set sum each month over a longer period of time. Some people will argue that statistically you make more money dumping everything in at the same time, but given that your dad was burned in the past, that strategy may not work for you psychologically. DCA would help to get you over the psychological hump. You could also invest a smaller amount first to get your feet wet, and then, when you see how much money your money has made you, you'll be more comfortable putting in larger amounts. The point is to get started, no matter how small the amount, rather than to be paralyzed by fear.

For funds, each bank posts all their find information online. Do a search for the funds you're interested in, and look at the fund fact sheet, before you call the bank and schedule an appointment. My experience at TD was that the advisor works on commission and is likely to push the higher MER funds rather than the lower MER index funds.

Regarding the likelihood of a 7.5% return, there are some who say a 5% return is more likely in Canada in the next few years. Regardless of the actual number, it's most likely going to be more than the interest earned from parking the money in a Canadian savings account.