Author Topic: Saving lots of money but don't know where to put it  (Read 5958 times)

migman

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Saving lots of money but don't know where to put it
« on: May 04, 2013, 08:34:12 AM »
Hi all,

I am looking for some suggestions on what to do with a growing stache...

There are just two of us (in Canada) and we have no plans or desires for increasing this number.

Wife and I are lucky to have healthy net income of $114k/yr (Gross $170k). We have always been fairly frugal but also do not pay too much attention to money (hence our current dilemma). The below is an estimate of our current cash flow:

Monthly
Income: $9500

Rent (incl utilities): $850
Food: $750
Vehicle insurance: $150
gas: $200
misc & entertainment: $750
Internet and phone: $100

Total= 2550

Net Income = 6700/month

We have savings of around $220k which... is almost all as cash. We have no debt.

We are planning on buying a house for ~100k here which we will pay out but I am looking for some suggestions with what to do with the rest of our money. Right now we don't really know where to start... the savings we have made we just collected in bank accounts over the last 3.5 yrs with no interest so we actually lost money due to inflation. Thanks for any advice.

arebelspy

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Re: Saving lots of money but don't know where to put it
« Reply #1 on: May 04, 2013, 10:09:16 AM »
We cannot answer this for you.  Only you can answer this for you.

Figure out your investment philosophy.  Figure out the correct asset allocation (AA) for you.  Write an investment policy statement.  Then follow it.

www.bogleheads.org/wiki/Investment_Policy_Statement

If you want us to pick random investments for you, I would suggest that's a poor way to go about taking charge of your financial life. 
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aj_yooper

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Re: Saving lots of money but don't know where to put it
« Reply #2 on: May 04, 2013, 10:37:16 AM »
Very good income and no debt and flush with cash.  All without paying too much attention.  Awesome! 

I love Vanguard (https://investor.vanguard.com/home/?fromPage=portal) as it offers a lot of efficient ways to invest. I got familiar with the website; did  their questionnaires to find my investment voice.  Vanguard offers various retirement accounts, which I use in Illinois, like IRAs, 403b as well as brokerage/investment accounts.  I presume they have Canada covered too.  If you decide to use Vanguard, the Target Retirement funds may be the easiest way to go, but there are lots of choices.  Stay away from the Morgan Stanleys (personal experience), etc.; be afraid of people who will come to your home and sell you a money plan. 

By your question here, you (and hopefully your spouse) see benefits or future possibilities in paying more attention to your stash.  Do you have vision or a goal for your selves?   


migman

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Re: Saving lots of money but don't know where to put it
« Reply #3 on: May 04, 2013, 11:09:09 AM »
Thanks for the replies.

We will go through the IPS, as you suggested Arabel.

Thanks aj-yooper.

I started looking through the Canadian version of vanguard and finally feel a little inspired to do some investing. Do you have any suggestions as far as books or websites to read for a good foundation before playing with fire?

A question I had that maybe somebody could answer is what happened with dividend based investments (e.g. REITs) in the last downturn (aside from the massive paper loss in value). It seems to me that the stock price slide would be greater than the slide in dividend income so the yields should have actually gone up as a percentage (though maybe dropped in absolute terms). Did this happen or am I out to lunch? Same question for other dividend funds if anybody had any experience with this. Thanks again 

aj_yooper

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Re: Saving lots of money but don't know where to put it
« Reply #4 on: May 04, 2013, 12:23:21 PM »
In order, some books that I like:

Burton Malkiel, The Random Walk Guide to Investing

Taylor Larimore, et. al., The Bogleheads’ Guide to Investing

Andrew Tobias, The Only Investment Guide You’ll Ever Need

Thomas Stanley and William Danko, The Millionaire Next Door

daverobev

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Re: Saving lots of money but don't know where to put it
« Reply #5 on: May 04, 2013, 02:09:46 PM »
Have a look on Canadian Couch Potato - at the model portfolios.

IMHO - if you are in Ontario - rental properties are a bad idea as the laws tend to be rather too much on the side of the tenants.

You can buy Vanguard ETFs using a discount brokerage account; I use Questrade but there are plenty of others. You can transfer money to US$ directly in questrade, but that will cost you 2 (I think)%; you can open an RBC US$ savings account and transfer to yourself using a forex company at 1.3% or less (depending on the amount) - this can save you a lot if you want to buy a lot of US$-denominated stuff. Make sure you read up on where to put things for tax efficiency - re US withholding tax!

Bascially - again IMHO - the idea is to find the ETFs with the lowest MER, which is basically drag on your returns. For example RBC has about two decent mutual funds, which have roughly 0.7% in fees per year; where the corresponding ETF will have a fee of 0.15% if you pick the right one!

daverobev

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Re: Saving lots of money but don't know where to put it
« Reply #6 on: May 04, 2013, 02:18:46 PM »
*Edit* But as others have said:

1. Know what you are buying, and why, before you buy!
2. Have a plan, and stick to it! (I am BAD at this!!)
3. Re-evaluate and rebalance on a regular basis, probably best on a schedule than when you feel like it

migman

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Re: Saving lots of money but don't know where to put it
« Reply #7 on: May 04, 2013, 07:44:34 PM »
Thanks aj, I bought a copy of "a random walk" this evening.

We are in Ontario now (moved here from out west a year ago) so I will have to look at the tenancy laws a little more. I was already somewhat reluctant to buy rental property here because we do not plan on being in ON for more than 4 years so did not want to get saddled down to much (we don't want to have  rental property far away from where I can look after it).

We are interested in some sort of dividend investment that could provide steady revenue (similar to rental) where we are not relying on capital gains to generate revenue but that is mostly is because we are just less familiar/comfortable with the idea investing for capital gains.

Alternatively, we could just accrue money for the next 4 years and use the 500k cash as a spring board to launch our own business or buy real estate where we end up moving (probably to a different and far more expensive country where we will continue working for a few more years).

A far as investing in what we know...

we both work in the mining sector but I wonder if it is a good idea to invest there when we are already heavily economically tied to the sector and it is quite a bit more cyclical than most other areas. Any thoughts?   


GreenGuava

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Re: Saving lots of money but don't know where to put it
« Reply #8 on: May 04, 2013, 07:53:31 PM »
we both work in the mining sector but I wonder if it is a good idea to invest there when we are already heavily economically tied to the sector and it is quite a bit more cyclical than most other areas. Any thoughts?

I suggest against it.  A bad downturn in that sector will hit both your accumulated wealth and your continued employment prospects.  Too many eggs in one basket, I think.

migman

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Re: Saving lots of money but don't know where to put it
« Reply #9 on: May 04, 2013, 09:21:11 PM »
we both work in the mining sector but I wonder if it is a good idea to invest there when we are already heavily economically tied to the sector and it is quite a bit more cyclical than most other areas. Any thoughts?

I suggest against it.  A bad downturn in that sector will hit both your accumulated wealth and your continued employment prospects.  Too many eggs in one basket, I think.

That is sort of what I was thinking though I am still inclined to put 30k or so on CCO right now as I think it is almost a lock to double next year. So... local real estate is off and so are stocks in "what I know" so... any other suggestions??

GreenGuava

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Re: Saving lots of money but don't know where to put it
« Reply #10 on: May 04, 2013, 09:29:30 PM »
That is sort of what I was thinking though I am still inclined to put 30k or so on CCO right now as I think it is almost a lock to double next year. So... local real estate is off and so are stocks in "what I know" so... any other suggestions??

I can't claim to know much about CCO, but I would be very hesitant about any "sure thing" - a lock to double next year?  Do you have information the general public doesn't have, and if not, why isn't this "sure thing" already priced in?

Despite my field (tech), I don't bother with individual tech stocks - or even a sector fund.  I'm one of those guys who sticks with index mutual funds for his investments.  If this isn't to your liking, maybe others will have a suggestion for you.

migman

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Re: Saving lots of money but don't know where to put it
« Reply #11 on: May 04, 2013, 09:49:56 PM »


I can't claim to know much about CCO, but I would be very hesitant about any "sure thing" - a lock to double next year?  Do you have information the general public doesn't have, and if not, why isn't this "sure thing" already priced in?

Despite my field (tech), I don't bother with individual tech stocks - or even a sector fund.  I'm one of those guys who sticks with index mutual funds for his investments.  If this isn't to your liking, maybe others will have a suggestion for you.
[/quote]

True enough regarding CCO and pricing. I should have said that it is a company that has strong potential for increase in value in the next year or two (IMH0) based on my knowledge of the market, the company, and its competition. Then again... It could go bust like any other company.



I like the idea of the index funds but I also don't like relying on stock value appreciation so I would prefer something that gives a dividend so I can care less whether the stock goes up or down. Also, I feel reluctant about getting into index funds now (when they are at record highs). Does this seem unreasonable?

GreenGuava

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Re: Saving lots of money but don't know where to put it
« Reply #12 on: May 04, 2013, 10:31:41 PM »
I like the idea of the index funds but I also don't like relying on stock value appreciation so I would prefer something that gives a dividend so I can care less whether the stock goes up or down. Also, I feel reluctant about getting into index funds now (when they are at record highs). Does this seem unreasonable?

It's both reasonable and unreasonable, and neither of those is a bad property of what you've said.  Let me explain.

First, the dividend vs appreciation is its own debate, and I won't re-iterate the whole thing here.  Dividends aren't guaranteed by any stretch of the imagination, and some companies have entered into some very questionable financial situations in order to maintain paying a dividend in down times.  And if you're going to re-invest the dividend anyway, why do you want it paid at a time you don't control and taxed immediately?  (I have no idea how dividends and capital gains are taxed in Canada).  In full disclosure, I'm one of the guys who thinks that "dividend paying stocks" is just another stock picking theory, but I'll freely acknowledge that many people have done quite well with this.  There are certainly other appealing properties of dividend paying stocks, such as the regular cash flow (when they hold up).  They certainly made a lot more sense in the days before online discount brokerages, when you couldn't sell shares easily upon retirement (or other incidents).

Next, stocks are meant for a long-term investment.  Yes, they go up and down;  among other things, this is why you don't stay 100% in stocks (re-balancing benefits, risk control, and so on).  It also tends to increase, long-term, and has historically (not that this is necessarily predictive).

As for all time highs - it's hit all-time highs in the past, too. Many times, and many of these "all time highs" were far lower than the ones we're at now.  That's not a very surprising property for an asset class that tends to increase over time, is it?  There's also the question as to whether or not it actually *is* at an all-time high:  it is in nominal terms, but there's been some significant inflation since the previous one, and we're not that far above that peak.

Long story short:  with any investment, there are always people with reasons to tell you why they aren't invested in it - just like there are always people with reasons why they aren't saving for retirement, or why they aren't going to the gym, or starting their diet, or whatever.   For all we know, this could be the low it sinks to when it drops (and it will likely drop at some point, just like it will likely rise at some point) in the future (again, no idea when it happens.  Could be Monday.  Could be in five years.  Could be eight years.  I don't know, and neither does anyone else).  If the reasons make you uncomfortable, don't invest: it's always a bad idea to invest in something you aren't comfortable with. 

In my view, the risks of being out of the market are far greater than the risks of being in it -- although I do have a somewhat healthy bond allocation, too.  As they say, stocks will help you eat, but bonds will help you sleep.

So, what do I mean by reasonable and unreasonable?  I think the reasons you give are a good cause to look into things more - or find something else you're more comfortable with.  However, I think the particular reasons are ones that, once you look into it more, you might end up thinking that they aren't such big worries after all.