Questions about investing in canada

[taularian]

Hi, i'm new here and i'm new to investing.  Here is my situation, i'm 30, will have about 40 000$ to invest, no real debt except low interest student loan, and might want to buy a house in about 3 years.  I win around 40k/50k a years that will keep increasing.

After reading about investing on a few websites, i would probably invest in some vanguard ETF trought questrade in a TFSA, so i could have all the money ready to buy a house. I will probably be about to save at least 10 000$/year more so i might not need all my money for a cashdown, and i might not buy a house (will depend on the price at that time).

Is vanguard ETF a good idea for such a short time investment (2 to 3 years)?
Some like canadiancouchpotato say that you should not invest in ETF if you do not have at least 50K? why?

if anyway one want to guide me or give me more advice, feel free to do so!

Thank!

(Really sorry for my english.)

[Dee]

Hi taularian,

I'm far from an expert, but I thought I would nonetheless try to get things rolling by offering the beginnings of a response to your questions...

For short-term holdings, I think the advice is generally that you shouldn't be invested in *stocks* because the stock market is volatile... while its overall direction has always been on the rise over the long term, short term, it can go down significantly.

So I would think that the advice about the length of your investment doesn't so much depend on whether something is an ETF or not, but whether it's an investment in stocks or not. Currently, Vanguard Canada does appear to offer a few bond ETFs: https://www.vanguardcanada.ca/individual/etfs/etfs.htm(see "fixed income" ETFs).

As for minimum amount to invest in an ETF... I'm not sure the advice is current... I think you can open a TFSA account at Questrade without a minimal deposit (or perhaps a small minimum?). The advice that you need a certain amount may have been based on previous minimums that were required by certain services to open an account? At Questrade you can buy your ETFs without a fee (there is a fee to sell them, though).

I don't see how you could go wrong opening up a TFSA account in your scenario -- I would absolutely encourage you to do so. Any capital gain, interest amount or dividend you earn in there is tax-free! If you keep your money in a regular savings account and make a few bucks in interest, that can easily be subject to income tax that eats away at what are small rates to begin with.

And, finally, Way To Go, in accumulating $40k!

[Kaspian]

Agree with above.  The only real option for short-term investing (secretly saving) is a TFSA.  I'd buy the best 2-year GIC rate possible in a TFSA.  If you've never used a TFSA before, it will accommodate your current $40K.  You can add $10K a year going forward (unless the next government rolls back legislation on the limit.)

[taularian]

Thank for your advices.

Here is a few more questions.


Now... what would be better GIC for 2 years (if so where can i get one with a ok return?) or bond ETF?

I will reevaluate the chance of buying a house and maybe invest soon depending my decision, all in TFSA and maybe low % in ETF index fund (and leave it there even if i buy a house) and the rest in bond ETF and GIC.

Last stupid question:  Let's say you can only put 10 000$/year in a TFSA (for simplicity), if the first year i put 10 000$ and get a 5% return, so 10 500$.  They next year, do i have only 9 500$ (counting the 500$ i make) or still have an other 10 000$ to invest?

[Heckler]

Go to the source.  Lot's on info on the CRA site about the rules.

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/tfsa-celi/cntrbtn-eng.html

[Heckler]

Bond etfs are poised to loose money in the short term if interest rates go up.  Do some learning on bonds before jumping in short term (if you want to spend the money in less than 3 years)

http://canadiancouchpotato.com/?s=bonds&submit=Search

[FI40]

Some like canadiancouchpotato say that you should not invest in ETF if you do not have at least 50K? why?

I think it's probably due to account administration fees and transaction fees (admittedly not as much of an issue with Questrade, I believe they only charge you to sell ETFs). Also ETFs are less easy to learn how to buy and sell, since you are placing orders rather than just transacting mutual fund units. Good points to make to the average reader, but these issues are not such a big deal for a Questrade client who is savvy enough to learn how to buy and sell ETFs.

Regarding your other questions, I agree with the previous posters that if you're saving for a down payment, choose something safe like short term bonds or a GIC - Oaken Financial has some good rates on GICs last I checked, but shop around.

[Cookie78]

Bond etfs are poised to loose money in the short term if interest rates go up.  Do some learning on bonds before jumping in short term (if you want to spend the money in less than 3 years)

http://canadiancouchpotato.com/?s=bonds&submit=Search

I'm debating buying more bond ETFs right now because they've dropped in price over the last couple months. Is it a bad idea even if you don't need the money in the next 3 years? I'm new. Still learning a lot.

[FI40]

Bond etfs are poised to loose money in the short term if interest rates go up.  Do some learning on bonds before jumping in short term (if you want to spend the money in less than 3 years)

http://canadiancouchpotato.com/?s=bonds&submit=Search

I'm debating buying more bond ETFs right now because they've dropped in price over the last couple months. Is it a bad idea even if you don't need the money in the next 3 years? I'm new. Still learning a lot.

If you need money in 3 years, I'd only buy a bond fund with a very short duration, and those are still very low yields (high price). It's probably better to get a GIC, as the rates of interest these days beat comparable maturity government bonds pretty handily. You can try ratesupermarket.ca for a start. I just checked and the best 3 year rate seems to be about 2%, and since it's CDIC insured for amounts <100k that would be the same creditworthiness as a government bond I suppose. Compare that to a govt bond that has 3 year maturity, at roughly 0.7% yield to maturity. If you know you'll just be holding these for 3 years there's a clear winner.

[Heckler]

http://canadiancouchpotato.com/?s=bonds&submit=Search

Still learning a lot.

That link has far more reliable information than I could answer you.

[Kaspian]

Bond etfs are poised to loose money in the short term if interest rates go up.  Do some learning on bonds before jumping in short term (if you want to spend the money in less than 3 years)

http://canadiancouchpotato.com/?s=bonds&submit=Search

Agree with that!  I believe bonds are a good part of a balanced portfolio but sketchy for a short-term goal.  The problem is some weird and unpredictable world event (which always seems to happen totally out of the blue) could rattle bond markets at the very moment you need to withdraw the funds. 

[Cookie78]

http://canadiancouchpotato.com/?s=bonds&submit=Search

Still learning a lot.

That link has far more reliable information than I could answer you.

Thanks for the link. I had been reading a few of those articles and others yesterday before I saw this thread and asked my question. I think it's all just a little over my head at this point. I'll keep reading. The problem is, I learn much faster by doing. And 'doing' without knowing what I'm doing can lead to mistakes. Which then leads to learning, but the mistakes still suck. :p