Author Topic: Where to invest EF (Canadian)  (Read 2960 times)

fb132

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Where to invest EF (Canadian)
« on: June 10, 2015, 08:36:25 AM »
Now, I am not interested in keeping my EF in a high interest account because I rarely use it, but where is the best place to invest, maybe 20% VCN and 80%VAB??? Any other suggestions?
« Last Edit: June 10, 2015, 09:04:59 AM by fb132 »

Retire-Canada

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Re: Where to invest EF (Canadian)
« Reply #1 on: June 10, 2015, 09:48:50 AM »
1. Get a line of credit equal to your EF fund needs.

2. Put your EF money into your normal asset allocation. TFSA is a good spot since you can pull $$ without tax implications and put it back in again.

3. In case of emergency do the following as needed:
  - divert monthly savings to pay it
  - put on credit card to get extra month of diverted savings
  - pay CC with LOC
  - pay LOC with diverted monthly savings
  - only if needed sell investments to pay LOC

fb132

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Re: Where to invest EF (Canadian)
« Reply #2 on: June 10, 2015, 10:21:55 AM »
I already have a TFSA account using CCP reccomended ETF funds and a regular line of credit (6,84% interest)...so let's say I get hit with a 2000$ bill that I absolutely need to pay now, I would charge it on my credit card (for the points), then I pay it through my credit line and I pay it off as I get paid while I continue to invest???? And if the sum is much higher, then I use whatever money I have invested to pay it off???

What does divertly monthly savings mean? Is that money saved through my ETF?
« Last Edit: June 10, 2015, 10:24:37 AM by fb132 »

Heckler

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Re: Where to invest EF (Canadian)
« Reply #3 on: June 10, 2015, 10:33:02 AM »
I was saving 30% of income, but we got hit with a loss of job emergency, and a planned month off in Germany emergency, coinciding with a triple mortgage payment month. Thus i reduced my savings rate for May to pay for tge emergencies.  Now in June, shes got a new job and everything is paid off so ive i creased my savings rate back up to 30%.

Retire-Canada

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Re: Where to invest EF (Canadian)
« Reply #4 on: June 10, 2015, 11:40:27 AM »

What does divertly monthly savings mean? Is that money saved through my ETF?

Just for round numbers:

- your take home pay is $5K
- your savings rate is 50%
- so you typically put $2.5K into investments each month

If your roof needs replacing for $5K

- you pay $2.5K this month instead of investing [diverting savings $$ from investments to emergency]
- use your CC or LOC to pay the remaining $2.5K
- pay off that balance the following month with your diverted savings of $2.5K

You lose your job and it takes 6 months to find another one:

- take last month's $2.5K savings and use for first month of non-working expenses
- trim budget down to $2K/month expenses over first month as you re-group
- get part-time job at start of 2nd month [say $1K/month take home]
- 2nd month $2K - $1K = $1K on LOC
- 3rd month $2K - $1K = $2K on LOC
- 4th month $2K - $1K = $3K on LOC
- 5th month $2K - $1K = $4K on LOC
- 6th month $2K - $1K = $5K on LOC
- assuming you get similar job you divert $2.5K of savings each month to pay off LOC in 2 months

I wouldn't start selling investments until I had exhausted all other options assuming my LOC interest rate wasn't crazy high relative to my investment returns.

fb132

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Re: Where to invest EF (Canadian)
« Reply #5 on: June 10, 2015, 12:03:44 PM »

What does divertly monthly savings mean? Is that money saved through my ETF?

Just for round numbers:

- your take home pay is $5K
- your savings rate is 50%
- so you typically put $2.5K into investments each month

If your roof needs replacing for $5K

- you pay $2.5K this month instead of investing [diverting savings $$ from investments to emergency]
- use your CC or LOC to pay the remaining $2.5K
- pay off that balance the following month with your diverted savings of $2.5K

You lose your job and it takes 6 months to find another one:

- take last month's $2.5K savings and use for first month of non-working expenses
- trim budget down to $2K/month expenses over first month as you re-group
- get part-time job at start of 2nd month [say $1K/month take home]
- 2nd month $2K - $1K = $1K on LOC
- 3rd month $2K - $1K = $2K on LOC
- 4th month $2K - $1K = $3K on LOC
- 5th month $2K - $1K = $4K on LOC
- 6th month $2K - $1K = $5K on LOC
- assuming you get similar job you divert $2.5K of savings each month to pay off LOC in 2 months

I wouldn't start selling investments until I had exhausted all other options assuming my LOC interest rate wasn't crazy high relative to my investment returns.

Awesome, that is a good plan. Thank you :)

fb132

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Re: Where to invest EF (Canadian)
« Reply #6 on: June 10, 2015, 07:18:31 PM »

What does divertly monthly savings mean? Is that money saved through my ETF?

Just for round numbers:

- your take home pay is $5K
- your savings rate is 50%
- so you typically put $2.5K into investments each month

If your roof needs replacing for $5K

- you pay $2.5K this month instead of investing [diverting savings $$ from investments to emergency]
- use your CC or LOC to pay the remaining $2.5K
- pay off that balance the following month with your diverted savings of $2.5K

You lose your job and it takes 6 months to find another one:

- take last month's $2.5K savings and use for first month of non-working expenses
- trim budget down to $2K/month expenses over first month as you re-group
- get part-time job at start of 2nd month [say $1K/month take home]
- 2nd month $2K - $1K = $1K on LOC
- 3rd month $2K - $1K = $2K on LOC
- 4th month $2K - $1K = $3K on LOC
- 5th month $2K - $1K = $4K on LOC
- 6th month $2K - $1K = $5K on LOC
- assuming you get similar job you divert $2.5K of savings each month to pay off LOC in 2 months

I wouldn't start selling investments until I had exhausted all other options assuming my LOC interest rate wasn't crazy high relative to my investment returns.
What if we take the roof example again, but lets say it takes 4-5 months to pay it off , because I am only able to save 1K$ per month, do I still hold off my investments in order to pay the 5K$ for 5 months or am I better off using up my investments in that case since it's longer?

Heckler

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Re: Where to invest EF (Canadian)
« Reply #7 on: June 10, 2015, 10:59:14 PM »
do I still hold off my investments in order to pay the 5K$ for 5 months or am I better off using up my investments in that case since it's longer?

depends on the interest rate you're able to use to pay something off over time instead of selling investments. 

fb132

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Re: Where to invest EF (Canadian)
« Reply #8 on: June 11, 2015, 03:53:56 AM »
do I still hold off my investments in order to pay the 5K$ for 5 months or am I better off using up my investments in that case since it's longer?

depends on the interest rate you're able to use to pay something off over time instead of selling investments.
In my case, my LOC is 6,84%.

When is the right time to sell investments to pay off an unexpected expense, is it if the amount is worth more than 3 months of savings? 6 months???

Let me know if I am wrong, but my gut feeling tells me that if I get an unexpected payment that is worth 5-6 months of savings, I am better off using my LOC since paying a credit line @ 6% to cover for 5-6 months is better than losing out on 6% or 7% returns over the other years where I did invest.
« Last Edit: June 11, 2015, 05:51:01 AM by fb132 »

Retire-Canada

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Re: Where to invest EF (Canadian)
« Reply #9 on: June 11, 2015, 09:28:22 AM »

What if we take the roof example again, but lets say it takes 4-5 months to pay it off , because I am only able to save 1K$ per month, do I still hold off my investments in order to pay the 5K$ for 5 months or am I better off using up my investments in that case since it's longer?

If your LOC is 7% and you can pay it off in 4-5 months I'd just stick with the original plan and not liquidate investments.

I'm not worried about saving a few $$ and leaving my investments alone until the shit really hits the fan is just easier for a buy-and-hold investor. You also have to look at the transaction fees, tax implications and the potential loss of returns for cashing in investments.

I also find that when I have a balance on my LOC it really bugs me and I find extra savings to hammer it to zero ASAP.

This is an emergency "fund" plan so presumably you aren't dealing with these issues regularly. Which is why it's smart to avoid the opportunity cost loss of holding cash and why the cost of holding a LOC balance for a few months isn't a problem.
« Last Edit: June 11, 2015, 09:30:25 AM by Vikb »

fb132

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Re: Where to invest EF (Canadian)
« Reply #10 on: June 11, 2015, 09:38:09 AM »
I hardely ever use my EF, but it does occasionnally happen like when I helped my parents for the repair of their roof.