Where do you store your money?

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DavidH
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Where do you store your money?

Postby DavidH » Wed May 30, 2012 3:56 pm UTC

And I don't mean under the bed!

Growing up and having an actual income has led me to a problem. I had always just stored my money in a savings account, but the returns are terrible. My account gives me only 0.3% interest (at the bank of Montreal). This is obviously far below inflation, but it has been convenient so far. I looked into other Ontario banks, and the best savings account I could find was 1.34%. Better, but still (far) below inflation.

I'm wondering if there's a better way? I don't even need my money to grow, I'd just rather it not lose value. This is when I regret not taking an economics class in university! I have about $55,000. Of that I need $25,000 to be readily accessible and safe, so that has to go into a savings account. I can tie up the rest any way I'd like, and I'm willing to be risky with at most $20,000. I've gone to various banks asking for advice on investing into mutual funds but they've all given me different answers (always recommending their own), and the mutual fund returns that they've shown me have always been below GIC's which are guaranteed.. gah.

I'm not opposed to researching this myself, but I can never figure out where to start. Every time I think I have a grasp on mutual funds I discover some hidden fee or gotcha. Is there some book that gives a straightforward summary of mutual funds (which is ideally applicable to Ontario law)? Or an actual trustworthy institution that I can take advice from? Or am I better off just keeping everything safe in a bank account? Or should I just pour it all into GICs? Or should I withdraw it all and make a fort out of $5 bills?

EvanED
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Re: Where do you store your money?

Postby EvanED » Wed May 30, 2012 4:21 pm UTC

First, this thread would be better off in another forum I suspect.

DavidH wrote:... the mutual fund returns that they've shown me have always been below GIC's which are guaranteed.. gah.

I'd be surprised by this unless either you're looking at returns over the last couple years or they're crappy mutual funds.

From a US perspective: the US government started issuing "I bonds" (actually I think this is a relatively new thing) which are indexed to the national inflation statistics. You don't gain much, but it does keep you from losing out. Perhaps either Canada has something similar, or the GICs could be viewed to serve a similar rule?

I've got most of my money in Roth IRA-based mutual funds through Vanguard. ("Roth IRAs" are a post-tax IRA setup by our government.) The thing to look for is low fees, because they can quickly wipe out any gains you'd get. You can find descriptions of the kinds of fees that can be applied, but in general look for an unmanaged index fund (my impression is that only the very best managed funds outperform indexed funds once fees are taken into account, and even then are a risky proposition) with "no load" and low "total expense ratio."

jareds
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Re: Where do you store your money?

Postby jareds » Thu May 31, 2012 5:38 am UTC

First, I am not qualified to offer investment advice to Canadians...but you are the one looking for advice on the internet. Regarding professional advice, in the US, if you go to a bank and talk to a "financial advisor", you will be talking to a glorified salesperson. It sounds like it's the same in Canada. I know that there exists such a thing as "fee-only" financial advisors, which means that their only source of income is fees from you, which in turn means that they cost several hundred dollars an hour but hopefully have no incentive to push you in a particular direction. I've never actually used one, though.

Second, GICs vs mutual funds. I agree that with EvanED that you should at least strongly prefer index funds if you look at stock mutual funds. However, I say bond mutual funds can also be considered. GICs appear to come in two varieties: fixed rates and stock-market-based rates. The fixed rates appear to be under 2% and look similar to US certificates of deposit. The market GICs are something I've never heard of. They appear to offer a return in accordance with a market index, but are protected against loss of principal and in return have a relatively tight cap on the maximum return and cannot be cashed in until the expiration of a fixed term.

Therefore, if you are comparing market GICs to index funds in years where markets did poor or mediocre (not hitting the GIC's cap), you indeed would not expect index funds to do any better than GICs. However, nothing is free. I can guarantee you that the cap pays for the principal guarantee plus a profit. However, the cost of the cap will be much less transparent to evaluate than a mutual fund's expense ratio. Technically, one would expect to find that a put option for the index at the guaranteed minimum value of the GIC is cheaper than a call option at the maximum value of the GIC, for a date at the end of the GIC's term. This price difference represents the bank's gross profit. However, this may be gibberish, illustrating my point about transparency.

Personally, my answer is super-boring: I have a mix of index funds, bond funds, and cash, with the ratios in accordance with my risk preferences. If GICs were available to me, I can imagine using a market GIC in place of certificate of deposit (recall: same as fixed-rate GIC), but I don't imagine I would use a market GIC in place of an index fund.

EvanED
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Re: Where do you store your money?

Postby EvanED » Thu May 31, 2012 6:10 am UTC

jareds wrote:Second, GICs vs mutual funds. I agree that with EvanED that you should at least strongly prefer index funds if you look at stock mutual funds. However, I say bond mutual funds can also be considered.

Yes, I have a mix of stocks and bonds (though nearly all stocks because I'm both young and crazy); I didn't mean to imply you should put everything into stocks. My impression is that even mutual funds that are a mix of bonds and stocks are still usually called index funds if the term applies to the stock portion, though you should check that out. My main point is to be very wary of managed funds.

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Re: Where do you store your money?

Postby LikwidCirkel » Thu May 31, 2012 3:12 pm UTC

First off, I think that the big Canadian banks fit on a spectrum. On one extreme you have great service, hours, and lots of banking options, but absolutely horrible rates. On the other end you have decent rates, and extremely limited service.

I call Bank of Montreal the "granny bank", because they are on the extreme end of "good service, awful rates". On the other extreme is CIBC and its subsidiaries, with PC Financial being on the most extreme end of "better rates, very limited service".

My PC savings account pays 1.35%, which is still low, but pretty much the best you're going to get with savings accounts (very close to the figure you already mentioned).

I have a mixture of company stocks (from where I work), GICs and also tangible physical objects which are inflation-immune. As an example, I collect vintage audio synthesizers and I hardly use them, and I really don't expect them to ever go down in value. Gold is similar, but there is much debate as to whether current prices are sane and various other things, and I'm not going to get into that. I would never buy "virtual gold" myself - where someone else stores it for you.

One thing is certain though - if some crisis was to happen tomorrow that drastically affects our digital money system, physical assets and gold in your own personal safe are obviously superior to anything intangible.

jareds
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Re: Where do you store your money?

Postby jareds » Thu May 31, 2012 7:29 pm UTC

EvanED wrote:Yes, I have a mix of stocks and bonds (though nearly all stocks because I'm both young and crazy); I didn't mean to imply you should put everything into stocks. My impression is that even mutual funds that are a mix of bonds and stocks are still usually called index funds if the term applies to the stock portion, though you should check that out. My main point is to be very wary of managed funds.

My mistake. There are bond index funds, but my employer's 401k only has managed bond funds :?, although the expense ratios are not terrible.
LikwidCirkel wrote:One thing is certain though - if some crisis was to happen tomorrow that drastically affects our digital money system, physical assets and gold in your own personal safe are obviously superior to anything intangible.

If there is simply an extended power outage due to a natural disaster or something, familiar physical local currency will be more useful than gold.
If there is such a severe crisis that not only is our electronic currency system inaccessible, but physical Canadian or American currency is worthless, then things such as non-perishable food, fuel, guns, and ammunition will be more useful than gold.
If there is not such a severe crisis, there are a variety of better ways to hedge against inflation with financial instruments rather than gold.

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freakish777
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Re: Where do you store your money?

Postby freakish777 » Fri Jun 01, 2012 1:45 pm UTC

DavidH wrote:Growing up and having an actual income has led me to a problem. I had always just stored my money in a savings account, but the returns are terrible. My account gives me only 0.3% interest (at the bank of Montreal). This is obviously far below inflation, but it has been convenient so far. I looked into other Ontario banks, and the best savings account I could find was 1.34%. Better, but still (far) below inflation.


This has to do with the economy being crap right now. Right before the housing market collapsed, it was possible to find savings accounts/long term CDs that paid 5.5~6% interest.

Or should I withdraw it all and make a fort out of $5 bills?


Yes. Yes you should.

After you're done with your fort, you should make $5 Paper Airplanes. Then you should package and sell your $5 Paper Airplanes for $7.50. Also, keep the plans from your Fort Made of Money and market it to the rich.


Currently, my money is going into my houses. While the housing market may not beat inflation, theoretically the rental property market should be tied to it at least, since rent goes up with inflation (I don't plan on flipping the houses, just letting them pay themselves off over time, 1 down, 2 to go, and then having a supplemental income/enough passive income to not have to worry that much). Definitely not for everyone.

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AvatarIII
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Re: Where do you store your money?

Postby AvatarIII » Fri Jun 01, 2012 1:56 pm UTC

DavidH wrote:And I don't mean under the bed!

Growing up and having an actual income has led me to a problem. I had always just stored my money in a savings account, but the returns are terrible. My account gives me only 0.3% interest (at the bank of Montreal). This is obviously far below inflation, but it has been convenient so far. I looked into other Ontario banks, and the best savings account I could find was 1.34%. Better, but still (far) below inflation.

I'm wondering if there's a better way? I don't even need my money to grow, I'd just rather it not lose value. This is when I regret not taking an economics class in university! I have about $55,000. Of that I need $25,000 to be readily accessible and safe, so that has to go into a savings account. I can tie up the rest any way I'd like, and I'm willing to be risky with at most $20,000. I've gone to various banks asking for advice on investing into mutual funds but they've all given me different answers (always recommending their own), and the mutual fund returns that they've shown me have always been below GIC's which are guaranteed.. gah.

I'm not opposed to researching this myself, but I can never figure out where to start. Every time I think I have a grasp on mutual funds I discover some hidden fee or gotcha. Is there some book that gives a straightforward summary of mutual funds (which is ideally applicable to Ontario law)? Or an actual trustworthy institution that I can take advice from? Or am I better off just keeping everything safe in a bank account? Or should I just pour it all into GICs? Or should I withdraw it all and make a fort out of $5 bills?


can't you buy an apartment and rent it out or something? as long as rent pays for you mortgage repayments, you would be set with a real asset rather than just money in the bank.

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freakish777
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Re: Where do you store your money?

Postby freakish777 » Fri Jun 01, 2012 2:32 pm UTC

AvatarIII wrote:can't you buy an apartment and rent it out or something? as long as rent pays for you mortgage repayments, you would be set with a real asset rather than just money in the bank.


I want to point out that there is a lot of risk involved in the rental property market in the forms of:

Bad Tenants (these come in multiple forms, tenants who don't pay on time, tenants who wreck the property, intentionally or otherwise, tenants who have the cops called on them for loud parties and earn you a Sound Ordinance Ticket, etc)
Bad Neighborhood (somewhere no one wants to rent)
Not knowing how to do repairs yourself (a lot of it is sweat equity, if you don't know how to fix something yourself, you're now paying someone to do it for you)
Losing X months of rent when a tenant moves out while you're trying to fill the vacancy
Property Management Fees (if you don't want to have to deal with the above so much, you'll have to deal with this instead, then there's trust/communications issues with these instead, are they on the same page as you regarding repairs? do they do repairs as cheap as possible, where you're looking to add value to the house?)
All the various things you need to pay for that you didn't think about before like taxes (my city considers a 4 family "Commercial Housing" and so it has a higher tax rate.... ARG!, I also pay County taxes), utilities (Water, Gas, Electric), garbage removal, snow plow services (not doing this? hope you like shoveling up there in Canada), etc.


Like I said, definitely not for everyone.

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Jorpho
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Re: Where do you store your money?

Postby Jorpho » Sat Jun 02, 2012 6:53 pm UTC

There are those who claim that there's still a major bubble in real estate in general right now, and it's going to come crashing down hard. That's one reason why I continue to rent.

Being in Canada, I have a Tax-Free Savings Account, which you can open at most financial institutions and into which you can deposit a maximum of $5000 per year. Such an account can take various forms; mine is in mutual funds.

I also have a Registered Retirement Savings Plan, also in mutual funds and which has a maximum annual contribution limit dependent on one's income. What is left goes into a third mutual fund account.

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Adacore
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Re: Where do you store your money?

Postby Adacore » Wed Jun 06, 2012 11:40 pm UTC

From a UK perspective, my money is in a mixture of fixed-term bonds, a cash ISA (tax-free savings account) and an online savings account. I would like to expand my profile a little to include some stuff with a fair bit more risk (I'm on the very low risk end at the moment, obviously), but I don't want to lock my money up for too long, and most stock/share based options recommend leaving your money there for at least 2 years. I guess I could just try to get directly into the stock market myself, but I'm not sure I want to devote the effort that would entail.

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Jorpho
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Re: Where do you store your money?

Postby Jorpho » Thu Jun 07, 2012 1:53 am UTC

By the way, how is Universal Life Insurance (yes, that's what it's called) as an investment tool? I never could find straight advice about that.

jareds
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Re: Where do you store your money?

Postby jareds » Thu Jun 07, 2012 4:25 am UTC

Jorpho wrote:By the way, how is Universal Life Insurance (yes, that's what it's called) as an investment tool? I never could find straight advice about that.

Is there some reason to believe that it doesn't suck?

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Jorpho
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Re: Where do you store your money?

Postby Jorpho » Thu Jun 07, 2012 4:42 am UTC

Uh... That's not what the insurance salespeople say? :lol:

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Red Hal
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Re: Where do you store your money?

Postby Red Hal » Mon Jun 11, 2012 2:05 pm UTC

Adacore wrote:From a UK perspective, my money is in a mixture of fixed-term bonds, a cash ISA (tax-free savings account) and an online savings account. I would like to expand my profile a little to include some stuff with a fair bit more risk (I'm on the very low risk end at the moment, obviously), but I don't want to lock my money up for too long, and most stock/share based options recommend leaving your money there for at least 2 years. I guess I could just try to get directly into the stock market myself, but I'm not sure I want to devote the effort that would entail.
A simple way to get into the stock market is to pick a low stake and put it into a single FTSE100 company using u-trade or similar (fictitious trading company used to avoid accusations of bias). Now, just play the ups and downs. Sell as soon as the value exceeds your threshold, then wait for it to come down. That way you can learn the particulars of your chosen trader and get a feel for the process at a relatively low risk.

Once you feel more confident then you can start to expand your time and stake.
Lost Greatest Silent Baby X Y Z. "There is no one who loves pain itself, who seeks after it and wants to have it, simply because it is pain..."


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