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Investing in Beaverland
Stranger Danger
Registered User regular
Registered User regular
Hello gentlemen and gentleladies of PA. I come to you looking for guidance.
A close loved one of mine passed away recently without warning. Though tragic, I stand to inherit ~150 000 Canadian dollars once the many legal problems are dealt with.
While a fraction of the monies will be ear-marked for getting me through school next year and vainly filling the gaping hole in my soul left from my relative's passing with stuff, I intend on investing the vast majority of it all.
I have never invested before, and this is the largest amount of money I've ever seen. I am in my early twenties, living in Canada, so retirement is a far ways away. What should I do with these funds? Which experts should I talk to? Is there any general advice that my fellow PAers can give?
A close loved one of mine passed away recently without warning. Though tragic, I stand to inherit ~150 000 Canadian dollars once the many legal problems are dealt with.
While a fraction of the monies will be ear-marked for getting me through school next year and vainly filling the gaping hole in my soul left from my relative's passing with stuff, I intend on investing the vast majority of it all.
I have never invested before, and this is the largest amount of money I've ever seen. I am in my early twenties, living in Canada, so retirement is a far ways away. What should I do with these funds? Which experts should I talk to? Is there any general advice that my fellow PAers can give?
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I agree with this. Try to find a financial planner that charges a flat fee and not one who works off of commission. The commission people will probably try to maximize their commissions, while a decent flat fee person won't have any of that nonsense.
On the other hand, getting your feet wet with monetary investments are a smart choice as well. Say you take 50 grand to go towards schooling and recovery. $100 000 is far above what most adults have to start an investment nest egg with. Choose an investment firm (after careful shopping around) that you feel most comfortable with, start a working relationship with an investment banker and get that money to work for you. I don't know if you're living in a boom province right now, but Alberta is a great place to be right now if you're looking at investment opportunities.
Mmmmm....toasty.
Saving a few thousand per year as young as 25 produces huge dividends compared to saving the same amount per year at 30 or 35. You could retire early as a king if you sock that money away and let it grow.
So go meet a planner with that goal in mind!
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This is really why he should talk to a financial planner (ideally several - he should be auditioning them). It's quite possible to get greviously buttfucked on taxes (particularly as a student) by purchasing mutual funds. If you pick the wrong kind and put them in the wrong plan, you can wind up in a situation where your principal and profits are locked in (that is, without taking a major tax hit) until retirement but Revenue Canada is asking for capital gains taxes now.
There are income tax benefits available if he puts the money in an RRSP/Registered Retirement Savings Plan (which does not necessarily mean buying mutual funds) or an RESP/Registered Education Savings Plan (particularly for that last year of school, no reason that money can't be at work while he's studying). If he's a student he probably hasn't accumulated sufficient room in his RRSP at this point to put in more than a few thousand dollars per year. Your limit should be on your notice of assessment from Revenue Canada (if you talk to a financial planner they'll want to see this).
A final word on mutual funds: while this should be taken with no more gravitas than "some guy on the Internet with a pedophile alien bear avatar said this", these may not be the ideal investment vehicle for you. Mutual funds all come with what's called a "management expense ratio", or MER. This is an important number because that's the amount of money the fund's managers charge you for the privilege of having them manage your money. This will probably be in the range of 1.5% to 3%, so if you wind up investing, say, $100 000 of that money in mutual funds, you will be paying between $1500 to $3000 of it to the fund managers, whether they show a profit or not. In other words, you could think of that money as being deducted from any profit you make (a 10% return is really 8%) and added to any loss incurred (a 5% loss becomes 7%).
That said, I am going to echo what OnTheLastCastle and DragonPup both said. If you invest $100 000 of that money now and realize an average annual return of 7%, in 30 years you'll have in excess of $750 000 (and to reiterate my earlier point about MERs - if you were paying a 2% MER on that, the fund manager will be getting over $300 000 of that money). Also don't mention it to your wider circle of friends. It's very easy for large amounts of money to become a white elephant, and, with no offense intended to anyone who may be a student and reading this thread, no every university student has a solid grip on the value of a dollar.
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That sounds like an index fund or possibly an exchange traded fund. Usually (in my experience talking with financial planners in Canada) those are usually considered different from mutual funds, in that they wouldn't be considered if you said "I want to buy mutual funds" (though a good financial planner should darn well bring them up). There's a tendency here for the major banks to sell customers on RRSP accounts (Americans: think 401(k) except more often handled by the individual than their employer) containing only mutual funds offered by the bank. This is so pronounced that it's pretty common for people to not realize the difference between an RRSP and a mutual fund, and if you ask them what they have in their RRSP they'll say something like "Oh, 60% Growth and 40% Value". Over the long haul these have had some pretty bad returns. I didn't mean to start a debate on mutual funds versus other investments, nor to suggest that all mutual funds are awful, just that, because of the differences between the U.S. and Canadian systems, there is every chance that if the OP walks into a major bank and asks about investments, they will give him a brief questionnaire to determine his risk tolerance and then stick his money in a relatively high MER mutual fund. Anyway, I don't want to get all Boglehead and add to any confusion, simply point out that there are a lot of potential pitfalls and possibly a lot of money on the line over time, so it's worth finding a professional financial planner.
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My advice, don't lend people money just because you can. I lent an ex 1.5k and never got most of it back.
Long term GICs are much safer than mutual funds. Talk to a local credit union and get that money out of the big banks. You want some one to work with you personally.
ETFs and Mutual Funds are different things. Before the days of ETFs there were Mutual Funds that attempted to track indexes, with varying degrees of compliance to the underlying index. For example a Mutual Fund might be based on the S&P 500 but not buy the underlying stocks in the exact proportion of the S&P. Mutual funds like this still exist and generally have lower expense ratios than other Mutual Funds. ETFs have even lower expense ratios.
I've only bought ETF's in two cases: a commodities play (such as an ETF that tracts spot price of gold/oil), or to get into a security that acts like an index but has lower minimum investments (e.g. I want to buy $3K of S&P 500 index but Fidelity wants a minimum $5K investment, so I find an S&P500 ETF and buy $3K in shares).
I'd be careful about buying the commodities funds as their distributions can be weird w/r/to taxes. There are other types of ETFs such as those defined by market sectors or geographical location. There are more sophisticated ETFs, like ones that are leveraged double for or against a particular index, but IME these get real sticky at times of high volatility (the times you might be most interested in them) and are definitely NOT suited to the novice investor.
In my experience if you lend someone money in amounts greater than the cost of a meal you will never see that money returned. Exes/current SOs, musicians, and old friends that hit a rough patch and just need a leg up are all equally untrustworthy. I'm not saying don't trust folks, just don't be overly free with your money.