Savings, investments, and retirement plans in Canada

Evil Multifarious

I am a fortunate man. Right after grad school, a "real" job fell into my lap, and enabled me to build a decent resume. I've worked full-time for three years now, at a few different places, and I think it's time to really consider what to do with the money I'm saving.

I am pretty ignorant of finance, as I think most people are, and it's something I'd like to learn more about. So I have a bunch of questions! Some salient facts:

1) I know one of my first steps should be speaking with a financial advisor, probably through my bank. I'm planning to make an appointment with one soon, but I'd like to get a sense of context.
2) I live in Canada, so we have things like RRSPs (http://en.wikipedia.org/wiki/Registered_Retirement_Savings_Plan) and RRIFs (http://en.wikipedia.org/wiki/Registered_Retirement_Income_Fund). It seems pretty widely agreed that maxing out my RRSP contributions is a good idea, since it's a tax-sheltered, automatically diversified retirement investment.
3) I've paid off my student loans, I don't have kids, I live with a common law spouse who makes good money, and I am currently living in an apartment and paying rent, so no mortgage or anything like that. I am totally debt free.
4) I can easily put away $500 a month.
5) In about three months, my probation period ends at my new job, and I join the group RRSP plan where they take 4% of my paycheck as an obligatory contribution to my retirement savings and then match that 4%.
6) I am currently with the Royal Bank of Canada, whom I find to be excellent, and I have a high-interest eSavings account with them (http://www.rbcroyalbank.com/products/deposits/e-savings.html) which has no fees, essentially gives me unrestricted and free access to my money through online banking, and has an interest rate of 1.2%.

So, I have a few questions.

-Are there any resources you could suggest through which I could educate myself about finance, investment, etc.? I will read dry, heavy tomes full of useful information with no problem.
-What, in general, should I be doing with my money to maximize my retirement savings and savings in general (for buying a house in the future, maybe, or similar major purchases) in Canada?
-In this economic climate, what kind of investments are wise or unwise, i.e. is it advisable to start learning about and getting into moderate- or high-risk investments?

I don't want to end up in one of those crooked old folks homes you see on The Fifth Estate through financial foolishness!

Blarghy

One thing to keep in mind is that investing, especially in the world's current economic state, is a real crap shoot. Everything that is remotely safe has incredibly low yields right now, as everyone and their uncle is piling into them at the moment. There are deals to be had, but also tons of risk to go along with it. Its not really the best time to start investing large sums of money for the first time, unless you are comfortable with the small (but not neglible) possibility of losing your principle.

That being said, putting money away into an RRSP is not altogether unwise. If you go through a bank, keep in mind that while they call some of their employees "financial advisors", what they really are is salespeople for the bank's financial products. They want to push product, which may or may not be optimal for you. Get information from a couple banks, and then choose what you want to do with your money.

Djeet

Evil Multifarious wrote:

-What, in general, should I be doing with my money to maximize my retirement savings and savings in general (for buying a house in the future, maybe, or similar major purchases) in Canada?

These 2 ends are at loggerheads, as tax-sheltered retirement accounts are usually structured to tie up your money til you're old, and putting a downpayment on a mortgage means immediate access to cash. Retirement accounts may let you borrow penalty-free for the purposes of buying a home, but I'd avoid that as you're borrowing against your retirement. Probably better to (after you've maxed your RRSP contribution) split your moneys into emergency funds, downpayment funds, and investments funds, and allocate them into applicable investments.

Evil Multifarious wrote:

-In this economic climate, what kind of investments are wise or unwise, i.e. is it advisable to start learning about and getting into moderate- or high-risk investments?

Determining your risk-tolerance is what you should be doing; your financial planner may help you understand that. I'm assuming you're youngish, so the conventional wisdom is your income is likely to rise as you become more experienced in your work, so you can take more risk than someone who is approaching the end of their wage earning years (approaching retirement). What's considered "high-risk" is going to vary from person to person. I consider my risk-tolerance "medium" and in addition to index funds, I do a little stock-picking, mainly large-cap dividend-paying multinational companies, with some growth-oriented picks tossed in there (longshots I guess you could say). However you decide to allocate your investments, you should have a plan (price or time targets for buy/sell/re-allocate) and not decide things slapdash.

Evil Multifarious wrote:

4) I can easily put away $500 a month.

Great. Worst case scenario, if you cannot come up with an investment plan, bank it in as high-interest savings as you can. Maybe consider a ladder of short-maturity CD's (6 mo to 2 years) until you feel you've educated yourself enough to get into other asset classes. Eventually you're going to tire of 1-2% yields.

saint2e

Since you're in Canada I highly suggest a Tax Free Savings Account (TFSA) as well as of whatever RRSP/investment plan you decide on.. It's horribly named because it's essentially an RRSP that you can dip into whenever without penalty. I can be as low risk or high risk as you want, and the only stipulation is how much you can put in a year. and depending on who you bank with, it costs you nothing to have one.

Lail

Yep, utilize your TFSA. You can contribute $5000 per year, and any amount you haven't used in one year carries over to future years.

Also, as mentioned above, "financial advisers" are there to sell. I would suggest that when you go in and talk to someone, bring a note pad and write down any key words/terms and look them up when you get home. I'm not trying to suggest FA's are bad people or are trying to scam you, but sometimes your financial goals may not be completely aligned with what they want to sell (risk/reward/time).

Evil Multifarious

Yeah, my major concern with a bank advisor is that they obviously have an agenda. My girlfriend's bank had advisors who basically did nothing but administer surveys with multiple choice questions then have the computer spit out the savings option that you were "best suited" for.

I'll definitely look into starting a TFSA. I think Royal Bank's don't cost anything, as mentioned. Thanks for the tips so far, folks.

Nova_C

I use the Royal Bank as well and when I set up a TFSA with them, the advisor I was speaking suggested I invest the TFSA in the Royal Bank stock. Which I did. And in a year, $1000 of deposits turned into $1300 of value. Like any stock, it's up and down, but investing the TFSA is a great addition to the RSP.

LaOs

The TFSA shouldn't cost you anything from any bank--I don't believe they're allowed to charge you for the account. But I do know that RBC's is free. I would work on maxing out your personal RRSP contribution and then any left-over should go into a TFSA. If you can't or don't want to hit the savings level of maxing out your RRSP, I would suggest you contribute a large enough number so you're satisfied with the hypothetical results (your financial guy at RBC will run the hypotheticals with you based on various data points, like monthly contribution) and still put some away into the TFSA. The TFSA is a great tool for your saving up for larger purchases--like down payments on a mortgage. Any you don't use in a year carries over to the next, and if you take some out, you get that amount back in the following year (in contribution space). So you can always have a max of $5K per year.

Also, ensure you are contributing the maximum amount your employer will match to your workplace pension plan. It's free money!

[Edit]
Your TFSA has many, if not all, the same options as your personal RRSP for investments--Money Market Funds, Mutual Funds, etc... MMF are sort of the most liquid of the investments there, basically like higher-interest savings accounts, and will protect the amount invested (I believe). All I mean is that be aware you'll have options when putting money into the TFSA and should choose what would be most useful to you... if you're using it as sort of a staging ground for funds used towards larger purchases, you want something that has easier/quicker access. It'll take a day at least, so it's longer than the e-savings account, but you're going to be getting better interest on the money that's there. Your RBC person should be able to walk you through that stuff (mine was great about it all).

Serpent

Great book:
The Intelligent Assett Allocator.

Not geared for Canada, so it doesn't cover RRSPs and TFSAs, but it does go over investing and all the different options -- stocks, bonds, real estate, precious metals, small cap large cap foriegn etc etc.