So this weekend I took out a loan from the bank for RRSPs. Generally I think it makes more sense to save ahead (which I do anyway), but I had some extra cash floating around (paycheque to paycheque) and some RRSP contribution room so I decided to take a loan. I ended up borrowing a little over $5100 (which turns into me paying back $200 per paycheque). The total cost of borrowing is about $70. Considering that I'll get at least 30% of that back through my income tax, it sounds like a pretty good investment to me! The interest rate they gave me as well is below prime, so it will be my lowest priority to pay off.
When I get my income tax back, I will split the return three ways: 1/3 going towards an RRSP re-contribution (for next year), 1/3 going towards my mortgage, and 1/3 going to a student loan. Once my student loan is paid off, then I will concentrate my energy towards the RRSP loan, and then finally to my bigger students loan. All in all, this will really help our next worth and things are moving in a perfect direction before the baby is born!
Showing posts with label investments. Show all posts
Showing posts with label investments. Show all posts
Monday, February 21, 2011
Monday, October 26, 2009
Suggestions for Real Estate
I went with my girlfriend to a wedding yesterday afternoon. We were sat at a table for brunch with a younger couple and we asked what they did. Adam said that he was a real estate agent, and he became one because he got his real estate license so he could save himself fees as he bought and sold properties for himself. My ears of course perked right up.
He said that he owned thirteen properties and did so because he started working right out of high school and decided that he didn't want to (work that is). It took him five years to get going but he had his first place by age 24.
I asked him after a bit what he would recommend for someone looking to get started, as far as the type of property. What he said really surprised me. He said to get a fourplex if possible right off the start. The advantage is that he said, as compared to renting out a single family home, is that even if one or two spots are vacant, you won't be taking the entire financial hit. He also suggested that it might be better to purchase a place outside of my local area and hire someone to look after it for me (as that is what he is trying to do now). Again, all logical things that make sense. I was worried about the cost and he said that his girlfriend just bought her first fourplex for $209,000 (which is considerably less than I thought it would be).
He also mentioned the snowball effect that real estate has: that once you start making money off of it, it becomes easier and easier. The more money that you have, the easier that it is to get finance and refinance loans. He also mentioned that it is important to pay for a good team around you: mortgage broker, lawyer, accountant and real estate agent.
This was a good inspirational weekend for me financially and pointed me to the path of success I think. Now its just time to save for some down payments and begin my financial dreams!
He said that he owned thirteen properties and did so because he started working right out of high school and decided that he didn't want to (work that is). It took him five years to get going but he had his first place by age 24.
I asked him after a bit what he would recommend for someone looking to get started, as far as the type of property. What he said really surprised me. He said to get a fourplex if possible right off the start. The advantage is that he said, as compared to renting out a single family home, is that even if one or two spots are vacant, you won't be taking the entire financial hit. He also suggested that it might be better to purchase a place outside of my local area and hire someone to look after it for me (as that is what he is trying to do now). Again, all logical things that make sense. I was worried about the cost and he said that his girlfriend just bought her first fourplex for $209,000 (which is considerably less than I thought it would be).
He also mentioned the snowball effect that real estate has: that once you start making money off of it, it becomes easier and easier. The more money that you have, the easier that it is to get finance and refinance loans. He also mentioned that it is important to pay for a good team around you: mortgage broker, lawyer, accountant and real estate agent.
This was a good inspirational weekend for me financially and pointed me to the path of success I think. Now its just time to save for some down payments and begin my financial dreams!
Saturday, September 19, 2009
My first money lesson of the year...
In my Grade 11 University math class, we are in the sequences unit. A sequence is an ordered list of numbers. Specificially we deal with sequences where each term in the sequence is multiplied by a common number to get the next number in the sequence. An example is 2, 4, 8, 16, 32, ... (the sequence is doubling each time).
A great application of this is compound interest. If you multiply the interest each time, you can find out the future value of your money. So in our class yesterday, we started talking about savings and borrowing and compound interest.
First of all, the class quickly discovered that this is the way to get me off topic, as I got a lot of great questions from the class and happily answered them all to the best of my ability. We talked about more frequent compounding periods than annually, although the interest rate is listed as annually and how the more frequent that compound period, the more money that is charged/earned. When I explained that credit cards charge daily interest, it prompted the response, "those guys are jerks...I'm never getting a credit card!". We'll see if this person in the future lives by these words, but not getting a credit card immediately should be good advice for any teenager.
Then we talked (briefly) about purchasing a car. I told the class that I don't have a car, getting a cheer from the vegan in the class. We talked about a person that I know that purchased a fancy automobile immediately after getting their first job, and then was saddled with lease payments, insurance and all the rest, when they really couldn't afford it. I didn't have time to get into much more than that, but hopefully they will think about that (I'll return to planning and deciding if you can afford something when I get to the finance unit in the course).
Then I wrote on the board that the interest rate on mortgages is charged every six months. A student asked "what's a second mortgage". After first explaining what a first mortgage was, I explained that a second mortgage is borrowing against the equity in your home. Then I (quickly) explained this was one of the problems in the United States, where people would leverage their homes and end up borrowing more money than their home was worth. Then when they tried to sell their home, they wouldn't have enough money to cover their loans. Someone asked, "If you lose your job, and you still owe half the money on your house, or on your farm, what happens?" I answered as honestly as I could, and I'm not sure if this is exactly right, but I would think that you would be forced to sell your house if it got foreclosed. The portion that you owe the bank would be taken out of how much money that you got for the sale of your house.
My last math lesson of the day was in the staff room when a fellow teacher asked me what a reverse mortgage was. I tried to explain that it was when the bank gives you money in exchange for equity in your house. It is intended for retirees who have a lot of assets in their house, but have little or no cash. The problem is that when they die, a large amount of the value of the house can go to the bank.
All in all, it was a fun lesson for me, and although I have an excellent class, there may be some financial strain at home for me to be getting questions about foreclosures and second mortgages. I explained to them that one of my goals was to be a millionaire and that I would explain how I would do that when we talked about savings and borrowing later in the course. Every year I hope that some of this financial stuff sinks in, and I hope that because I am passionate about it that some will take an interest.
A great application of this is compound interest. If you multiply the interest each time, you can find out the future value of your money. So in our class yesterday, we started talking about savings and borrowing and compound interest.
First of all, the class quickly discovered that this is the way to get me off topic, as I got a lot of great questions from the class and happily answered them all to the best of my ability. We talked about more frequent compounding periods than annually, although the interest rate is listed as annually and how the more frequent that compound period, the more money that is charged/earned. When I explained that credit cards charge daily interest, it prompted the response, "those guys are jerks...I'm never getting a credit card!". We'll see if this person in the future lives by these words, but not getting a credit card immediately should be good advice for any teenager.
Then we talked (briefly) about purchasing a car. I told the class that I don't have a car, getting a cheer from the vegan in the class. We talked about a person that I know that purchased a fancy automobile immediately after getting their first job, and then was saddled with lease payments, insurance and all the rest, when they really couldn't afford it. I didn't have time to get into much more than that, but hopefully they will think about that (I'll return to planning and deciding if you can afford something when I get to the finance unit in the course).
Then I wrote on the board that the interest rate on mortgages is charged every six months. A student asked "what's a second mortgage". After first explaining what a first mortgage was, I explained that a second mortgage is borrowing against the equity in your home. Then I (quickly) explained this was one of the problems in the United States, where people would leverage their homes and end up borrowing more money than their home was worth. Then when they tried to sell their home, they wouldn't have enough money to cover their loans. Someone asked, "If you lose your job, and you still owe half the money on your house, or on your farm, what happens?" I answered as honestly as I could, and I'm not sure if this is exactly right, but I would think that you would be forced to sell your house if it got foreclosed. The portion that you owe the bank would be taken out of how much money that you got for the sale of your house.
My last math lesson of the day was in the staff room when a fellow teacher asked me what a reverse mortgage was. I tried to explain that it was when the bank gives you money in exchange for equity in your house. It is intended for retirees who have a lot of assets in their house, but have little or no cash. The problem is that when they die, a large amount of the value of the house can go to the bank.
All in all, it was a fun lesson for me, and although I have an excellent class, there may be some financial strain at home for me to be getting questions about foreclosures and second mortgages. I explained to them that one of my goals was to be a millionaire and that I would explain how I would do that when we talked about savings and borrowing later in the course. Every year I hope that some of this financial stuff sinks in, and I hope that because I am passionate about it that some will take an interest.
Wednesday, August 26, 2009
Investing Theory
I'd like to discuss today an investing theory that I was discussing the other day that will guarantee conservative growth over time. It is based on the theory that most of your portfolio should be conservative with a small percentage (some say 5%) in something aggressive.
The theory behind this is that all of your deposits should be in something safe, be it a bond fund or a GIC or something with guaranteed growth. At the end of the year, any profits that you have made on this investment will be put into something more aggressive, even if it is just a Canadian Index fund.
Let's use a few numbers to get an idea. Assume that your GIC earns 5% per year and that you deposit $10,000 into it each year.
After 1 year: $10,000 in your GIC, earning $500 interest. This $500 gets put into your more aggressive fund.
After 2 years: $20,000 in your GIC, earning $1000 interest. This $1000 gets put into your more aggressive fund, making $1500 total.
After 3 years: $30,000 in your GIC, earning $1500 interest. This $1500 gets put into your more aggressive fund, making $3000 total.
...
After 10 years: $100,000 in your GIC, earning $5000 interest. This $5000 gets put into your more aggressive fund, making $27500 total.
Of course, the more aggressive fund can fluctuate making that $27500 total be able to go up or down with ease. As well, the initial deposits doesn't just have to be into a GIC, you could do 75% conservative deposits, 25% aggressive deposits, with still the interest earned on your conservative investment going into the aggressive investment.
There is one fundamental problem I have with this investment style, and that is that it gets *less* conservative as time goes on. If I have been saving for 20 years, I want to make my portfolio potentially more aggressive when I am younger (to maximize growth) and less aggressive as time goes on. This does the opposite. In this guaranteed system though, there is no potential for loss as you are only "gambling" (if you want to call investing a gamble) with your interest gained.
The theory behind this is that all of your deposits should be in something safe, be it a bond fund or a GIC or something with guaranteed growth. At the end of the year, any profits that you have made on this investment will be put into something more aggressive, even if it is just a Canadian Index fund.
Let's use a few numbers to get an idea. Assume that your GIC earns 5% per year and that you deposit $10,000 into it each year.
After 1 year: $10,000 in your GIC, earning $500 interest. This $500 gets put into your more aggressive fund.
After 2 years: $20,000 in your GIC, earning $1000 interest. This $1000 gets put into your more aggressive fund, making $1500 total.
After 3 years: $30,000 in your GIC, earning $1500 interest. This $1500 gets put into your more aggressive fund, making $3000 total.
...
After 10 years: $100,000 in your GIC, earning $5000 interest. This $5000 gets put into your more aggressive fund, making $27500 total.
Of course, the more aggressive fund can fluctuate making that $27500 total be able to go up or down with ease. As well, the initial deposits doesn't just have to be into a GIC, you could do 75% conservative deposits, 25% aggressive deposits, with still the interest earned on your conservative investment going into the aggressive investment.
There is one fundamental problem I have with this investment style, and that is that it gets *less* conservative as time goes on. If I have been saving for 20 years, I want to make my portfolio potentially more aggressive when I am younger (to maximize growth) and less aggressive as time goes on. This does the opposite. In this guaranteed system though, there is no potential for loss as you are only "gambling" (if you want to call investing a gamble) with your interest gained.
Monday, July 20, 2009
My Current Investment Vision...
This post will be concerned with my current short term plan for my investments. My suggestions to anyone getting started with investing will be to make it as boring as possible. The first $10,000 that someone has should go into basic index funds. An index fund models the ups and downs of the stock market and is the cheapest kind of mutual fund to purchase. Historically, there have been far more ups in the stock market (I believe an average growth of about 12% over the last 100 years) and in the long term equities have beaten every other investment so that is my suggestion.
The other options are to go for a bond index fund (which I am in) or some other kind of fixed investment. There are many theories on how these should be balanced, but a popular one is 90% - your age in equities and the rest in bonds. For example, if I am 31 (which I am), I would have (90 - 31) = 59% in equities and 41% in fixed investments. The idea behind this is that your portfolio will be less risky as time goes on. Others use the 100 - your age. Either way this will make your portfolio more protected as time goes on. Others say that about 5-10% of your investments should be in "fun" things: penny stocks, or individual stocks or things that are more risky that you can tell your friends about over lunch or at the golf course. These things are risky for a reason though, so only a small percentage of your investments should be in here (if any).
My current theory will be this: use dollar cost averaging (regular deposits that average out the highs and lows of investing) of 90% TSX index funds and 10% bond index funds. Once the TSX gets to a two year high, I will balance my assets so that 50% are in TSX Index and 50% are in bond index. I will continue to always deposit 90% in the Canadian Index and 10% in the bond index, but by rebalancing when the TSX is at a relative high, I will have collected my long term gains.
The idea behind this is to take your money out of the market when the stock market is at a relative high, and then when it drops (as in the last two years), less of your money will be in it. I consider that bonds are a relatively safe positive investment, so that is why the other half will be in that (it could really be in any fixed investment).
I haven't worked out all the numbers yet, but I consider that a high in the stock market over the last two years is enough to pull some money out to keep my gains, and that a 50-50 split is safe enough in the long term. Maybe as time goes on, I will go to a 90-age split as described above (to be more conservative).
Feel free to leave a comment about the validity of this investment strategy. By having a plan in place, I feel that all emotion will be taken out of it. It is difficult to sell when the market is moving in the right direction, but by having a plan in place it should be easier.
The other options are to go for a bond index fund (which I am in) or some other kind of fixed investment. There are many theories on how these should be balanced, but a popular one is 90% - your age in equities and the rest in bonds. For example, if I am 31 (which I am), I would have (90 - 31) = 59% in equities and 41% in fixed investments. The idea behind this is that your portfolio will be less risky as time goes on. Others use the 100 - your age. Either way this will make your portfolio more protected as time goes on. Others say that about 5-10% of your investments should be in "fun" things: penny stocks, or individual stocks or things that are more risky that you can tell your friends about over lunch or at the golf course. These things are risky for a reason though, so only a small percentage of your investments should be in here (if any).
My current theory will be this: use dollar cost averaging (regular deposits that average out the highs and lows of investing) of 90% TSX index funds and 10% bond index funds. Once the TSX gets to a two year high, I will balance my assets so that 50% are in TSX Index and 50% are in bond index. I will continue to always deposit 90% in the Canadian Index and 10% in the bond index, but by rebalancing when the TSX is at a relative high, I will have collected my long term gains.
The idea behind this is to take your money out of the market when the stock market is at a relative high, and then when it drops (as in the last two years), less of your money will be in it. I consider that bonds are a relatively safe positive investment, so that is why the other half will be in that (it could really be in any fixed investment).
I haven't worked out all the numbers yet, but I consider that a high in the stock market over the last two years is enough to pull some money out to keep my gains, and that a 50-50 split is safe enough in the long term. Maybe as time goes on, I will go to a 90-age split as described above (to be more conservative).
Feel free to leave a comment about the validity of this investment strategy. By having a plan in place, I feel that all emotion will be taken out of it. It is difficult to sell when the market is moving in the right direction, but by having a plan in place it should be easier.
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