More About Money
And speaking of cashola, I went and saw my RRSP person yesterday. As per my new budget, I’ve increased my RRSP contributions by $75 every two weeks. I also discovered that I could convert my Vancity VISA ((for the record, I have no relationship with Vancity or Vancity VISA other than that I’m a customer. I hear disclosure on blogs is all the rage these days. :))) reward points to actual money that goes into my RRSP – so I got a cool $112 for free. I heart free money.
As well, I decided to convert my Tax-Free Savings Account to a mutual fund so that it will at least (hopefully) make a bit of money. Interest rates on savings accounts suck the big one, and since the “tax-free” part of TFSAs is that you don’t pay tax on any money you make from the investment, I figure I should actually make some money on the thing. I was using my TFSA as my “emergency fund,” which you wouldn’t really want to tie up into a mutual fund (as you could end up having to draw on it when the markets are down and thus lose money), but now that I’ve built up some cash in my regular savings account that can be my “emergency fund,” I can think of the TFSA as more of a long-term investment. I talked to my sister on the phone for quite a while last night so she could explain to me how she invests in stocks. I still have a lot of learning to do before I’d be confident enough to do that, so I figure mutual funds for my TFSA is a good baby step in that direction.
Tomorrow, I’m calling the bank to increase how much I pay on my student loans by $150 a month. All of this makes me happy.
And speaking of money, Nancy Zimmerman is posting money tips on her Money Coach blog every day this month. You should check them out!
Image Credit: Posted by Alan Cleaver on Flickr.
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You will buy your mutual funds from a broker. There's an old joke about the communist being shown around Manhattan. At a marina they're showing him around and say "These are all the brokers' boats" to which he replies "Where are all the clients' boats?"
So, here's what you want to do: get your money OUT of any mutual funds you have. They charge you a Management Expense Ratio (MER) of about 3% which means that your stocks/bonds/whatever have to return at least 3% before you see anything. If they return less than that then your capital is just "treading water" and you should have put it under a mattress (it's cheaper).
When you take your money out, you will likely expose yourself to a penalty so take out the maximum you can without penalty (usually 10% of your capital) each year.
What do you do with it? Buy Exchange Traded Funds (ETF) (Google is your friend). Most (not all) most are designed to simply mirror an index (like the Dow Jones, or the TSX, or a section of the TSX). To do that, they (the people running the ETF) "buy" (it gets complicated but don't worry about the underlying details) the stocks in that index and then go off and do other stuff. Net result: they do very little work so they have very low MERs (usually less than 1% — but not always).
Your mutual fund broker will tell you that the MER is justified because the mutual fund company is actively trading to wean out the bad performers and add the good performers. Yeah. Right.
If your stocks went up 3% in a mutual fund, you were treading water. If your stocks went up 3% in an ETF you were 2% ahead of the game. Your money, you call.
Me? I have much of my RRSP money (and TFSA money) in XIU (that's an ETF based on the top 60 stocks in the Toronto Stock Exchange). Go to Google Finance and ask for a quote on TSE:XIU and you can see how I'm doing. (I have other money elsewhere.)
If you aren't sure then put your money in your RRSP but put it into 30-day GICs so you can cash them when you're rready to make a move elsewhere.