best and safest way to invest money
- Thread starter ILOVETHIS
- Start date
Double down at the casino! Just kidding - Most people are concerned about increasing return but don't look at existing expenses. Two ways to increase bottom line - increase income, decrease expenses. If one has debt, such as credit card debt, consider paying that off or paying down on debt that is higher in rate. Obviously liquidity is an issue so examine your entire financial position in order to make a prudent decision. Good luck!stang said:
well go to ING and get about 3.35% or go invest in a GIC. But like stang said, best and safe don't always go together. Remember, the reason why some investments have higher returns is because to compensate for the higher risks associated. But judging from your post it sounds like you have a low risk tolerance, so GICs are probably your best bet.
PHNINE said:Like you know what you are talking about.
What?! I bet on red - isn't that always a winner?!!
It all depends on the term of the investment 30 days, 90 days, 365 days?? The longer the term the higher the rate. Are you concerned about liquidity, cashable GIC's have lower rates than locked in. My suggestion - look at bankers acceptances - higher rates, low risk and cashable before maturity. I think you need a minimum investment though.
Bank stocks (BNS, RBC, BMO, CIBC) have been pretty stable, both from capital appreciation and income.
Oil and gas stocks are also a good bet (blue chip only)
Oil and gas stocks are also a good bet (blue chip only)
He specified safe so "bank stock" is out because it's still stock, and even bank stocks can crash in value by 20-25% on a downturn. Yeah, we haven't had one of those for 20 years or so, but we could.
If you insist on safe you are insisting on fixed income. No SINGLE bond is really the "best and safe" you want a combination of bonds. That way if one tanks, you're ok, because it's just a tiny little piece of yoru pie. This is called "diversification" and it is a Good Thing.
Now if you are absolutely loaded with millions you just go down the list of all the major A+ rated corporate bonds in Canada and buy them all. You've got the money to do it, why not. If you have something under a million you are going to have to make due with a bond fund.
In evaluating bond funds you have three basic questions: what's the yield? how diversified is it? and what's it going to cost me? In short you want the highest yield with the broadest diversification for the lowest cost. When we talk about cost we are talking about the MER, the management expense ratio, which is the percentage of your invested money they put into their pocket every year.
Note that this approach assumes you are going to invest your money for well over a year, and that you have several thousand dollars to invest. If it's less than a year or less than a couple of thousand you're better off with an ING Direct account or some such, since there are fees you will pay to get into and out of this investment. After a year or so it's a wash, but for a shorter time period, avoid the fees entirely, and take the lower no-fee interest rate from ING Direct or some similar bank.
All that said, if you are investing +20-100k or so look at some of the really low MER mutual funds from companies like Phillip, Hagar, and North (PH&N), they have some bond index funds for pretty cheap with good diversity. Go for a broad corporate fund or some such. Another alternative is to buy a bond ETF on the stock market like Barclay's ishares XBB, which holds a broad array of Canadian bonds including govt. and corporate. Use a discount brokerage for that, you'll pay $20-25 to buy into your position and $20-25 to get out of it depending on your broker.
Note that bond income generates taxes each and every year. If you are planning to hold for a long time and you can suffer a little more risk (like 20% in a downturn) you might really be better off holding an array of blue chip corporate stocks. Dividends are preferentially taxed, and you might be able to avoid the capital gains tax until the year you sell--if that's many years off, that's a lot of tax-free compounding. Again you are seeking broad diversification and low cost. There are a variety of index funds that cover the TSX/S&P 60, like the ishares XIC that trades on the TSX. You want to pick the one that has the lowest MER. All the TSX indexes are selling the same thing, so buying a higher MER one is dumb.
Note that if you go the index fund route, while it's reasonably safe, you are definately still exposed to market risk. You'll get the average return for the whole TSX, and it's heavily weighted by big banks and large Canadian firms, but absolutely in a recession or severe downturn it'll lose some value. This is something you'll have to decide for yourself--just remember that ANY stock you buy, no matter how blue chip, can lose value. If that worries you, go for the diversified bond fund.
If you insist on safe you are insisting on fixed income. No SINGLE bond is really the "best and safe" you want a combination of bonds. That way if one tanks, you're ok, because it's just a tiny little piece of yoru pie. This is called "diversification" and it is a Good Thing.
Now if you are absolutely loaded with millions you just go down the list of all the major A+ rated corporate bonds in Canada and buy them all. You've got the money to do it, why not. If you have something under a million you are going to have to make due with a bond fund.
In evaluating bond funds you have three basic questions: what's the yield? how diversified is it? and what's it going to cost me? In short you want the highest yield with the broadest diversification for the lowest cost. When we talk about cost we are talking about the MER, the management expense ratio, which is the percentage of your invested money they put into their pocket every year.
Note that this approach assumes you are going to invest your money for well over a year, and that you have several thousand dollars to invest. If it's less than a year or less than a couple of thousand you're better off with an ING Direct account or some such, since there are fees you will pay to get into and out of this investment. After a year or so it's a wash, but for a shorter time period, avoid the fees entirely, and take the lower no-fee interest rate from ING Direct or some similar bank.
All that said, if you are investing +20-100k or so look at some of the really low MER mutual funds from companies like Phillip, Hagar, and North (PH&N), they have some bond index funds for pretty cheap with good diversity. Go for a broad corporate fund or some such. Another alternative is to buy a bond ETF on the stock market like Barclay's ishares XBB, which holds a broad array of Canadian bonds including govt. and corporate. Use a discount brokerage for that, you'll pay $20-25 to buy into your position and $20-25 to get out of it depending on your broker.
Note that bond income generates taxes each and every year. If you are planning to hold for a long time and you can suffer a little more risk (like 20% in a downturn) you might really be better off holding an array of blue chip corporate stocks. Dividends are preferentially taxed, and you might be able to avoid the capital gains tax until the year you sell--if that's many years off, that's a lot of tax-free compounding. Again you are seeking broad diversification and low cost. There are a variety of index funds that cover the TSX/S&P 60, like the ishares XIC that trades on the TSX. You want to pick the one that has the lowest MER. All the TSX indexes are selling the same thing, so buying a higher MER one is dumb.
Note that if you go the index fund route, while it's reasonably safe, you are definately still exposed to market risk. You'll get the average return for the whole TSX, and it's heavily weighted by big banks and large Canadian firms, but absolutely in a recession or severe downturn it'll lose some value. This is something you'll have to decide for yourself--just remember that ANY stock you buy, no matter how blue chip, can lose value. If that worries you, go for the diversified bond fund.
Well he also seemed disgusted by low rates of return on old lady investments, so he can't have it both ways.
If he wants some returns with minimal risk, there are ways to accomplish this in the stock market. It all depends on his risk tolerance, his wallet and diversification.
From my perspective, I have seen my money double 4 to 5 times in 20 years having a heavily weighted bank stock portfolio that I have since diversified.
I do not trade much and am pretty stable. Maybe I was lucky or in the right place at the right time, but I think the best advice we could give him is to see a pro and not surf an escort review board for financial advice.
and PS - in my opinion, Fuji's advice is very good!
If he wants some returns with minimal risk, there are ways to accomplish this in the stock market. It all depends on his risk tolerance, his wallet and diversification.
From my perspective, I have seen my money double 4 to 5 times in 20 years having a heavily weighted bank stock portfolio that I have since diversified.
I do not trade much and am pretty stable. Maybe I was lucky or in the right place at the right time, but I think the best advice we could give him is to see a pro and not surf an escort review board for financial advice.
and PS - in my opinion, Fuji's advice is very good!
Fuji makes an excellent case and his position is well founded in financial theory and fundamentals of investment analysis; however, for the novice ( I assume you are and by no means that is not a negative) you might consider paying down your mortgage if you have one - it is not sexy but getting the return on your mortgage and building equity at the same time would make sense to me. Cheersfuji said:
In your 20's with no debt? You are ahead of 95% of your peers - congrats!! Take the casino route "kid"! Textbook answer is you are at an age where you can be more aggressive in your investments and your asset allocation should be more heavily weighted on equities versus fixed; however, in the real world you might want to be liquid and consider buying a home. History has told us real estate, assuming you have not overpaid, should hold its value nicely and provide a roof over your head at the same time.ILOVETHIS said:
Save up your money until you can buy a starter home outright, or at least so you can pay it off in 5-7 years. Seriously at your age you can be fairly aggressive. Since you're not the aggressive type I'd recommend a 20-40-40 split between cash, fixed income, and equities. That's very safe. Put 20% in an ING direct account, put 40% into a low cost diversified bond fund, put 40% into a diversified equities fund. It doesn't have to be any harder than that.ILOVETHIS said:
If 20% of your cash isn't enough to fund expenses for at least six months, bump up the cash portion until it's enough for six months, and split the rest like I said. View the 20% cash as a long term target, where 6 months expenses is a MINIMUM. You say your hours are unstable, so you might need this buffer.
If you weren't such a chicken I'd recommend 70% equities 30% fixed and no cash, but you're a chicken, and that arrangement is very safe. I'm assuming you'll be saving the money up for 5+ years until you can afford a house.
Do consider opening an RRSP and putting the fixed income portion inside the RRSP if possible. The fixed income is the most heavily taxed, so it's the first thing you should try and shield from taxes. Leave the cash outside the RRSP for emergencies. Don't let the RRSP go over $20k since that's the most you can take out under the home buyers plan to buy your first home.e
PC Financial is 4% straight up ($1,000 minimum) without being locked in at any time, although at your age I agree with the previous posters that you can afford more risk.
