the-finance-guy-blog

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References

Canada Revenue Agency. (2017, June 23). Registered Retirement Savings Plan. Retrieved from Canada Revenue Agency: http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/rrsps-eng.html

CBC News. (2015, April 15). Average Canadian house price climbs 9% to $439,144 in march from year earlier. Retrieved from CBC: http://www.cbc.ca/news/business/average-canadian-house-price-climbs-9-to-439-144-in-march-from-year-earlier-1.3033636

CIBC. (2017, June 20). Mortgage Payment Calculator. Retrieved from CIBC: https://www.cibc.com/ca/mortgages/calculator/mortgage-payment.html

Davidson, S. (2015, December 17). Report reveals average rent prices across Canada. Retrieved from CTV Toronto: http://www.ctvnews.ca/canada/report-reveals-average-rent-prices-across-canada-1.2704967

FinRally. (2017, June 20). Finrally. Retrieved from Finrally: https://www.finrally.com/?trck=2596504a8320fe5.41112731&offid=50&affusr=yourmind&utm_source=affiliates&utm_medium=referral&utm_campaign=yourmind&utm_content=50&utm_term=371&ocode=MTk5OS41MS41MC4zNzEuMC4wLjAuMC4wLjAuMC4w

IFSE Institute. (2017, June 30). Types of Mutual Funds. Retrieved from Canadian Investment funds Course: http://courses-sec.ifse.ca/Courses/C206V2/course/a001_unit_6_types_of_mutual_funds_types_of_mutual_funds_introduction.html?ck=zM%2bKQH0K5Y%2faPyrmCA%3d%3d

Marshall, K. (2013, January 23). How Much Commision Do Real Estate Agents Charge. Retrieved from Keith Marshall: http://keithmarshall.ca/2013/01/how-much-commission-do-real-estate-agents-charge/

RBC. (2017, June 23). TSFA Overview. Retrieved from RBC: http://www.rbcroyalbank.com/tfsa/tfsa-overview.html

Verma, S. (2012, September 10). Why day trading isn't for dummies. Retrieved from The Globe And Mail: https://www.theglobeandmail.com/globe-investor/personal-finance/household-finances/why-day-trading-isnt-for-dummies/article614284/

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All Together Now

It seems like many people are only concerned with how the stock market is performing.  Although it is one way that you can invest it is not the only way.  Another type of investment is a mutual fund.  In today’s blog we are going to explore mutual funds and find out how they can make you money as well.

So What Are Mutual Funds

A mutual fund is almost identical to stocks with two major differences.  Firstly, with stocks you are buying shares of an individual company.  Mutual funds, you are purchasing a portfolio containing tens or hundreds of stocks.  Secondly, you are not the sole owner of a mutual fund.  Often, there will be hundreds of others who are also invested in the fund (IFSE Institute, 2017).

But I don’t need other investors

It might seem counterproductive to be sharing you potential wealth with random strangers, but it is one of the reasons why they are so successful.  Yes they do get a piece of the pie but, they also put their ingredients to make it possible.  Basically by yourself, you would not be able to afford some of the stocks in a mutual fund (IFSE Institute, 2017).  This is why people will invest in these funds, pool their money so they can buy stocks from these favorable companies.

Yay or Nay

Mutual funds are a great investment.  With the different types of funds you can create a very diverse personal portfolio. Until next time, invest smart, save big, and let your money work for you.

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Fun chart to show how to prioritize your money

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The Life of the Wolf Seems Like a Great Idea

I’m sure that most of you guys have seen “The Wolf on Wall Street” (a great movie if you haven’t seen it).  In the movie, you see the main character living a lavish life filled with expensive cars and houses.  Now most of us will not be starting our own stock brokerage, but if you are willing to put in the work, and deal with the risk there is a close second. Day Trading.

I thought all trading happens during the day?

Day trading is essentially being self-employed by investing in the stock market.  The main difference is that instead of owning stocks for several years (which is generally considered a wise investment), day traders normally don’t own a stock for more than a few hours, sometimes minutes (Verma, 2012).

That seems like a lot of work?

Well if you think it sounds hard, you are correct.  Day trading acts the same way as a regular job (Verma, 2012).  Most of the time, people that day trade are up at the crack of dawn doing preliminary research about what stocks they would like to purchase and will give them the highest return.  Depending on where they live the actual “fun” begins at 9am sharp when the stock exchange finally opens.  That’s when they start their trading and have to have eyes like a hawk.  Day traders must make sure they buy and sell at the right point or they risk losing everything.  When they get the timings right for the whole day, day traders can easily make thousands of dollars in a couple of hours, but when the miss trades they can lose everything and even end up bankrupting themselves.

Sign me up!

It seems like a great idea. You can make your own hours, have any day off you want and possibly make thousands of dollars a day.  What’s not to like about that?  No one ever mentions the small stuff though.  For instance, did you know that unless you have the proper licenses and certifications you cannot trade stocks on the market?  This means that you are going to have to pay someone to buy and sell for you.  This is where the stock broker comes into play.  I’m sure you everyone here has an image of what the stock market looks like.  People in fancy business suits, running around like they have no head, screaming at each other to buy and sell while shouting random numbers.  Well, those people are not going through that because they are kind hearted and want to help.  They need money too.  Most brokerages have their own payment system but the two most common are per share or percentage of order.  Your first job will be determine how you want to pay.  Once you figure that out, the next step is to find what you want to invest in.  Determining how a stock will react throughout a day is an educated guess at best.  Stocks can easily be calculated over a long period of time due to yearly patterns and trends.  But minute by minute a stock can change instantly.

I’m still interested

The life of a day trader seems great if you are willing to put the hours in.  But it can be an extremely stressful career, which can leave you down and out pretty quickly (Verma, 2012).  I have thought about it for myself as a way to generate additional income, but I personally would not make a career of it.   I will post links showing the day in the life of a day trader, and an excellent web series that shows you how to get started in the industry. Until next time, invest smart, save big, and let your money work for you.

A Day in the Life

Let’s Start Trading

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To Rent Or Not To Rent, That Is The Question

With the rising house prices in Canada, millennia’s are wondering if they will ever be able to purchase their dream home.  In today’s post we will discuss if you should save up and have that asset in your name or if being a renter is not as bad as it seems.

The Big Issue

With rising house prices and less availability in the housing market, most millennial are facing the harsh reality that they may never own a house like their parents do.  With average house prices at a near record high of $439,144 (CBC News, 2015), it seems like an unreachable goal to own.  Is it worth it though?

You Want That House

Let’s say that you decided that you want that house.  If we base the cost of the national average you are going to have to work for it.  Assuming that you do not have $439,144 under your mattress, you are going to have to mortgage that property to be able to afford it.  A mortgage is an agreement that you establish with your bank in order to get them to pay for the portion of the house you can’t afford.  Most times, a bank will require you pay a minimum of 10% of the total cost of the home. In this case that will come out to $43,914.40 that you would have to pay out of pocket.  Next, unless you plan on doing all the leg work by yourself you are going to have to pay a relator to deal with the legal aspects and closing the deal.  The average fee in Canada currently sits at 5% (Marshall, 2013). In our scenario, that equals out to $21,957.20, which brings our total up to $65871.60.  Assuming all goes well, you are now the proud owner of a brand new house, sort of.  You are still responsible for paying the bank back the money they gave you so you could afford the house.  The bank will decide how long you have to pay off the “loan” you received from them.  It is very common to have 20 – 25 year long mortgages.  Although it seems like the bank has done you a favor by lending you the money you need, they still need to gain something to make it worthwhile to them, so they will charge you interest.  The longer the mortgage the smaller the interest.  Using a simple calculator, we can determine that your monthly payment to the bank will be $2047 (CIBC, 2017).  Over one year that equal $24,564 and $614,100 over your 25 years of owning the house.  So in total, that $439,144 actual will cost you $679,971.60.  It does seem like you are getting ripped off, but if the housing market doesn’t crash and your home grows 3% annually, your home will be worth $919,470.02.  That come out to an increase of $239,498 to your net worth.

Renting has to be worse

At this point buying a house seems like the obvious choice, but let’s see if that is true.  Let’s assume that we have the $43,914.40 that the person in the last scenario had.  Since you are not buying the property, you do not have to worry about those pesky realtor fees.  The highest national rental price is $1148/month for a one bedroom apartment (Davidson, 2015).  Since we are all smart with our money, we are going to take the money we would have used as a down payment and invest it.  Let’s assume we find an invest portfolio that has a 3% growth rate and you leave it in for 25 years.  We will have the same value as the house is worth in the earlier scenario.  That’s not where it ends though, what would happen if we take the difference between rent cost and mortgage payment and invest that money into the same portfolio.  Annually, that is an addition $10,788 you will add each year.  You now have an invest portfolio valued at $1,312,792.56.  That is an additional $393,322.54 more than if you bought a property.

Isn’t it obvious then?

Yes and no.  Although on paper it seems simple enough but there are many other factors to consider, both financial and personal.  The numbers I used above are just a different way to look at things.  They are not concrete and you may be able to find lower prices or better rates.  I personally would prefer to rent due to the fact that I don’t like staying in one place for that long.  Who knows though, 5 years from now I may change my mind and buy.  Until next time, invest smart, save big, and let your money work for you.

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RRSP or TSFA?

Everyone wants to start saving money, well mostly everyone.  With how hectic the world can be, it’s nice knowing that you can have a financial cushion to fall back on incase of hard times.  Although you could open up a standard savings account and treat it like a piggy bank, your money has nearly zero potential for growth and would almost be better off in your pocket. 

The Two Basic Saving Accounts

The two types of (investment) Accounts that are usually offered by banking institutions are RRSP, and TSFA. 

RRSP

RRSP or Reregistered Retirement Savings Plan, is an account that is reregistered with the government of Canada.  With these accounts you are not taxed during the initial investment of the money you put in (Canada Revenue Agency, 2017).  For example:

Let’s say that you make $50,000 a year.  If you were to invest $10,000 into a RRSP you would only have $40,000 left in your regular account.  Even though you did make $50,000 in a year, the government will tax you as if you had only made $40,000 dollars.

Having this type of account is great for putting money away for long periods of time.  That’s why it’s called a Retirement Savings Plan.  Although it is great for saving in the long term, banks will charge you a withdrawal fee if you choose to take money from that account before you retire.  With this account you will have to pay taxes on the money when it is withdrawn from the account.  If you wait until you retire though, the amount that you are taxed will be significantly lower then what you would pay on the money if it was not in the account.

TFSA

TFSA, also known as a Tax Free Savings Account, is a fairly new type of account that is used.  They were started in 2009 and you must be at least 18 years old to start investing in these accounts.  Each year the government states how much you can contribute to the account before extra fees are received (RBC, 2017).  Although you must abide by these saving limits, if you were 18 or older during 2009, the government has stated that you can invest the years you have missed since 2009.  Each year the amount averages at roughly $5250/yr. So:

If you are born on or before 1991, you would be able to “top” your TFSA account up to 2017 fully (Roughly $42,750)

The main difference between this type of account and an RRSP or RESP is how you are taxed and when the money can be withdrawn.

Using the example above.  If you make $50,000 a year and invest $10,000 into a TFSA, you would be left with $40,000 in your account.  Even though you only have $40,000 in your account, the government will tax you as if you have $50,000 available to you.  This may seem like a horrible investment, but the benefits come when you withdraw money from this account.  Continuing off the last example, let’s say you make another $50,000 the next year.  If you decide that you want to withdraw all the money from your TFSA, you would have a total of $60,000 in your account.  Because the money has already been taxed, you would only have to pay income tax on $50,000 instead of $60,000.  With TFSA you are allowed to withdraw the money at any time and not receive additional taxes on your funds.

Which to choose?

This is a difficult question to answer due to everyone’s situation being different from one another.  In my opinion as a general rule, I would suggest that you top off your TFSA then make appropriate contributions to RRSP.  I personally prefer to top of my TFSA due to the fact that it makes my investments as liquid as possible in case I need additional funds for a purchase.  I would like to hear your opinion on the topic. I will leave a poll where you can state what you think is the better of the two.  Until next time, invest smart, save big, and let your money work for you.

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Hello Everyone

Hey there guys, the world of finance can be a scary place for your average Canadian.  It’s filled with numerous questions that most times are not easily to answer.  Should I rent or buy?  When is a good time to start investing?  How much should I save for retirement?  Is the stock market worth it?  All of the things can be very daunting if you don’t know where to find the answers or who to ask the right questions to.  The world is changing constantly and people are having trouble dealing with their finances.  My name is Ryan, and I am currently a student in the Sheridan financial program.  Although I may not have all the answers now, I am constantly researching to find them.  Through this blog, I plan on helping you better understand the world of finance and how to navigate through all the corners and potholes on the road to financial freedom.  Every post in this blog will be based off of an individual question that we will dive into and break down into simple terms.  I hope you guys will like the content that will be coming up and you are able to learn how to be successful with your finances.