Rate of return on investments

[CalgaryDesi]

So I invested $2000 in TD Can Bond, and $1000 in a TD CDN money market fund last year.

1 year after, the market value is $2,017.90 in the Bond, and $1,023.55 in the money market fund.

A total of 1.38% return on investment. It's not like I have tons of money to invest, as I'm quite young.

I was shown a chart where if someone invested in the TD CDN Bond in '95 of $10,000, the market value would be $22,000 in 2005. Of course they told me that this bond is better for the long term, and short term results shouldn't be expected.

Fact is though, the money market fund did earn me a 2.355% return, and more return in REAL dollars with half the investment.

Should I sell the bonds, and invest in the money market? Of course this is small amounts of money, but I still would love your opinions on where the best place is to invest in. Stocks? Bonds? money market? t-bills?

Thanks

[JiriHrdina]

Depends entirely on how comfortable you are with risk.

My one piece advice would be to not work with the banks. I work with a financial advisor that I've known for a long time and trust. And I don't have a ton of dough either so you don't need to in order to get someone like that to help you out.

Meet with someone like that and discuss your investment goals - short term, medium term and long-term and get an undrestanding of how much risk you are willing to take on.

But yeah - for that type of return, you need to move your money into something that's gonna actually do something for you.

[V]

My savings account makes better interest than that. That's brutal.

[CalgaryDesi]

Originally Posted by Dominicwasalreadytaken

My savings account makes better interest than that. That's brutal.

Oh well, I'll take that over working 16 hour shifts daily

For the record, the bond's market value 2 months ago was 1 971...so in 2 months, it went up nearly $50.00.

[Canada 02]

Don't take anything I say as a recommendation - just throwing out a few different ideas off the top of my head.

First, an ING savings account pays 3.35%, with no risk. An ING GIC currently pays 4.1%, but your money is locked in for at least a year. I only mention these since they match your current risk profile.

Riskier investments would be stocks or stock mutual funds. Consider dividend paying equities (or funds that focus on these) to lower the risk. As an example, shares in any of the 5 big banks currently pay a dividend of 2.7-3.7% depending on the bank. That would be in addition to the capital gain (or loss).

Many other possibilities. Read the Globe or National Post, or a book like The Wealthy Barber as a starting point. Tons of resources on the net as well.

Also, depending on how much time you want to devote to this, you don't necessarily have to have a financial advisor. Like I said, read, a lot!

[V]

Do you have a mortgage? Pay your mortgage down. Every penny you spend there will net you about 5-6% tax free. It's the safest thing to do with your money.

[CalgaryDesi]

Originally Posted by Canada 02

Don't take anything I say as a recommendation - just throwing out a few different ideas off the top of my head.

First, an ING savings account pays 3.35%, with no risk. An ING GIC currently pays 4.1%, but your money is locked in for at least a year. I only mention these since they match your current risk profile.

Riskier investments would be stocks or stock mutual funds. Consider dividend paying equities (or funds that focus on these) to lower the risk. As an example, shares in any of the 5 big banks currently pay a dividend of 2.7-3.7% depending on the bank. That would be in addition to the capital gain (or loss).

Many other possibilities. Read the Globe or National Post, or a book like The Wealthy Barber as a starting point. Tons of resources on the net as well.

Also, depending on how much time you want to devote to this, you don't necessarily have to have a financial advisor. Like I said, read, a lot!

Thanks (to you and Jiri).

The ING 270 day GIC pays 4.25%. Seems attractive. Again though, the TD CDN bond has better potential for the long run. Guess it all depends on my risk aversion - of course I'm playing with very small amounts.

[Shazam]

The money market account will always give a fairly low ROI. The bond fund has the potential to make higher returns.

As it is, bond funds are pretty low risk. Money market funds are really appropriate only if you want to have some cash in your portfolio to even out risk, or if you don't know what you want to do with your money quite yet, or if you're trying to do some market timing stunts, or if you need some fairly liquid assets.

Here's Morningstar's page on a TD Bond Fund:

http://www.morningstar.ca/globalhome...sp?fundid=7160

Note how almost the whole fund is composed of gov't Bonds (the institutional version of GICs) and corporate debt.

Oh yeah, I'm not responsible for anything happening to your money based on my advice.

[trew]

When you value the bond are you counting the interest income payments from the bond? Bonds pay interest income, according to their posted rate of return, once or twice a year. So if your bond has a 5% return, and is worth $2000, you should receive $50 every six months until the bond matures or you sell it. Bonds are not like mutual funds, so this income would have to go into your savings or investment account, it wouldn't compound or reinvest into the bond. In fact, they might have it setup so that the payments from your bond re-invest into your money market, so your perception of performance might be completely reversed (as the value of your money market will also contain the interest income from your bond.)

[trew]

.....

[FurnaceFace]

Jiri has the best advice: get an expert to help you out. You go to a dentest to have your teeth checked, an optomitrist to get your eyes checked, a GP to evaluate your overall health so your "financial health" shouldn't be any different.

I worked in the industry in a previous life. From my experience, the key is finding someone who knows what they are talking about, someone you can trust/feel comfortable with, and equally important someone who is established and will be around for the long term. You don't want to end up with a revolving door of investment guys, there's no continuity to it.

Check with your family and friends, they may have recommendations. It also sounds like Jiri is working with someone good and I have a guy I used to work with who is very successful and meets my criteria above. There is also likely someone in the industry who is a CP member, like Cowperson for instance.

[photon]

Agreed, find a good financial advisor.

They may get you into different things that pay a much larger return as well. Rather than taking your money and earning a small return on it, he may show you how to borrow other people's money with it and earn a much bigger return.

[Shazam]

Originally Posted by trew

When you value the bond are you counting the interest income payments from the bond? Bonds pay interest income, according to their posted rate of return, once or twice a year. So if your bond has a 5% return, and is worth $2000, you should receive $50 every six months until the bond matures or you sell it. Bonds are not like mutual funds, so this income would have to go into your savings or investment account, it wouldn't compound or reinvest into the bond. In fact, they might have it setup so that the payments from your bond re-invest into your money market, so your perception of performance might be completely reversed (as the value of your money market will also contain the interest income from your bond.)

For bond mutual funds, disbursments are usually reinvested back into the mutual fund. I've never seen a bond fund that did otherwise unless you explicitely asked them to.

[Tiger]

Originally Posted by Dominicwasalreadytaken

Do you have a mortgage? Pay your mortgage down. Every penny you spend there will net you about 5-6% tax free. It's the safest thing to do with your money.

except it is not liquid, therefore you cannot access that money until you sell your house and move into a cardboard box... but the cardboard box lots are so expensive now too, and all the riverfront ones are gone.

[ken0042]

When I had money with TD I had the exact same thing happen. Then one time 2 of us compared portfolios even though each of us had answered the risk analysis questions differently. We had the exact same stuff.

I also found that ING was OK for long term investing; however with their savings account there was no way of securly having access to my money. They will issue you an ATM card, and assign you a PIN. The only way to change the PIN was to access one of their branches in Toronto or Vancouver. So that means having to write down the PIN; as it would be something not used often enough to memorize.

I ended up opening a savings account at BMO that pays around 2.75% with no minimum.

[V]

Originally Posted by Tiger

except it is not liquid, therefore you cannot access that money until you sell your house and move into a cardboard box... but the cardboard box lots are so expensive now too, and all the riverfront ones are gone.

Think of it more as "spend the money now so that in a few years I'll only have a $500/mo mortgage payment". Then you get 'dividends' every month when you pay your mortgage at $500/mo instead of $1000/mo.

[photon]

Originally Posted by Tiger

except it is not liquid, therefore you cannot access that money until you sell your house and move into a cardboard box... but the cardboard box lots are so expensive now too, and all the riverfront ones are gone.

There are options for this as well. One is a Home Equity Line of Credit, which gives me instant access to every dollar of principal I pay down. I've got one of these at prime - 0.5 right now. Plus if you borrow back the paid down portion for investing, you can make your mortgage tax deductable.

Another is something they call a Matrix Mortgage. It's a traditional mortgage, but the portion of the principal that gets paid down becomes a line of credit. Same thing can be done with this; borrow from that line of credit to make other investments.

Recent article here.

You can also take some of the equaity out of your house early to invest.

[Crazy Flamer]

For a home Equity line of credit, do you not need to have at least 25% equity in your home?

[photon]

Usually you do.. though I think for the Matrix mortgage you can have a high ratio mortgage. I think there have been others offering HELoCs on a high ratio mortgage, but I'm not positive.

EDIT: TD seems to advertise it, though there looks like there's more restrictions:

http://www.tdcanadatrust.com/mortgages/home_equity.jsp

[V]

Yeah, Manulife has the same thing with the Manulife One. I'll be looking into that when my mortgage comes due in May.