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Old 11-03-2019, 10:08 AM   #1
shane_c
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Default House equity after selling

If someone sells their house, and plans to rent for a year or so, after paying off a few bills (to eliminate some monthly expenses) what is the best thing to do with the rest of the equity so that it can collect good interest, help at tax time and be able to be used as a house downpayment in the future (without facing tax penalties or losing a lot of it to admin fees when it's withdrawn).
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Old 11-03-2019, 05:04 PM   #2
Slava
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While I can't give you pure advice here, there are a few main considerations. Firstly, if you can put this into a TFSA or between a couple TFSAs, that's the ideal location. You can withdraw without tax implications and it's sheltered while it's there regardless of the type of income it earns.

If the TFSA is not an option, or not an option for all of it, you have one option for tax advantaged investment. This is a series of mutual fund that is more expensive than stocks or ETFs, but you will not receive any taxable distributions. You can invest there in lower risk holdings as well, so tax-wise this is a significant advantage.

In terms of fees, you absolutely shouldn't be locked in to anything, and wherever you're investing, that should be a deal breaker.

Risk-wise it's maybe not as exciting as you might hope. If you're looking at a year or less and want certain that this money is there in a year, you really can't take much risk. While things look ok in the market these days, no one can tell you without question that you will be ahead in medium or higher risk things in the next year. So you've got a constraint there. That might not feel good if things rally for the next year, but if things go off the rails it's going to save you some heartache for that next property! This is a decision you'd best talk through with someone with more specifics though.

I hope this helps and feel free to PM me or email me for more detailed information.
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Old 12-04-2020, 07:29 PM   #3
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So it's time for me to make some decisions and it's all very confusing. I know my initial post was about minimizing tax implications, but I'm now trying to make the wisest and safest decision.

The RBC advisor recommends keeping some in my chequing account as a bit of cushion but to invest the rest into TFSA (mutual funds). She does not feel that GICs are a worthwhile investment.

With the TFSA, I like the fact that it's a tax shelter and that I have easy access to the money should I need it. But I don't like the fact that it's not secured and it's possible that what I do invest could very well go down in value which scares me.

With a GIC, at least how I understand it, I don't run the risk of losing money as the principal is guaranteed. The downside is that the money is locked in, over the long run the rate is likely lower, and the funds are not readily available if I should need it for something. But I have been reading about how some vary the maturity dates so that money is available at different times and can then be used or reinvested.

Kind of another concern I have is that it was recommended by the advisor to keep approx 3 month's salary in my chequing as a cushion but my chequing offers 0% interest. Would it not be better to put that cushion into my Tangerine savings account that will at least get me 0.1%? I do realize that I'll have to claim the interest made on investment come tax time.
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Old 12-04-2020, 08:06 PM   #4
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Put the cushion in your tfsa also. It's easy enough to access from there. Buy a 30 day gic if you want. Or a high interest savings account fund (misnomer in these times mind you). And, as Slava said, you can be as aggressive or conservative as you want inside the tfsa. If you don't know what to do you'd be best served to go see someone like Slava who is an independent advisor rather than the branch level bank advisor.
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Old 12-04-2020, 08:48 PM   #5
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As I said, I can’t really give specific advice in this thread, but I sent you a PM. In general:

- investing in equities for money you need in a year is asking for trouble. Like I tell my clients; if you invested $50k today and need that in a year, I don’t want to have to tell you it’s only worth $40k! Sure...we all hope and think it will be worth more, but it’s not always.

- there are cheaper options than a mutual fund, if you were intent on going that route.

- you can use liquid “high interest” ETFs or funds in the TFSA. This could negate the need to hold a bunch of cash in the checking account that basically pays zero.

Those are just general thoughts of course and might apply differently to your situation.
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Old 12-10-2020, 09:11 PM   #6
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Yeah, I think any equities for money you are going to need in a year to buy a house is probably a bad idea.

Probably just pick the highest high interest savings account rates you can get, and use any extra TFSA room you have to shelter the interest from taxes if possible.

There is a decent comparison here: https://www.ratehub.ca/savings-accou.../high-interest
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Old 12-11-2020, 07:01 AM   #7
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Quote:
Originally Posted by bizaro86 View Post
Yeah, I think any equities for money you are going to need in a year to buy a house is probably a bad idea.

Probably just pick the highest high interest savings account rates you can get, and use any extra TFSA room you have to shelter the interest from taxes if possible.

There is a decent comparison here: https://www.ratehub.ca/savings-accou.../high-interest
I think this is just hard for people to accept because itís easy to look and see decent gains over time. So it can lull people into feeling like itís so common to make that return, that they should invest this money, make easy money for a year and just have more next year! Next thing you know, itís March 23,2020 and you need the cash that day to close on a deal.
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