Saturday, 7 November 2015

The Big Bang (switching out of Mutual Funds)

So finally getting time to update my journey of financial wellness.  Again, like I mentioned before hand, I am not going to show you how to make a million dollars.  But you will feel a lot better about how your money is invested.

Like I mentioned before hand.  I had the classic $300 a month deducted into 4 or 5 mutual fund and then topped off if I wanted to contribute to my maximum RRSP limit.  I was really only concerned with getting that RRSP receipt and then getting my income tax refund, sometimes a very sizeable amount.  This went well for about maybe 15 or 16 years.  Then as a late player to the TFSA game, I decided to walk into my local Bank of Nova Scotia and inquire about opening a TFSA account since I finally bowed to the pressures of this great new savings thing that the government has allowed us mortal Canadians.  Got an appointment with a very nice younger financial officer named Henri.  He was very easy to talk to and I felt very at ease with him.  Of course he pulls up my profile and then asks if I have any other RRSP or investments elsewhere.  I said no, this is my core savings.  We then talk about opening the TFSA, I say something along the lines that I hate fees, in particular mutual fund fees.  I did do a little homework and recall that you can put Stocks, Bonds, Mutual Funds, and GICs to name a few into a TFSA.  However he talks about the poster in the lobby that the bank will offer a 1.2% TFSA account to anyone just opening a TFSA up.  I pause and think, something is strange, why did I read that you can put those items into a TFSA and he just mentioned the promotional special for the TFSA.  I then ask him why can't I put stocks and bonds into the TFSA?  He says, that would take more work and maybe mutual funds would be a better choice, he then proceeds to pull out a folder with the 1 page mutual fund profiles of about 10 funds, saying these are his picks and that I am more than welcome to pick any of these funds, even after I said I hate mutual fund fees.  I then ask him, I don't want mutual funds or that promotional bank account, why can't I put stocks into it because that is what the description of a TFSA is according to what the CRA website says.  He then tells me that you can't do that here, you need to setup another account but it will not be completed today.  I said why not?  the poster promotes opening a TFSA.  He then says I need to apply to open an account with a broker, I then ask, which broker, aren't you the broker?  he says no, you need Scotia Itrade, I then realized at that point, all the banks had discount brokers associated with them.  Bank of Nova Scotia (Itrade). CIBC (wood gunny).  Bank of Montreal (Nisbitt Burns).  TD bank (Waterhouse).  Royal Bank (Direct banking).  The names are not advertised that heavily at the bank level but they are a division of the bank.  Think about it, we see all the big 5 banks at almost every corner plaza or mall or business area in the entire country but these discount broker divisions of the banks are there but not there.  you might see a pamphlet in the waiting area, but thats about it, they are huge parts of the bank but for the everyday normal banking person, no promotion.  Back to my opening of the TFSA.  I then ask him, can I open a TFSA at the bank also?  He says yes, but I can't put stocks in that one?  He says yes, only what the bank can sell can go into the TFSA, like GICs, mutual funds or savings accounts.  Savings accounts I ask, why would I want that?  He says thats because its safe and no one loses money on those.  I said yes thats true but then you want me to put $5,000 into the TFSA at 1% and not pay tax on $50 for the year?  He then says yes.  I then said, that is very low almost like a GIC.  Then I say, if I put $5,000 into stocks and it grows to $6,000 is that $1,000 tax free?  He says yes.  I think that is more like it.  Last question, why is it called a tax free savings account and every bank wants to make you open a savings account?  He then corrects me saying it really should be called a tax free savings vessel because you can put stocks in there but you would need to open a brokage account which takes more effort and time.  I then say, bring it on, I don't want 1% for the year or mutual funds where the MER is 2.1%.  He then starts the paperwork, almost all of it is in 4 copies, meaning after he has to tell me the risks and what I am signing (I guess cuz the securities association makes him tell everyone this when opening an account) , I initial the same page on 4 different copies.  I sign the last page in duplication 4 times.  This whole process takes about 30 minutes.  He then tells me that he will mail 1 copy to the downtown Itrade office which is the the main office, he keeps one, he files one, and I get a copy.  The Itrade account will be active in about 5 to 7 business days.  Fine I think.  Now I am hyped up that I bypassed where my other family members like cousins and other friends opened up a savings account as a TFSA, and kept pumping the max $5000 a year into it, thinking they are saving money?  I realized at that point, the bank is making way more than 1% on the $5,000 so why the hell would I chase $50 a year tax free and what am I getting after the promotion ends, less than 1%, jesus that is less than inflation.

I then ask Henri, what about my RRSP?  Can I open a discount RRSP account?  He says yes.  I think damm, I put all my money into these stupid mutual funds but I will have to start from scratch with the Discount RRSP account.  I say, can I transfer my bank RRSP money into my Broker RRSP account?  Is that like withdrawing and depositing again?  I was scared to withdraw because everything I read says you should not withdraw from your RRSP otherwise you will pay tax.  He said yes you can, its called transfer in "kind".  I ask, so I don't get zapped with tax implications?  He says no, as long as you don't withdraw the money.  I say yes! but what about stocks?  Can I sell my mutual funds holdings to cash and then use the cash to buy regular stocks and the only fee is the buy fee (which is $10 to buy and another $10 to sell).  He says yes.  I was like WHAT THE HELL?  I didn't like mutual fund fees for about 2 years at this point and didnt' know you could do that.  He said yes.  I then say, is the paperwork the same as the TFSA paperwork, he said yes again. He then tells me that he has an appointment in 5 minutes so I will need to see him tomorrow.

Needless to say, I booked the appointment with Henri, signed the 4 copies of the application,  waited for both the TFSA and RRSP to appear in my new Itrade account.  Started to follow the stock market, I was reading a lot at this point, just devouring all reading materials about stocks, fees, how to place orders, limit orders, market orders. I controlled everything.  If my holdings went up or down, it was my fault, not anyone else's.  I finally decided on a general "up" day in the markets to "cash" out my all mutual funds to cash.  Now this not withdrawing, its staying in the RRSP as cash.

Now I needed to buy stocks, but where the hell to start?  On my readings, I kept coming across something called ETFs.  Exchange traded funds.  They had a fee with them, similar to a mutual fund fee expressed as a percentage.  I also discovered blue chip stocks.  I discovered index investing.  I discovered Dividend investing.  I discovered leveraged ETFs.  I discovered how to read dividend yields.  I discovered how to decide what to do with your income tax refund, pay mortgage or reinvest?  I read articles on people with no RRSPs and pumping everything into their hourse, good? Bad?  you will be interested in that answer.  What was my style going to be?  What to buy?  Is it safe?

At this point, I totally realized from all family members, all friends, that no one ever talked about investments.  Doing it yourself.  It is simply not promoted by anyone.  Doing it yourself saves a lot of money, that can't be argued but the sheer apathy and avoidance of the topic in every day lives of everyday normal persons is beyond a coincidence.  Canadians need to wake up and realize they can do this, if I can do this, you can too.

No more mutual fund fees  but now I have work to do with my life savings.

Next blog.......How I navigated all the financial jargon and terms and decided on my style and picked my stocks and also picked something else........