Title: EP #6 Young & Scrappy 102: How to Start Investing
Hosts: Chris Raper and Brittany Pilgrim (Boomer and Gen Z)
Description:
After listening to our Y&S 101 episode, you may be thinking, "Okay, but how do I actually start investing then??". Welcome to 102! Here we outline a 5-step-process that you can use to make your first investment and that you can come back to for any investment decision in the future. To cap it off, Chris shares some hard-earned practical tips and Brittany walks through a real-life example with Chris to see how this 5-step-process plays out. Listen, take out your headphones and go open that FHSA!
As always, if you have any questions or feedback, we would love to hear from you: brittany.pilgrim@raymondjames.ca & chris.raper@raymondjames.ca
Thank you to Nathan Clark for composing our podcast music! He can be reached at nathancaclark@gmail.com.
Episode:
Britt: [00:00:00] Our goal today is that you could end this episode, walk into any investment service provider, open an account with confidence and really have an informed discussion with them.
Welcome to From Generation to Generation. I'm Brittany, the Gen Z daughter here questioning her financial advisor Boomer dad for financial guidance that can help families today.
Chris: Hi, and I'm Chris. I'm the dad, a wealth advisor with Aspira Wealth.
Britt: I'm not a wealth advisor, but I am trying to do money well.
Chris: So, if this is your first time listening, we think about wealth with three distinct aspects: character, intellect, and finally the money. And our belief is, if we don't pass character and intellect to the next generation, then the money will never last.
Britt: So, this episode is Young and Scrappy 102. If you missed 101, you can go back and listen to it. It's episode number three. Young and Scrappy is a series that we're doing geared towards 25- to 35-year-olds [00:01:00] who want to do money well. But it's actually relevant to people of all ages and stages. So, if you want to get set up for success financially and have some more confidence, this is the series for you.
Chris: And we're doing this series because we recognize that not everybody has access to a financial advisor dad or financial advisor for that matter. When you're starting out, the reality is you are largely relying on your own decision making. That's kind of intimidating So consider this an open family discussion and you are now part of the family.
Britt: So, if you did miss the Young and Scrappy 101, We do encourage you to go back and listen to it because it will make today's episode make more sense to you but as a brief overview we talked about: spending less than you make, paying yourself first, good debt versus bad debt, the rule of 72, or aka compound growth, talked about the concept of owner versus lender, short term versus long term security.
And at the [00:02:00] very end, we got into an example of how to start investing, which we made very specific to indexed mutual funds. And that's only one example of how you can invest your money. So, this is taking that a step further. We're going to go into the different investment options. You can make define some of the language that you may need to make a good decision with your investments. And we will give you a five-step process that you can follow when making any investment decision in the future.
Chris: Great. We got a lot to cover. Let's get started
Britt: Okay So I listened to 101. I know I have to start investing my money. I understand compound growth. I'm ready to go. How do I begin?
Chris: To make this really simple, I'm going to give you a five-question step by step process. Okay. So, the five things that you need to answer are why, how much, when, where, and what.
Britt: Okay. Simple enough so far. [00:03:00] So, starting with the why: what's the why?
Chris: The why is “why are you making this investment?” Is it to buy a house? Is it for your children's education? Or your grandchildren's education? Is it for the next generation? Or even, is it a trip Africa? You want to take the family on safari? Right. So, if you can't answer that why, your chance of making a mistake is in terms of where you put the money is huge because then you get drawn into “how much money can I make?”, as opposed to “what is the purpose?”.
Britt: Yeah, so the purpose will always drive the investment decision, correct? And I’m assuming this is also something you would come back to years into this investment to remind yourself.
Chris: Every bucket of money needs to answer the why.
Britt: Okay, so once you know why, step number two is [00:04:00] “how much”. Talk to me about that.
Chris: So, you need to know how much you're starting with, how much you're willing to commit to this bucket. And then if you're going to contribute to that bucket, on a regular basis, how much can you reasonably afford to do?
Britt: Right. Which you can do yearly, quarterly, monthly, but we did talk about in 101, the advantages of dollar cost averaging when you're investing monthly, the same amount every month.
Chris: And it's important to realize that, you know, if you're starting from basically zero, but you've got $500 a month, start with $500 a month.
Britt: Probably the best way to do this is to set up an automatic deposit. Which you can do through your bank.
Chris: Having this come out of your bank account every month speaks to the pay yourself first philosophy. Yeah. If you really try hard, you can save $500 a month and that's what you want to put in, [00:05:00] maybe start with $300, okay, because you don't want to interrupt an automatic investment. It usually results in the equivalent of a NSF, not sufficient funds check, and there's a charge and it kind of breaks that chain.
Yeah, so little practical advice. You know, keep it manageable.
Britt: Yeah. Okay. That's the why, then the how much. Next is the “when”.
Chris: So, this one is critical, and I ask clients this all the time. When do you want it back? Right. And when I ask that question, really what I'm thinking about is when do you want the capital back? All the money you've put in. And when do you want the growth back? And it's usually the same answer, but not always. So, for example, someone might tell me, you know, I just really want an income off of this, but I intend to leave the capital there. Right. That's a different story.
Britt: That'd be more so, for retirees. Yeah.
Chris: And, but that's a different story than if you and Zech [00:06:00] came to me and said, I want the money back in five years time for a down payment on a house. That's a very different situation.
Britt: So, to keep it really simple It's really a short-term versus long-term question.
Chris: And looking at it in the other extreme today…. We're sitting here in September, if you need this money for a tax bill that's coming on April 30th… You have a very short-term focus. “How much can I make?” is not the right question. It's “how can I keep it safe and liquid?” Yes, that's the right question.
Britt: Yeah. Okay, so that's why, how much, and when. Next is the “where”. So, now it gets a little bit more difficult. It's been simple so far, so stay with us.
So, if we know our objective for investing, we know how much we're investing, we know when we want to get it back. Now you need to actually go somewhere to make this investment. You need an investment service provider. And there are five main [00:07:00] options for that.
Chris: True, five main options, but as we outline these, I want you to understand we're doing it in black and white fashion. There is a ton of gray between these examples that we're going to lay out.
Britt: We're very much simplifying this for your benefit. So, for today's purposes, the five main options are the bank, an online broker, an insurance company, a mutual fund dealer or a full-service investment dealer. These are five different places you can go to make an investment. And we're going to break down some of the pros and cons of each so that you can make an informed decision of which one will be best for you. So, let's start with the bank. Most familiar for everyone…
Chris: So, the pros here is that you probably already have a bank account, so at least you're familiar with where it is you're going to go. Okay. And when you get there, you don't need a lot of money to start like the banks are quite willing to open up [00:08:00] an investment account for a hundred dollars a month, even.
So, some of the cons are they will likely push their in-house products, almost certainly will.
Britt: Which may or may not be best suited to you.
Chris: Yes, they'll probably be in the right direction. Yeah, I think to be fair. Another con is that you're probably going to speak to somebody with a pretty elementary understanding of the investment process. Right. So, the people you get at a hundred dollars a month are going to be pretty inexperienced. Likely just as inexperienced as you are.
And many people will complain that… You know, they started with so and so and the next time they went in, they had to see somebody else. And the next time they went in, they had to see somebody else. And it's important to understand… We all come with our own biases, but basically the sands are shifting all the time.
Britt: There's less continuity from your experience.
Okay. So, next option is an online broker, and this is something that's kind of mostly in the [00:09:00] last 10 years become more and more popular, especially with young people. So, this is examples like QuestTrade or WealthSimple.
Chris: And even between Questrade and WealthSimple, there's a mile a difference between those two options, if you will.
But these sites are mainly do-it-yourself options where the advice that is offered is robo-advice. You answer a bunch of questions, artificial intelligence spits out an answer. Yeah. You miss the nuances.
Britt: I think sometimes depending on the tier you're on you may get a real person. But the whole purpose is really to be built on this AI model.
Chris: And it's really about efficiency to keep costs low.
Britt: Which is probably the best pro for going to go into the pros and cons.
Chris: It's usually pretty cost effective. Yeah. It's easily accessed. You can do it probably for the most part from your phone.
So, these platforms are really meant for do-it-yourself or [00:10:00] backyard mechanics, if you will. Right. And if you can do that successfully, God love you.
You know, but you're going to have to have a real head for this stuff. Like you're going to have to be a bit of an investment financial geek to do it well. Most people are going to struggle in this environment. And that's kind of good for me because I probably wouldn't have a career in the financial services business otherwise.
In other words, the con is they can be a little bit dangerous if you're a part-timer trying to wing it.
Britt: Okay, next option is an insurance company.
Chris: So, this is a place like, say, Sun Life, where you can buy life insurance packages and or investments. Right. Pros - easy to find, everybody knows an insurance agent, and if you don't, they can find you pretty easily. They make themselves known. And the other thing is that they're biased to a longer-term relationship. I think that's a pro.
Cons - maybe a little bit less cost effective. They might have a bias to insurance. They probably do which [00:11:00] may or may not be best suited to you. But having said that, recognize that in my business, you know, I probably have a bias to investment over insurance. In fact, I know I do.
Britt: Yeah.
Chris: So, it's not to say it's all bad.
Britt: Everyone has their bias. Yes. Okay, so then next is a mutual fund dealer…
Chris: So, these are places like Investors Group. Okay, the financial advisor working there will only deal in mutual funds as a rule.
Britt: Okay.
Chris: The pros are they have a planning approach, so they're supposed to have the bigger picture in mind, just not strictly investment.
You get personal advice, you'll work one on one with somebody probably pretty consistently, as long as they can survive the industry. A lot of people start in this industry, and they don't make it. In fact, at the advisor level, there's probably… people starting, from scratch... there's probably only about a 10% survival rate.
Britt: So, if they keep the job, they’ll stay with you.
Chris: So, cons, there's usually a little more cost. [00:12:00] But that doesn't necessarily mean there's not more benefit, okay? So, this is not a zero-sum game. And you're limited to mutual funds.
Sometimes they'll push in house products. That shouldn't surprise you. It's not to say it's bad. There's going to be bias no matter where you go.
Britt: Okay. So, then the next and final option of our five here is a full-service investment dealer. So, this is what dad does…
Chris: So, now we're getting pretty much at the top echelon of the industry. It’s a comprehensive approach. Anybody that does this well is going to sit down with a prospective client and they're going to ask, “tell me your story”, and basically, “what is it that you're trying to accomplish?”.
And when people can unpack that for us, then our job is to look at everything they have to work with and start looking at the structure of that… see if we can improve it.
I'm talking anything from, their estate plan to protection services, which is insurance. And [00:13:00] also just the actual tax structure of their investments, can that be improved?... Only when all those questions that are being answered, do we start talking about investments.
Britt: Yeah, that's kind of that full-service umbrella.
Chris: So, the pros in this case are - personal advice and relationship over a period of years, decades, preferably, and maybe even generations, which is where we're focused. It's comprehensive across generations. You're going to have access to any more investment options, but even the advisors at this level, Aspira included has their biases.
I mean, nobody comes without a bias. It's just important to recognize that. And the costs, actually, as volume increases, for example… you know, our clients that have millions with us are paying a much lesser rate per million than those that have say a million with us, right? So, costs go down in this platform as volume increases.
Britt: And are they [00:14:00] generally competitive to that of a mutual fund dealer?
Chris: So, someone coming in, say, with a half a million dollars - we're really quite competitive with mutual funds at that point. And beyond that, we just get increasingly more competitive, in other words, our costs go down versus a mutual fund management expense ratio.
Britt: Right. I see. And then cons…
Chris: Usually a greater minimum investment.
Britt: So that's the accessible piece.. That's why we're doing this series.
Chris: You might recall on 101, I mentioned if you get the opportunity to ride on your parents’ coattails with their advisor, don't believe a minute the QuestTrade ads about dad's guy. Yeah. You want to do everything you can for dad's guy with dad's guy. Cause they're going to do a lot for you. Yeah. Or, you know, dad's advisor or mom's advisor. Yeah. Because we're focused on that next generation. Everybody's worried in my business about what happens when mom and dad pass, they want a relationship with [00:15:00] you and you're going to get lots of attention. Providing that you're civil and respectful, and if you're not those two things, you're probably not going to get any attention at all.
Britt: And I, I think maybe part of the trap for that is, as you were saying, the younger generation sometimes thinks “oh, all these old advisors must have these ancient ideas and if I'm going to get anywhere I have to do this myself”, but as you explained to me, you don't recognize the danger of that until 10 years down the road…
Chris: There is benefit in having gray hair on the team.
I've been in this business 30 years. I've been in the financial services business for 40 years. I've seen cycles come and go. I've seen euphoria and I've seen dysphoria, and the worst mistakes are made in euphoria and dysphoria. To have a coach in your corner directly or indirectly is a [00:16:00] huge benefit.
You know, the most dangerous words in the investment business are “it's different this time”. The circumstances of every euphoria dysphoria are always different. The way humans react to it are never different. I have, you've heard me, Brittany, say this a thousand times before…
Britt: “Investment behavior is the number one determinant of lifetime returns.”
Chris: And it is so true.
Britt: Okay, so we are at four out of five questions moving right along. How much, when, and where, and the last question is the “what” and that means “what am I investing in?”. So, there's actually two parts to the “what”. There's the “what are you actually buying?”, and then “what account type will you make that purchase with?”.
So, we're now going to equip you to have an intelligent conversation with your investment service provider on [00:17:00] the two parts of the “what”.
Chris: Okay, so let's start with “what are we actually buying?”. On our 101 episode we did touch on this. Yes, there's really two options: You can invest your money in a stock, or you can invest your money in a bond. Stocks and bonds can be bought on their own, so you can buy 100 shares of royal bank and/or you can buy a bond that's issued by the royal bank. You can buy them in packages, such as an exchange traded fund, or an ETF is the acronym in the industry, or a mutual fund.
Britt: Which can have stocks or bonds or both.
Chris: Correct. So, thinking about bonds, I want you to think “I'm being a lender with my money”.
Britt: Okay.
Chris: The simplest example is a guaranteed investment certificate. The deal is I'm going to invest my money for three years. You're going to give me 4% on that money every year[00:18:00]. And at the end of the three years, you're going to give me all my money back.
Britt: Right. So, you sign that little contract, right. And I've lent money to the bank.
Chris: And when you do the bond thing, you buy a bond, you're doing exactly the same thing. Okay. A stock is taking the other side of the equation, where we're actually buying a share in a public company.
Britt: Yes.
Chris: And in other words, we're becoming an owner.
Britt: Yes. You're owning a piece of it.
Chris: And the underlying economic fundamental is that owners do better than lenders over long periods of time. And if that doesn't hold true, then the lenders will never get repaid. Yeah, so it is the foundation of our whole economic system.
Britt: So, really when you're buying a stock, you're participating in the long-term profits of that company with the company.
Chris: Correct.
Britt: Yeah. So, generally, we think about bonds as being short-term security and stocks as being long-term security.
Chris: [00:19:00] Correct.
Britt: Yeah.
Chris: Or another way of putting that is we think about bonds as keeping our money safe in terms of the actual dollar amount.
Britt: Right.
Chris: And we think about buying stocks in terms of growing our purchasing power.
Britt: Right.
Chris: Okay. Above inflation, above in taxes.
Britt: Right.
Chris: Yeah.
Britt: And when we do talk about that purchasing power and that stock side of this, that long-term growth side, people talk about the risk involved with the volatility.
Chris: So, I want to be clear here. There are two kinds of risk. Okay. The risk of, you know, I buy a Royal Bank share at 100 today, and it's worth 80 tomorrow, which can happen. You know, we could have a nuclear bomb go off between Russia and Kiev tomorrow. And that would cause the market to implode for a while. Yeah. so that risk is very real. That's why if you have a short-term focus, you don't put your money into equities or stocks, you know, we don't do that.
The other risk is - I only [00:20:00] invest in bonds because I'm scared of those type of events and my money doesn't grow, and it actually shrinks relative inflation and taxes.
Britt: So, there's two sides to risk really. When people more so think about the…
Chris: Most people are focused on the short-term risk. They lose sight of the long-term risk.
Britt: Okay, so finally last part of our five-step process we get to the second part of the “what” – “what account type will you use to buy these stocks and or bonds?”
So, you can't just walk into the bank and buy a bond or buy 10 shares of Apple. You need an investment account to do that. And in Canada, there's five main types of investment accounts, with their own individual advantages or disadvantages.
Chris: I want you to think about these as umbrellas. Underneath that umbrella we can stick things like stocks or bonds or exchange traded funds, mutual funds. There's a lot of things you can stick [00:21:00] underneath that umbrella. But the reason we need the umbrella is that we need to shelter things. Most of what we're going to shelter from is tax.
Britt: Right. Okay. So, the five types of investment accounts, mainly, in Canada, are the TFSA, the Tax-Free Savings Account, the FHSA, the First Home Savings Account, the RESP, so the Registered Education Savings Plan, the RSP, the Retirement Savings Plan, or the last option is a nonregistered account, which doesn't have any tax sheltering benefits, but we'll get to that.
Chris: Correct.
Britt: Okay. So, starting with the TFSA, the tax-free savings account, tell me about that.
Chris: So, tax free savings account is an account that you can put money into. You don't get a tax deduction on the way in. But all the growth in that account is tax free. And when you pull the money out, it's tax free.
Britt: The growth and your original [00:22:00] contribution, all of its tax free when it comes out? Okay.
Chris: Okay. So currently in 2024, you have $7,000 per year you can put into it from age 18 on… And it is cumulative.
Britt: So, if you haven't contributed since you turned 18, then there's a lot of room left.
Chris: In terms of practical issues, you can log into myCRA account and check how much room you have left. One other practical side note - keep it all at one institution. Most people get into trouble when they have two TFSAs, and they forget what they did, and they over contribute, and the penalty is 1 percent per month for over contributions.
So, it's not something that's a lot of fun to straighten out.
Britt: Right. And something Ben from our team always reminds me is that on the CRA, it will tell you how much contribution room you have left as of January of the year you're checking. So, if you've contributed throughout the year, make sure you know how much you've contributed so you subtract [00:23:00] that from January of the year you're checking.
Okay. So next is the FHSA - first home savings account, which is the cream of the crop, the golden one, it's fairly new/
Chris: Especially for your generation!
Britt: Yes. We love the FHSA.
Chris: Right. So, this one is a bit of a twist in that you can put $8,000 a year into it. You actually get an income deduction. So, in other words, it's $8,000 a year that you're not going to pay tax on because you put it in the FHSA, you get to grow that for a maximum of 15 years. And if you use it to purchase your first home, none of it's taxable.
Britt: Yeah.
Chris: And this is like you say, huge win. I’ll put in another plug for your generation, Brittany. Parents if there's one account you want to help your children with, this is it. Okay, even to the point [00:24:00] where you know, they put a dollar in you put in three or four, or dollar for dollar, whatever is good for your family.
Yeah, but there's just so much ground they can gain over 15 years, right? And hopefully it doesn't take them that long to stave for a down payment.
Britt: Few notes… The $8,000 a year is also cumulative, right? Okay. And then secondly, because Zech and I have run into this, if we buy a house jointly, we can both have our own FHSA where we both have the income reduction.
Chris: Yes.
Britt: I think we should also note that it's only tax free coming out if you use it to buy your first home.
Chris: And there is a technicality there. You can roll it to a retirement savings plan.
Britt: Right. So, if you don't end up buying your first home, then it can roll into your RSP.We'll get more into the RSP in a bit. Okay. So next is the RESP. The registered education savings plan - for more information go to episode four because we covered this at length, but a [00:25:00] brief overview:
Chris: So, no income deduction going in. You should recognize that if you put in twenty-five hundred dollars per child you get a 20 percent grant from the government. So, in other words, $500 a year per child.
You know, that doesn't sound like a whole lot, but if you think about it in percentage terms, this is like a 20 percent rate of return per child from the get-go. Live examples I've seen across many, many families that we serve is these things start small, but if we get them started young enough, by the time those kids are 18, 19, going off to university, there is lots of money in them.
Britt: And you can open this account for your child as soon as they have a SIN number.
Chris: Correct.
Britt: So, as we noted, there's no income deduction for putting money in. And it is taxed on the way out. But. Part of it's taxed. Only the growth and the grants.
Chris: The growth and the grant are taxed on the way out, but it's usually taxed to the student.
Britt: Because it's taxed from whoever is actually [00:26:00] taking it out, which would be the beneficiary. So, your kid.
Chris: Right. And when that happens, they're usually in a minimal to no tax bracket anyways. Cause they're 18. It becomes essentially tax free.
Britt: Okay. So, as we mentioned before, the next option is RSP, the retirement savings plan.
Chris: So, these are tax deferral vehicles. So right now, 18 percent of your earned income to a maximum of $31,560. Can be put into an RSP per year.
Britt: That's your limit.
Chris: Let's say your income is $100,000 a year. That's what's taxable. You put in $31,560. Now your taxable income is $100,000 minus the $31,560. So, all of a sudden, you know, you're down in the $68,000 range, not the $100,000 range. The advantage of that is that you've dropped [00:27:00] tax brackets, so you're paying less per dollar earned. And then the RSP grows tax free until you start pulling the money out. And most of our clients that is age 72.
Right. So, at age 71, you're forced to put it into a RIFF, which is a retirement income fund and at age 72 you need to take out your first payment. And that's when the tax starts and I have done the math a hundred times… these things should be used by everybody that can access them. You get it you just can't beat the tax deferred growth. There’s very, very few exceptions to that.
Britt: Okay, so the last option, which is our only non-tax-sheltered option, is the nonregistered account.
Chris: Okay, so this is typical, Brittany, like, after you had filled up all these other buckets, then you would move to this.
Britt: Yeah. This would kind of be your last option.
Chris: Usually that's the case. So, typically if it's a husband, [00:28:00] wife, couple, these typically, are done joint with right of survivorship. These aren't tax sheltered vehicles, but there are things we can do within the accounts to help on the tax side.
Britt: Right, but you want to start with the other ones because they're tax sheltered.
Okay, so that's the whole process. That's the five steps. We got into a lot of details there. Instead of going into more details, we're just going to do a real-life example based on a friend that I have so that you can kind of see how this would play out for somebody. We've tweaked a few details just to protect identity and all those kinds of things, but it's still based on a real-life example.
Chris: Okay.
Britt: Okay - for the sake of today, we're going to call her Rachel. Rachel is 27. She's a physio. She works at a private clinic full-time, so she makes a decent salary, I think it's around $80,000 a year. She has a TFSA, she opened it at her bank, and she contributes monthly, like auto deposit, it's $300 a month and [00:29:00] she doesn't really know what it's invested in because she just kind of knew she was supposed to have an investment account and so she walked in the bank and obviously the first thing they're going to give you is a TFSA. So, she wants to buy a house. That's why she invests in why she's saving.
And she's just worried that she's not doing it the best way she could be. She doesn't know, if what she's doing is what's best for her or not.
Chris: Right. So, a couple of basics - you've already told me the why.
Britt: Yeah. To put a down payment on a house.
Chris: And you've told me the, how much?
Britt: Three hundred dollars a month. Going into it right now.
Chris: And you've told me when she wants it back
Britt: It's in about five... I don't think I did, but it's in about five years.
Chris: Okay, we know that it's at the bank. So, the where's been answered. Yes, so really what is what is it invested in and what type of account is best suited for Rachel?
Yeah, so let's start with the - what is it invested in?
Britt: Yeah
Chris: Providing Rachel has an [00:30:00] emergency fund.
Britt: Yeah, she's pretty good about that. So, I think she has something set aside.
Chris: Okay, and she is contributing monthly. So, my immediate bias goes to why wouldn't we put all of that into equities?
Because we're at least five years out. Yeah, she's going to be dollar cost averaging meaning that when things are expensive, she buys fewer shares and when things are cheap, she's going to buy a lot more. So, she doesn't get an average cost in terms of mathematical average. Because she's buying a lot more when they're cheap.
She's actually getting buying below average cost, right? So, it's very hard to get hurt in that circumstance providing you stick with the program. Yeah, over a five-year period it's very hard to get hurt. Okay. So, if we think that one through, then the next part of the what is what type of account.
And this is where I think we could improve things for Rachel because right now she takes her $300 a month. It's after-tax paid money. She puts that into the tax-free savings [00:31:00] account and the growth is tax free and when she pulls the money out, it'll be tax free. Right. But if she took that $300 a month and put it into an FHSA - first home savings account - she'd actually get a tax deduction for that $300 a month or $3,600 a year. That's $3,600 she doesn't have to pay tax on.
Britt: And it would probably improve her ability to contribute more.
Chris: Exactly.
Britt: Because she's in a lower tax bracket now.
Chris: Correct.
Britt: Yeah.
Chris: So, let's say the $300 can now become $400.
Britt: Right.
Chris: She hasn't lost anything in terms of tax-free growth, providing she uses it on a house. So, she, to me, would be much better off in a first home savings account than the tax-free savings account.
Britt: So, a few questions I have for sake of argument, let's say she has $5,000 in her TFSA right now. She would move that full - she would actually move that full $5,000 into her [00:32:00] FHSA?
Chris: So, you can put $8,000 a year into it. Now there is a $40,000 limit lifetime per individual for that, but Rachel right now is a long way from that. So, if I were in Rachel's shoes, yes, I would put all of the tax-free savings account money into the First Home Savings Account, the FHSA, and I would start contributing monthly to the FHSA as opposed to the TFSA.
Britt: Up to that $8,000 limit?
Chris: Correct. Yep. And we're not very far away from 2025, and you're allowed to put in another $8,000 that year… First of the year.
Britt: [00:33:00] So, in the event that she… let's say she has more in her TFSA, it's $20,000 instead of five. So, in the event that she maxes out her FHSA...
Chris: Right.
Britt: Where should she direct the rest of her investment, her monthly contributions?
Chris: Probably the TFSA at this point because she may need extra for the down payment of the house. It really is a concern… The question of, “do I think I can get there with the FHSA or do I need to start thinking about retirement?” She's pretty young at this point.
Britt: Yeah, she's 27.
Chris: 27… So, I probably would bias the TFSA. The advantage of the RSP over that is that she gets a tax deduction on the way in, so she will pay less tax. Right. Basically, we'd have to run some math. That's what our financial planning people do.
And we should just reiterate again that this is not direct investment advice for anybody. This is just an example based on real life to help illustrate this five step [00:34:00] process that we've been talking about. Okay. So, we covered lots today. That's what we do in the Young and Scrappy series. So, this has been 102, stay tuned for 103. We'll be doing more into this series to help you feel confident.
Chris: Well, thanks Brittany, this has been fun
Britt: Thank you to all of our listeners for tuning in and we'll see you next time.
Chris: For our audience feedback is solicited. So, send me an email be it positive or negative, including any topics you'd like us to cover in the future. And you can connect with us at AspiraWealth.com.
Brittany: And a quick thank you to Nathan Clark for composing our podcast music.
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