Comments on: Reader Mail: What to do with $5,000?

By: cannon_fodder

cannon_fodder — Thu, 28 May 2009 22:09:05 +0000

FT,

Did Mark make a decision and get back to you?

By: whadoiknow

whadoiknow — Mon, 18 May 2009 10:58:01 +0000

moneygardener likely has it right. If you need money for anything in a 5 year horizon, protection of principle needs to be the first order of business. You’ll get no real return and your purchasing power is bound to shrink a little but if you know you want the money in that horizon, stay away from most anything else.

By: moneygardener

moneygardener — Mon, 18 May 2009 02:41:47 +0000

This is an easy one. Save the money for a home downpayment in a non-equity vehicle (money market fund, bond fund, gic, savings account, etc.). 5 years is too short to invest in the stock market. Yes, you will get low returns, but if the need is less than 5 years from now then it is what it is.

A future home downpayment is a good use for the money. I would suggest maxing the RRSP and utilizing the HBP if possible first.

By: Mark

Mark — Sun, 17 May 2009 03:40:14 +0000

The time to start buying into the market was when the S&P 500 was at 666 (around March 9th).

Just because markets are up 40% from their lows, it doesn’t mean we’re in a new bull market. Maybe it is, but please be aware and comfortable with the risks…

Just look at Japan:
http://www.planbeconomics.com/2009/05/12/the-suckers-rally/

Or look at the US in the 1930s:
http://www.planbeconomics.com/2009/05/15/were-tracking-the-1930s-bear-market/

By: dddd

dddd — Sat, 16 May 2009 21:20:02 +0000

I’m as well in a similar situation (I wonder how many other 20-something’s are in the same spot in life)….

Im 24, good paying job, renting, only debt is a 6 grand student loan @ 3.25% interest rate.

Its the question, do I start investing my money or pay down my student loan at a guaranteed 3.25% savings. (Specially with this economy, a guaranteed 3.25% seems smart….? OR, do I take advantage of a down market, and put a few grand into the market place….

I haven’t maxed out my RPS’s or TSFA… but want to buy a house down the road. Maybe focus on both?

By: Mark in Nepean

Mark in Nepean — Sat, 16 May 2009 13:41:29 +0000

I like your thinking contrarian…now is the time for buying great dividend companies (equity) if you have extra cash!!!

By: whadoiknow

whadoiknow — Sat, 16 May 2009 12:39:01 +0000

There is only one thing I know about investing. Do what everybody else isn’t doing and it will pay off. I am reading so many defensive strategies that I do indeed it’s time to buy back into equities with conviction. I have never read as much about GIC’s. Means it’s time to get out of them. My only reason: contrarian.

By: Brandon

Brandon — Sat, 16 May 2009 06:52:29 +0000

I’m in a very similar situation … 23 years old … RRSP maxed (for HBP), TFSA maxed, no debt, no rent, 10k in savings.

I’m not sure when I’ll be buying a house. Could be next month, could be next year…. so I’m keeping my cash in a regular savings account so I don’t have to jump through hoops to get it when I need it

By: Mark in Nepean

Mark in Nepean — Sat, 16 May 2009 00:19:00 +0000

I totally agree with Div. Growth Investor…

If I were Mark, I would purchase one or a few dividend stocks.
Continue to re-invest the income back time and time again into more shares.

$5000 invested today could generate $5000 in income in another 30 years, no doubt at all.

If he doesn’t want to invest $5 K, invest 4 or 3 K and have fun with the rest.

I think many of you are missing the point, enjoy life while you can.
Life is for the living :)

By: Walt Neufeld

Walt Neufeld — Fri, 15 May 2009 23:15:15 +0000

I would definitely recommend the purchase of a personal residence soonest possible… In the interim you can do MUCH better than a 3% return on your money. Even though we ARE living in turbulent economic times I know of a number of MIC funds (mortgage investment corporations…) that are still returning yields of 8% – 12%. These funds are secured by way of mortgages on real estate, and have historical, similar yields dating as far back as 1994…. They have successfully operated through turbulent times before…
They will accept a $5,000.00 investment.

By: Daniel Wintschel

Daniel Wintschel — Fri, 15 May 2009 17:51:46 +0000

Heya FT,

I think most of their stuff has a $25K minimum, but it can vary project-to-project. I know that Fish Creek West is $5K (I’m in for only $5K on my wife’s spousal RSP, the pittance remaining after HBP).

Would love to hear your take/opinion on specific risks as they would pertain to a limited partnership such as this.

By: mj

mj — Fri, 15 May 2009 17:32:17 +0000

The real answer is: it doesn’t matter. 5K is not a lot of money and by the sounds of things Mark has his finances under better control than 95%+ of people his age. There’s just no serious mistake possible here, other than maybe buying 5K of explosives and then accidentally blowing them up. Go on a vacation, buy a nice TV, put it in a savings account, buy some index funds, buy a car, whatever… Mark’s wealth is the following: young age, clearly a decent job, future earning potential, excellent savings habits, no debt. These things combined are to five thousand dollars as an elephant is to a ant.

By: FrugalTrader

FrugalTrader — Fri, 15 May 2009 16:38:28 +0000

Daniel, I was just reading their FAQ and they require $25k minimum? (http://www.platinumequities.com/index.php?option=com_content&task=view&id=36&Itemid=49)

Sorta reminds me of a MIC but with a little more risk.

By: Daniel Wintschel

Daniel Wintschel — Fri, 15 May 2009 16:24:27 +0000

If I had $5,000 right now, on a 5-year time-frame, and I didn’t want a horrible GIC return, I’d probably go into a syndication with Platinum Equities (or someone similar). Their Fish Creek West project has a really low $5K minimum, is on a 5-year projected time-frame, and the projected returns are > 20% / year.

I guess it depends if you consider liquidity a risk, and whether or not you are averse to limited partnerships.

I also like Colourful Money’s idea of an investment club. Great way to pool funds and learn from smart people.

Disclosure: I am not affiliated with Platinum in any way whatsoever, but they are a company I invest with.

By: Shayne

Shayne — Fri, 15 May 2009 14:50:04 +0000

Ok, I am a little off topic, but it has to be brought up. I am finding that the young people in these financial forums are very credit card and debt adverse. This is good to a point.

If you are young and looking to buy a house in the next couple of years get yourself a couple of credit cards, use and pay them off monthly.

Lenders look at your credit history and generally want to see two trade lines open for two years on your credit report. No credit history will hurt you more than a late payment.

By: Patrick

Patrick — Fri, 15 May 2009 11:40:54 +0000

Wow, the advice in the reader comments here really sucks. My only consolation is that, based on Mark’s financial situation, he’s obviously too smart to try most of these suggestions.

By: Joshua @ Moorethought.com

Joshua @ Moorethought.com — Fri, 15 May 2009 07:11:06 +0000

I have $5,00 at the moment and am around the same age. Here is what I am doing:

- Starting up small, no-low cost micro businesses to potentially increase my income, while also gaining new networks.
- Doing more than paid for in my employment, and will be receiving a share hold in the business shortly.
- Keeping my money in cash for the moment (3% interest per annum is exciting), but building a savings buffer to ensure I have money to capitalise on potential opportunities when the time arises. Also works well should I lose my employment or the ability to work temporarily.

If I was Mark the main primary thing I would be asking myself is: ‘What am I trying to achieve?’ If you want to invest over the long term, then make a stable plan to ensure you hold onto your money. If you want to ensure your income security and ability to have confidence going through potentially threatening times, then maybe sit on the cash. The important thing is to match your actions with your goals and desires.

All the best.

By: Dividend Growth Investor

Dividend Growth Investor — Fri, 15 May 2009 06:42:48 +0000

If I were Mark i would purchase a basket of dividend stocks and then re-invest the income back into more shares. $5000 invested today could generate $5000 in income in 30-35 years.

By: Po Po

Po Po — Fri, 15 May 2009 06:13:53 +0000

I would suggest Mark to invest his $5000 in income fund which gives out monthly dividends. (like the BMO Monthly Income fund). The income fund should be in TFSA account. This way, the dividends are not taxed and the money inside the fund should grow pretty handsomely in 5 years time given the current distressed stock market.

By: cannon_fodder

cannon_fodder — Fri, 15 May 2009 04:23:23 +0000

I like Colourful Money’s idea of joining an investment club – it would be a good introduction to people who are passionate about investing and can also provide a forum for healthy debate. Seeing different perspectives will provide an opportunity to more clearly define what Mark wants.

The other good idea that I support is travel – the cost to travel is relatively low financially and personally. There are no commitments holding Mark back and the chance to travel for pure enjoyment/education may become a rare occurrence later in life.

Another option would be to invest in dividend paying mutual funds/ETFs and funnel a percentage of the income to charitable organizations. Mark would not feel the pain of giving up the money, but instead feel good about helping those not as fortunate – and we know those in need are growing in numbers.