Getting our Finances in Order

A year abroad will be no easy task to fund. It is still early in the process, but we have decided to be proactive as far as our savings. The success and longevity of the venture will rest largely on our ability to pay for our travels. Starting to think about how this is going to work should be one of the first things you think about because it will dictate how many countries you will be able to visit, and more importantly what countries you can visit. Are plan is to ditch the bank and invest in ETF’s

Eiffel tower
Eiffel Tower (obviously)

Western Europe is expensive but also contains many places I would like my daughters to see. Paris, London, Rome, just to name a few are priority stops for me. As a teacher, I also see tons of lesson potential in the history of Europe. I want to make sure that we can afford to do Europe right.

The first thing we did was break up with our bank. We moved all our investments to Questrade.com. Bank’s investment options such as mutual funds and GIC’s are making them rich off of our money while we shouldered all the risk. Find an investment firm that offers low rates and good customer service. You may also want to have two different investment firms under your belt. Some firms offer fees that are a percentage of your investment while others offer standard trading fees. If you are making a larger investment it would be beneficial to pay an upfront trading fee. If you are making smaller monthly installments you would be better off with a percentage of the purchase.

Take off Mutual Funds!

Take off, and by that I mean get lost. I don’t normally get too upset about banks, in fact, until just very recently I saw them as a necessary evil. That all changed when my wife showed me an online MER calculator. To begin, mutual funds carry a hefty MER (managerial expense ratio), in Canada they average 2.53% of your total portfolio. This doesn’t include upfront fees which can be as high as 5% of your initial invesment. The MER of a mutual fund in not well explained when talking to a banker. They want to show you the rate of return. What they don’t explain is that the MER has already been taken off.

You have to look closely at the year end report and then use a calculator to actually see how they are robbing you blind. It is no wonder fund managers are some of the wealthies Canadians around. Where people find comfort (me included until recently) is that mutual funds have an “expert” managing your money and the fees are worth it….right?

Investing
Investing

We have lift off to ETF’s (Exchange-traded funds)

ETF’s come in many different shapes and sizes and it will take some research to determine what is best for you. I stongly suggest you check out Canadian Couch Potato,  who tout themselves as being “Your complete guide to Index Investing.” In the past an investor would have to determine for themselves what area to invest in. Investors would develope a balanced portfolio of Stock and Bonds that best suited their risk tollerance. Most ETF’s do the mixing and matching for you.

The best part of investing in ETF’s is that they come with substantially smaller fees than most mutual funds. Now that companies like Vanguad and Ishare are provide one stop ETF’s, the portfolio balancing is done for you. Just choose your ratio of stocks to bonds! ETF’s are indexed to the stock and bond market. Indexing means that an ETF holds many companies in one portfolio with the intention to mimic the performance of the entire stock and bond market. Don’t be fooled by managed funds. The “expert” active managers are producing sub-par results while the fees for mutual funds eat up even more of your savings.

I Would Suggest Checking out these all in one ETF’s

  • Vanguard Asset Allocation ETF’s
  • IShares Core ETF’s

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