If you put $C ($500,000) into investments that pays r% (2.5%) each period, then after n (30 years) periods the amount of money will be P ($1,048,784). (Example is italicized)
P = C (1 + r/n) nt
P = future value
C = initial deposit
r = interest rate (expressed as a fraction: eg. 0.025)
n = # of times per year interest in compounded
t = number of years invested
Most people are fooled by bigger returns on a mutual fund leaving them exposed to fragility (read all of Nassim Nicholas Taleb’s books esp: Antifragile: Things That Gain from Disorder. An unknown downside (could lose everything) don’t make a decision based on the past. Limited upside.
- Minimum $50,000 – maximum 10% Liquid Cash protected by CDIC
- Maximum 5% staggered term-GICs protected by CDIC
- Maximum 25% in your own business
- Maximum 20% Stock – maximum 3% of this initially invested in any one company. Be prepared to hold on to stocks indefinitely: choose strong brands that will be around in 20 years.
- Maximum 30% Real estate
- Maximum 10% in cryptocurrencies
How much difference can half a percent in additional MER fees make?
If you are paying half a percent in extra MER fees, this could lead to nearly as much money paid in fees as your total contributions over your working life. $1 million lost in fees over 40 years on a $1 million of contributions. If the fund is giving returns that are less than or only meet CIBC’s premium index fund, there is no reason to pay the extra fees. If you are doing it right, you will double your money at 2.5% while maximizing your CDIC coverage.
- Get out of your mutual funds
- Maximize your CDIC coverage for everything you can not afford to lose. 5-year GICs under $100K each paying 2.5%.
- Invest in yourself and in YOUR business (unlimited/exponential upside) – stuff that increases your productivity and will help you make 7-figures.
- If you really don’t have anything you can invest in your own business, then CIBC’s premium index fund is still better than a mutual fund.
- Avoid leveraged real estate investments unless you are doing it right: if you can flip it for 50% increase on your purchase price after putting 25-33% down and doubling or tripling your investment in fixing it up.