The Learning Curve

   As promised, an immediate follow up to catch up with my last months worth of progress.  This post may be a little exaggerated in size, but it's going to start from a few years back (where I started) to some recent discoveries (Don't worry, a lot of my years are skipped because when I started, I stopped thinking about it for a few years...)

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   So this is where I began.  For a long time, I've wondered about ways to make extra cash without having to pick up a second job.  I had this grand financial plan figured out when I was 21.  To be honest, it sounded great to me!  I'll explain it here, in words, and then draw a pretty picture, and cover once more.

   So, I decided that if I was able to save $10,000.00 a year, and invest this money into a GIC* (Guaranteed Investment Certificate) for 10 year terms, for 10 consecutive years, I'd have a buttload of cash.  I didn't do any math on it, and I've abandoned this plan, so I won't really do a whole lot of math on it.  This concept still takes on the idea of Compound Interest but at an incredibly slow rate.  Let's draw a pretty pictures, now..

   Years listed at the bottom, you can see here;
-Year 1 is invested for 10 years, and matures at Year 10.
-Year 2 is invested for 10 years, and matures at Year 11.
Etc. Etc.
-Subsequent years following year 10 are re-invested with all inclusive dividends* and the initial principle value (In laymen:  The original $10,000 is re-invested, including all of the currently earned interested.) so that they'll all mature at my major cash-in date in Year 20.  So;
-Year 11 is reinvested for 9 years, and matures at Year 20.
-Year 12 is reinvested for 8 years, and matures at Year 20.
-Year 13 is reinvested for 7 years, and matures at Year 20.
Etc. Etc.

   Now, why this is a good idea;

• GIC's are a forced savings method, meaning that once you sign that contract, you're not getting that cash back until the date of maturity.  
•  Also, a GIC is considered an insured investment up until $100,000 (Don't quote me on this, but it's a pretty ridiculous number.)  So, it's also a very safe investment.

   With all good ideas, come negative points in reality;

• The interest rates (your dividend calculation) is usually lower on items like GIC's, because there is zero risk factor.  I think currently GIC's are offering interest rates at, like, %1, or something similar.  Again, don't quote, but GIC's usually yield a very low interest rate.
• Being a forced savings plan, you can't get that money in the case of an emergency.  So if you follow the path of a GIC, it's best to make sure you have some spare cash floating around..

    So, I left this idea alone for a while, since I planned on doing this after I paid off all of my outstanding debt.  I owed around $8,000.00 in Student Loans (which I was severely behind on...) and about $7,000.00 in Credit Card debt.  I figured after I paid off these debts, I'd be able to start in on this 20 year plan.

   It's been several years, and I'd left the concept of investing alone in the back of my head.  Until last month.  I happened to be watching a television show with my wife, and in the program they mentioned a "401(k)."  I've heard the term before, but I never knew what it was.  To save the suspense, a "401(k)" is the United States equivalent to an RRSP in Canada.  After I'd looked this up, my Google searches wandered a little, and I ended up searching along the lines of "Canadian Investment Methods" or "Canadian Investment Tips" and stumbled across the Couch Potato.

   I'm not intentionally advertising, but 'The Canadian Couch Potato' has an entire website introducing the concept of investing in Index Mutual Funds, and Exchange Trade Funds.  I'm not really going to delve in to a lot of detail about this at this very moment, but this was the crux of my decision in longer term investing.

   I'd gotten curious about a lot of the stuff on the Couch Potato's website, because... well, a lot of it's very overwhelming, with a lot of acronyms, percent signs, and decimal points.  The kind of thing I'm going to try and avoid, en masse, on this blog.  Because of all of this overwhelming material I figured that I'd call my grandmother, because she does some investing here, and there, and I thought it'd be a good resource.  It was a short phone call, because my grandmother doesn't know anything about ETF's and Index Mutual Funds, but she did refer me to a book.

   I immediately found a copy and started reading, "The Wealthy Barber" by Dave Chilton.  It's a cute Self-Help type book that takes a different approach to instructing on personal savings.  In stead of a book of detailed financial information, it takes place as a story/novel, including 3 main characters, 1 rich old Barber, and his 2 cohorts.  It really was a great read, and the first book I've read since "The Hobbit." back in highschool.

   Quickly it starts to define a savings plan, and then covers a vast array of other types of savings and investment information.  While the main character is Canadian, it's unfortunate that most of the book contains American based information.  The book talks about retirement options, but it only refers to American retirement options: 401(k), 401(b), IRA (Individual Retirement Account), etc.  It also refers to mortgages, but again it's based on American mortgages as the book describes the pros and cons of paying a mortgage early or not, but in America, interest on mortgage payments are tax deductible..  Not in Canada.  These points aside, the book is still a good read for a Canadian, and covers a broad spectrum of topics that are still worthwhile for Canadians to look into; insurances, wills, retirement concepts, investment concepts, etc.

   This pretty much brings me to modern day.  I met with a financial officer from Toronto Dominion Bank to ask about the TD e-Series Index Mutual Funds.  After some reassuring affirmations, I decided to open a TD Waterhouse account, and give the Global Couch Potato strategy a go.  Because I'm buying through TD, I'm using Option 2.

   Good luck to me!  I'll continue some other topics in a following post.

New Terminology used in this Post:

GIC: A Guaranteed Investment Certificate or GIC is a Canadian investment that offers a guaranteed rate of return over a fixed period of time, most commonly issued by trust companies or banks.  Due to its low risk profile, the return is generally less than other investments such as stocks, bonds, or mutual funds. It is similar to a time or term deposit as known in other countries.