Here is an email from a young reader who has put himself in a very good financial situation.  Mark has $5,000 sitting around and is wondering what to do with it.

I’m in a situation that I’m sure many would envy, but I’m stuck. Through a combination of income tax returns and unintentional savings, I have about $5,000 just sitting around, and I don’t know what to do with it.

Here is my situation:

  • Mid 20’s, have been working for about 2 years.
  • Currently renting – would like to buy property in the next 5 years.
  • I am currently debt free (no mortgage, no CC debt, no car, nothing).
  • My TFSA is maxed out for the year (5k in a HISA)
  • With my current rate of regular paycheck contribution to RRSP through personal passive saving and a Group RRSP plan through work, I will only have about ~1-2k left in contribution room at the end of the year. (All RRSP money is invested in low MER index funds)
  • There is nothing in particular that I want to spend the money on.

So I’m not sure what to do with the money. I suppose the best idea is to stash it to eventually use it for the down payment on property. But I don’t want it to just sit around in the meantime, and HISA’s are paying next to nothing at the moment.

I know you’re not an advisor, and I’m not asking for advice per say, just for some ideas on investments with a 5-year time frame.

Before we get into the details, I would like to congratulate Mark on being is a strong financial position at a young age.  There are not many 25 year olds out there that can say that they are completely debt free with the problem of having too much cash.

Mark is looking for some ideas on what to do with the money.  To start, lets look at his goal.  In 5 years, he plans to purchase a property which means his $5,000 could go towards a portion of the down payment.  With this in mind, he could either continue maxing out his RRSP (1-2k room) and put the remainder in a 5 year GIC.  Even with today’s low interest rate environment, if you look hard enough, you can find rates in the mid 3% range.  It’s not much after taxes, but better than current high interest rate savings accounts.

The reason why I suggest a RRSP contribution is because he can use the RRSP home buyers plan to go towards the down payment of his home.  With Mark’s strong savings habits, I doubt it would take him long to repay the HBP.

Another solution would be to put the money in a 1 year GIC, then move the $5,000 (+ interest) into a GIC within a TFSA next year.  That way, the GIC growth over 4 years can accumulate tax free.

I tend to steer away from investing in the market unless you can stay invested for at least 10+ years.  One might predict that with today’s suppressed market prices that it’s a no brainer the markets will be higher in 5 years.  However, the truth is that no one can say where the markets will be at that time.  If you “need” the money in the near future, I think that it’s best to preserve capital with guaranteed instruments.

So that’s what I think, GIC’s all the way.  What are your thoughts?  What would you do in Mark’s situation?

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I agree – park it for the rest of the year and then put it in a TFSA in January. He definitely has to stay in guaranteed investments such as GICs.

Why lock into a 5 yr GIC? Rates will start to rise before 5 yrs out. Why not buy “good safe” dividend paying investments and get paid to wait and possibly a capital appreciation as well?

I’m in a similar situation as Mark including age, except that I am married and working on my masters degree. My wife and I are looking to buy a house and are essentially saving all of my income plus some of hers. We’ve maxed out TFSA’s for the year, we will max out our RRSP contributions (although her pension takes contribution room up), and we will still have money to save.

Our RRSP’s are basically earning a high savings account rate through a great credit union, since we’d rather have guaranteed growth rather than possible losses/gains. We are hoping to maximize the use of the RRSP Homebuyers Plan. Why not bring forward your tax savings, reduce the mortgage on your home, and ensure reinvestment over 15 years for your retirement.

I was thinking that the money outside of TFSA and RRSP would just sit in our high interest savings account without any term (2nd best rate I can find in Canada without fixed terms). I came to this conclusion because I do not know when we will actually buy.

Is this a good strategy? What other means of savings are available besides a high interest savings account if fixed terms do not seem palatable?

I’m about as “risk adverse” as anyone, but it sounds like this is an opportune time for Mark to take some chances. He’s a young guy, with money to burn, and likely some time on his hands…

If I were in that position – and I am somewhat (26, good income, small car loan, no other debt, though closing on a home in the summer), I would contribute that 1-2k into RRSP’s, take the other 3k open up a Qtrade account and do some day-trading. I’m not actually suggesting buy and sell everyday, but there are some tremendous values out there.

Do your research, buy some low value shares (<$7.50) and try to catch some of them on an up swing.

If you do your research, this can easily yield the highest results.

For example, HOU-T on the TSX is highly volatile EFT which is essentially tied to the price of a barrel of oil. I put $1250.00 into it at $4.31 and then it hit $5.40 – a profit of almost $300.00…and double what $5k would make in a year at a 3% GIC.

Of course, there is no guarantee in this strategy, and there is an equal chance to lose some of your money…

Nobody gets “rich” by not taking risks.

I would take $500 and invest it in financial education (books, courses etc. etc.). If he wants to buy a house, might as well start getting educated on the process. In other words, invest in yourself.

Take another $500 and just blow it on something stupid or buy Mark’s parents a nice gift for teaching him some prudent financial management. Mark is in this 20’s he should have some fun!

This part people may not agree with- take $1,000 and just invest in some crazy long-shot penny shot. Mark’s savings discipline is so good (and good for him on the index fund part) that he should do something untypical and get his ya-ya’s out.

Invest the rest in a fixed income instrument and transfer to the TFSA next year.

I think it is better to convert 5k in TFSA to 1 year GIC and max RRSP.
Then, stash 3~4k cash in the non-registered saving account as an emergency fund. Thus, this plan gives higher return within the TFSA and some liquidity.

I envy Mark because I’m mid 20’s with no job. Well, I’m returning to college for another chance.

I’m also in a similar situation, basically I have no debt (and no rent!!) so i’ve been dropping all my extra cash into my RRSP to use the RRSP Home Buyers Plan. (within the next year, hopefully) I’ve attempted to time my GIC’s so they end at the same time so I can withdraw without having any $$ stuck.

If he’s keeping it for a house downpayment, I agree that he should stick it in GIC’s, but not lock in for long terms, both so he can access it sooner if needed and in case rates go up. 5 years is a long time, (especially as a twenty-something renter) and I’m betting that he will be itching to buy before the 5 year mark.

Wow, I’m surprised by all the high risk strategies.

I personally think it depends on how much Mark will be able to save over the next 5 years before he makes buys the house.

Take the following example:

If he determines he’ll need a downpayment of $60k (20% of 300k), then what he does with the present $5k will depend on whether it’s required to meet the downpayment goal.

At his present savings rate and accounting for increases in future income and inflation, if he knows he can save $70k, then it really doesn’t matter what he does with the $5k from this year. If the he won’t be able to reach $60k without this money, then it should go into GICs.

Whatever Mark chooses to do, he should feel proud to have placed himself in such a great position at such a young age.

Sampson, that is a very fair comment.

Personally, I managed to save $60k+ for the downpayment of my soon-to-be home by the age of 26. $70k+ if you include the 10k engagement ring I got for my fiancee (damn, how did that fit into my financial plan!).

So yes, if you know you are on pace to meet a certain threshold then go ahead and take a risk. If you are slightly worried that you will miss your target then a risky investment strategy is not the way to go.

Personally, now that I’ve reached my goal I am more comfortable to take a small risk 3k in aggressive investing, but if I was just starting off then my approach would be different.

I tend to agree with BC. $5k or $3k is a great start for someone his age, but in the long run isn’t much at all. Trying some active investing with this money could provide a relatively cheap financial education, yielding far greater rewards when he has the income and cash to invest seriously.

He doesn’t say anything about his employment situation or an emergency fund. If the former is not very secure and the latter does not exist, this is another good opportunity.

Parking money at 3% for 5 years seems like a waste to me for someone so young.

What would I do in Mark’s situation? Celebrate!
I’m near his age (a couple years older, I think) but I’m not in nearly as good of a financial position. I still have student debt (~8k), a mortgage with my husband, and a car loan.

I say play the lottery

I would put the money in an online savings account or CD. I think having cash on hand makes life a lot less stressful!

Park it. Build emergency fund in TFSA. Save for house.

There are many stocks that pay a high dividend a this time. I would invest in the Canadian financial sector if I had extra money at this time. Also I might swing one for the fences and invest in a company like Zenn Auto. Look it up this Canadian company could become very profitable for it’s investors. Just a thought.

Nobody suggests buying a rental property. Why?
If he is still five years away from buying his first “real” house (which I doubt), he can put $5000 down on a $100,000 condo in the same city he lives and rent it out. There is no better way to learn to take care of the single largest personal investment we all make then to manage a property. Condos (apartment style) are easy because most of the maintenance is covered, he can learn the home improvement ropes fixing the flooring, painting, some basic plumbing, etc.
These are skills that will be very valuable later in life. This is also the time of his life where he has the most amount of time to invest “sweat equity”.
Not to mention the return on investment.
Go see a realtor. They’ll tell you what the market is like in your City. (Remember realtors are 90% salesmen and 10% gentlemen, find the right one for you)
There are few long term investments better than rental properties. As MDJ suggests, they can be time consuming if you have too many other commitments. But if not, you cna make lots of money.
I have a condo that is walking distance to a hospital. It is fully furnished and can be rented by the week to med students from across the country. I bought it 6 years ago and it has tripled in value, I’ve borrowed against it to buy other properties and it fits with my desire to have a high income side job.

Nobody on this blog mentions starting a small business, yet that is how all of them make money. $5000 could definitely buy some startup equipment for your dream side job. Who knows what it could be, the sky is your limit. Websites and blogs are the obvious ones, but even buying the rights to distribute something in your area could be lucrative. Buying a mobile weiner stand is a job I’ve always thought would be a nice side job. Every big City and tourist town has a well known mobile vendor. How about buying a classic car and fixing it up.
The point is: its not the money that will bring success, its what YOU do that will bring success. Invest your time in one of your passions and use the $5000 to float the project. Don’t go into it with your only expectation being financial return.
MIT ( offers all of their courses for free online!!!!!! You read it right. FREE, every course, online, free, from the syllabus to the readings to the assignments and class notes. Buy the textbooks of a few courses you want to learn.
Enough rambling.
Mark, you will continue to be praised on this site for your prudence now get your head off the internet and into the real world. Make mistakes, throw money around and expand your horizons.

I have been pondering a similar “what should I do” question.

My wife and I are both 31, renting in Vancouver and have ~$70,000 in savings, which includes two maxed out TFSAs with the remainder in high interest savings accounts.

We have no RRSPs or investments (I sold my $8000 index fund before the crash last year, but that was all I had.)

We both have jobs and our combined salaries are around $80,000/yr. I have a rental house in Saanich (Victoria area) from before I was married that is worth conservatively probably $400,000. It has a mortgage of $125,000 on it, and the rental income easily covers the monthly payments.

I have been considering what to do with the ~$60,000 sitting in my “high interest” accounts (1.5% at best- not exactly high) and think that paying down my mortgage might be a good idea as it will bring more return on our money as the mortgage is at ~5.9%.

However we are also thinking about buying another place in a few years as an investment. Would it be better to continue saving for that, or pay down the mortgage now and refinance to buy another place given that the rental house mortgage is tax deductible?


My personal feeling is that Mark should use the TFSA money and buy some high yielding trusts. This could be risky, but the price yields on some are crazy right now (YLO, CWI, PMT, even EIT, all of which I own). Put that in the TFSA as they cashflow monthly and you don’t have to pay tax on the distributions.

Take the $5K outside the TFSA, put the extra 1-2K into the RRSP and put the remaining monies in a HISA.

It depends on your risk tolerance, but these markets are tailor made for those who are prepared to take a little more risk and have the time to wait.


PS FT, there is probably a great blog post waiting to be written about the optimization of assets withing the various different vehicles (TFSA, RRSPs, non-registered).

Lakedweller, thanks so much for that free MIT courses link!

I am surprised that so many people are suggesting gambling on a site about personal finances. When you have so little money ($5000), it is not the time to put your money in high risk investments.

But GICs are pretty bad advice too. The rates are terrible.

Mark, has anyone ever discussed Life Insurance to you? There are signifigant long term advantages to funding permanent life insurance contracts while you are in your 20’s.

You also don’t need the full $5,000 to fund such a policy- diversify you money Mark, the market isn’t the answer for everyone.

I really think we need to stress the basics here. If the money isn’t required within 10+ years, then absolutely I’d suggest investing in high risk – high return small cap holdings. But, even if a preferred shares, or income trust maintains and increases its distribution, there is simply zero guarantee on the principle.

Say the $5000 goes into an H&R REIT, or Oilexco – both top tier companies before the credit crunch with nothing but upside – and unfortunately both in my portfolio :-(

When he needs to use the money for a house – if the $5k drops to $3k, and the difference means having a LTV of 82% vs. 80% – he’ll be kicking himself for not playing it safe.

Given you can reduce your mortgage by 50% and your interest rate is so high, I’d look to pay down the mortgage or at least try to break for a lower rate. If you plan to buy a place in a few years, get a loan, or HELOC of the existing mortgage when the time comes. It doesn’t make sense for it to sit and earn nothing (next to nothing) while you are paying 5.9% on the existing mortgage.

Frugal: It is near impossible to use a simple $5,000 contribution when looking into the core advantages of some life insurance options. It is vital to provide young people with the knowledge of what their options are.

TFSA contributions are not tax deductableand grow in a similar fashion at some permanent life products, only that life insurance is only affordable for a short period, where TFSA room can be back dated.

Everyone in Marks situation or anyone who has steady cash flow need to be more educated to the options they have.

QCash beat me to it. I agree with the trust strategy.

Spread the money equally within 5 different income trusts. Many are beaten up, and have some good capital appreciation shortly ahead. Get paid to wait.



Or even just buy XTR and XRE and accumulate the distributions.

With five trusts with $5K why spend all the commissions (even with discount brokerages, it adds up). With that said, Carl, any investment has risks except GICs. That is what makes investing interesting.

The real test for Mark is how much volatility/risk he can stomach. With $5K in a TFSA I would lose too much sleep.

For my wife and my TFSA, on Dec 31st I bought 300 shares of YLO and 1000 (now 333) shares of EIT. Put the money in the account on Jan 2nd (settlement date). The account now stands at $5600. Cash is up by $250 from distributions.


I would partially agree with Lakedweller – except instead of rental property investment he should look into buying his own property now instead of in 5 years time. Unless you are renting from your parents (in which case stay as long as they’ll let you or you can’t stand the teasing from friends any longer) I would draw extra $ for the downpayment from existing investments ($5,000 from TFSA earning little interest) and RRSP homebuyers plan. Then you will be paying money down every month in a forced savings plan (mortgage) and likely see some appreciation over the next 5 years. You can still be saving money towards purchasing a larger place later while you are doing this. Even better find a place that you can rent a room to a roomate and make your place nearly pay for itself. I did this by buying a duplex – and I only wish I had done so earlier – exactly 5 years of renting earlier. Not much sense in renting if you are already in such a good financial position.
On the other hand if you haven’t been to Europe or travelled much I would strongly advice doing this before you start having more commitments to distract you.
All the best – and well done.

Since he’s young, has no commitments, and a long time horizon, maybe consider joining an investment club and pooling that money together?

Just a thought.

Otherwise the more conservative approach is the already stated GIC and TFSA.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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 :)

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

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.

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

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?

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:

Or look at the US in the 1930s:

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.

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.


Did Mark make a decision and get back to you?