Grandma Investment Advice

[Thomas Gabriel]

I'm helping my grandma consolidate and optimize her finances. She has around 80k in GICs which are maturing soon. She also has a confusing amount of various life insurance policies and annuities. But she is oldschool and probably wont be OK with canceling those even if it was possible.

Anyways, she was getting 4.25% on the GICs but she obviously isn't going to get that now.

I don't think stocks will be an option because she will not agree to that.

What should we do? I'm tempted to just say savings account for now, but the best rate I see is 2%, and it would be best to at least get a return over inflation.

[somerset_dude]

Trade some penny stocks.

[bspot]

Originally posted by somerset_dude
Trade some penny stocks.

Good plan. Go super high risk with someone who's retired. :rolleyes:

[TYMSMNY]

At her age, you'll need to keep it prety liquid or at least something VERY short term. I wouldn't worry about the % return on how liquid the money is. Laddering provides some sort of return but would have access to the money should she need it.

I would ladder GICs or Bonds;

$10,000 cash in bank
6 months $20,000 rolling every 6 months.
12 months $50,000 rolling every 12 months.

As she ages, I would cut it down to a lower time frame.

[yellowsnow]

i would also take a look at her life insurance policies. does she still have a mtg that needs paying off? what kind of debt obligation does she still have? does she still have any dependants? if she has none of those, then consider lowering or even removing her life insurance policy. i'm sure her premiums are getting higher as she ages.

[max_boost]

You need to go see a real Certified Financial Planner lol

Beyond is only good for high risk pump and dump stocks haha

[Thomas Gabriel]

She actually doesn't need much liquidity at all as she is already 80 and makes enough income to pay her expenses.

I will investigate the life insurance more. She does pay high premiums.

[Zewind]

Life Insurance is going to be pretty expensive at that age. But I agree with max_boost, the best would be to see a CFP. :thumbsup:

[sputnik]

Why not an dividend paying mutual fund?

This one is currently paying out around 4.6%

http://funds.rbcgam.com/pdf/fund-pages/monthly/rbf591_e.pdf

It is also taxed at a much lower rate than a GIC.

[TYMSMNY]

Originally posted by Thomas Gabriel
She actually doesn't need much liquidity at all as she is already 80 and makes enough income to pay her expenses.

I will investigate the life insurance more. She does pay high premiums.

Why wouldn't she need liquidity? She doesn't need access to the money at all?

She won't need any dividend paying funds then if she has enough income.

She'll want to preserve the capital at least with minimal risk. There isn't much that will fit that bill.

[Thomas Gabriel]

Nope she has enough cash in the bank and income every month to last her the rest of her life.

[TYMSMNY]

So...

She doesn't need any income from the capital, nor the capital itself, and expenses all taken care of with no big expenditures in the future.

All you're saying is that she doesn't need the 80k and need a name to throw the money at and expect to make a good return.

Why don't you have your grandma talk to someone directly and get the whole story instead of WoM through beyond. I don't think the entire situation has been layed out.

[sputnik]

Originally posted by Thomas Gabriel
Nope she has enough cash in the bank and income every month to last her the rest of her life.

Then what does it matter what she does with the $80k?

I suggest she go to Vegas and have the time of her life.

[Kloubek]

^ Best advice yet.

[ExtraSlow]

If she doesn't need the money, she should spend it on something that makes her happy. Maybe a big trip, with or without her family.

Maybe she would be happier contributing some of it to her favourite charity, or giving part of it to her kids and grand-kids to pay of debts.

Saving money just for the sake of saving money is a waste, IMO.

if she insists on saving it, it's probably worth getting a real financial planner to look at her situation. I'd guess they would recommend a mix of bond and dividend funds.

[skandalouz_08]

If she has a term insurance policy most of them end at age 80 at the latest. I'm guessing she has a Universal Life or Permanent insurance policy which she has been paying for years now.

Do the calculations before you think about canceling it as there may be cash value in the policy which will then make her incur further taxes in the year it is cashed out.

As for the investments, if she doesn't need it, put it in a long-term GIC and ladder it accordingly. A 5 yr GIC right now will pay 3%.

I'm an advisor, if you need more information on anything I said above just PM me.

[Feruk]

Originally posted by sputnik
Why not an dividend paying mutual fund?

This one is currently paying out around 4.6%

http://funds.rbcgam.com/pdf/fund-pages/monthly/rbf591_e.pdf

It is also taxed at a much lower rate than a GIC.

4.6% - 2.06% (MER) - 2.2% (Feb 2011 reported inflation) = 0.34%
Yuck!

[sputnik]

Originally posted by Feruk


4.6% - 2.06% (MER) - 2.2% (Feb 2011 reported inflation) = 0.34%
Yuck!

It is paying out a 4.6% dividend yield. It also payed out a 4% capital gain dividend last year as well.

Additionally, the value of the fund units has been out pacing others in the same sector and has earned 14.4%/yr since inception (which includes the crash of 2008).

http://www.theglobeandmail.com/globe-investor/funds-and-etfs/funds/summary/?id=63646

[Feruk]

If you look at the graph, it made next to nothing in 06 and 07, and lost 18.9% in 2008 and because of the massive recovery rode it back up to average 14.4%. Overall, it seems to have outperformed the TSX, which is rare, but the MER scares me into ETFs and away from mutual funds.

[sputnik]

Originally posted by Feruk
If you look at the graph, it made next to nothing in 06 and 07, and lost 18.9% in 2008 and because of the massive recovery rode it back up to average 14.4%. Overall, it seems to have outperformed the TSX, which is rare, but the MER scares me into ETFs and away from mutual funds.

Moving from mutual funds to ETF due to a 2% MER?

Those are two COMPLETELY different investment vehicles and serve VERY different purposes. Are you going to tell grandma that she should move her assets into HOD or HGU?

:nut:

[yellowsnow]

Originally posted by sputnik


Moving from mutual funds to ETF due to a 2% MER?

Those are two COMPLETELY different investment vehicles and serve VERY different purposes. Are you going to tell grandma that she should move her assets into HOD or HGU?

:nut:

the horizons ETFs are leveraged. Very different instruments. There are many ETFs that have a MER of less than 1% (some less than 0.5% MER) which are not as volatile. they usually follow the market indexes, so that's why they don't cost as much as a mutual fund.

[ExtraSlow]

It drives me nuts that people think all ETF's are these crazy leveraged high risk instruments. The majority of ETF's are simply index funds and lower risk than an actively managed mutal fund.

[dawerks]

Open up a turkish bank account. 14% interest rate.
Open up an indian bank account. 11% interest rate.

The loss of funds due to inflation won't matter due to her age.