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Email this7:29 pm
August 28, 2013
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I would like to hear opinions of a possible investments you would do if you had $600,000.
Let say you leave $100K for a living for the next few years but how would you spread or invest the rest $500K in a period of let say 5-10 years? GIC? Stocks? Mutual funds? Gold?
But please no strip bonds of similar instruments. Just something ordinary folks can easily invest into and understand.
This is serious question!
Thanks in advance.
11:18 pm
February 22, 2013
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Impossible to answer unless one knows what you want to have happen after 5-10 years. I have been saying elsewhere here (to Loonie) one needs to figure out ones risk factor, then set an asset allocation, then buy stuff to match that allocation.
Assuming your risk profile gives you an allocation that includes fixed income and equities:
I would buy strip bonds and broadly based ETF bond funds for the fixed income portion. The strip bonds are simple to understand and don't involve much work, after the initial selection. You said "no strip bonds or similar instruments" but I would rather see you buy at least some of those for the fixed income portion. If you want a simple explanation of strip bonds, let me know.
I would buy broadly based ETFs that track specific geographic market segments for the equity portion of the portfolio.
Greg
9:01 am
October 27, 2013
Online
Agree the end goal needs to be understood first. Secondly, the OP's risk tolerance. Then the asset allocation can be sorted out, and only then, the product types.
One should also know what vehicles are available for the investments such as RRSP, TFSA, non-registered account. Strip bonds are best placed in RRSP or TFSA to avoid the accrued interest issue. Nominal bonds are also best placed in registered accounts because most have to be bought on a premium basis making them tax inefficient in a taxable account.
5:15 pm
August 28, 2013
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Right. I missed end goal. So, the end goal is to use those 600K and survive next 10-15 years until retirement. Of course, somebody can say - you have 600K which comes to 40K per year for the next 15 years, why would you want to do any investing?
Well, my the point is to still preserve big chunk of money and be able to have decent life. If you have no medical benefit, then quite a lot can go to the dentist, physio, you name it so maybe those 40K will not be enough.
5:28 pm
October 27, 2013
Online
You are missing the point. How do you want to tap into these funds? Are you early in your career? Still in accumulation mode? Soon to retire? What pensions will you have? How much will you need/want to withdraw from these funds per year, at what point in time and for how many years?
There is no way anyone can suggest anything until you establish and run a financial plan, and determine the Total Return (cap gains and investment income) that you will need. Then balance that against your risk tolerance to see if you can do what you need to do. You might wish to start by reading http://www.finiki.org/wiki/Main_Page and specifically the sections on Financial Planning, Investment Management and Retirement Planning to develop an outline of a plan. Better yet, join the Financial Wisdom Forum and start asking questions there too.
10:28 pm
February 22, 2013
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JustMe:
So you need 15 years of income/cash flow to get to "retirement". Is that CPP/OAS or a company pension plan?
Do you truly know your annual cost of living? If you put the amount you think it is in $20 bills in a coffee can on January 1st and lived on the cash in the coffee can are you 100% sure there would still be one $20 there on December 30th?
You need to KNOW what you need.
Now that I know you want to preserve wealth and have a 10 - 15 year time line, let me tell you how strip bonds would work in your favour as part of the investment.
Strip bonds - I am not sure how much you know so will give you my best short explanation. A strip bond is a bond from which the coupons have been stripped. The bond and the coupons are then sold at a discount to their face value and mature at the maturity date of the investment from which they were derived.
So, for example RBC DI is selling CPN BEL 991 % 15MAY27 which translates to "a coupon from a Bell Canada (BCE) bond which matures on May 15, 2027. It is selling today for $52.21 per $100 and has an effective annual rate of 5.071%. This means that if you want to buy $5000 face value of this security (RBC DI's minimum purchase) you would pay 50 times $52.21 or $2610.50 (the initial number 50 represents the number of $100 "shares" you wanted to buy. On May 15, 2027, assuming Bell Canada did not default on the bond, which could happen, but which is unlikely to happen to an entity like Bell, you would get $5000 in your account. RBC have added about $1.50 per 100 to the price as their commission. That amount is "buried" but can be deduced if you find the "raw" price at another source. Each trading day the price they would pay if you wanted to sell it back to them. Again, they probably are taking another $1.50 per 100.
So, if they had enough inventory, (they don't of this particular issue) and you were so inclined, you could spend $247,997.50 (a little less than half your pile of cash) and buy $475,000 face value of this. In 13 years you would get $475,000 back.
Questions? Keep asking!
Greg
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