What to do with $200 000.00?
Hello all. After lurking around here for some time I've decided to seek your opinions...I have $200 000 that I need to invest in a non-registered account for an undetermined amount of time. I want to keep it liquid, maintain its value and not be killed by taxes. My current taxable income is $80 000. I was considering a GIC ladder, but am not sure of tax vs rate of return. The bank suggested BMO Selectclass Security Portfolio. I realize the bank wants its piece of the pie, however I'm not adverse to paying MER if it works for me. The MER is 2.19...Is there a way to make a comparison between these? Thanks in advance
A fee only advisor would charge you about 1%....why pay them more....that is roughly $4500 every year before you make any money.
I don't own any GIC's....but I don't think they are they most tax efficient way to go either. Or how liquid a GIC ladder would be, I think you can only get them in 30 day increments.
In a non registered account, taxes will definitely be a factor. You have the right idea to be aware of that.
Not sure what the rest of your holdings are, so to make a recommendation on what to do with the money may not be a shot in the dark, without taking the other investments into consideration.
I would lean towards an equity with a low beta if you are highly concerned about maintaining its value on any given day.
You want to keep it liquid which means risk is out the door. The next thing is cost like MER or whatever which will eat what little return you can get so from there you are in a small box like RRSP, TFSA or high interest saving accounts.
Given the description byou gave of your goals the choice is between cashable GICs, savings accounts, and money market funds
If you are comfortable with the amount of stability offered by investment grade bonds, I'd consider Claymore CAB, which currently yields about 3.25% with 0.75% MER and pays out in Return of Capital (which defers tax until the shares are sold and the gain is capital gain which is only taxed at half-rate).
Thank you...sooo, general consensus is that downside of taxes on GIC earnings is better than upside of potential Portfolio earnings minus MER?
This money is from a life insurance pay-out. Im now a single parent with two kids and the funds are a huge safety net (ie. sickness, disability), if disaster never strikes then it will be their inheritance. This being said, I'm not sure how "liquid" I need the funds to be. Does this change any opinions?
Also, my personal finances are OK - RRSP, TFSA, mortgage free, no debt. No fancy investments...GICs across the board.
It sounds like you are in pretty good financial condition. I'm assuming that the costs of raising the two kids to adulthood and your retirement is covered without the $200k, from your statement saying that the $200k would be the kids' inheritance.
In that case, you probably don't need the 200k to be that liquid or have guaranteed returns in the short-term. Having everything in GICs carry risk of its own, in inflation-risk not to mention the unfavorable taxation. If I were you (and my assumptions above regarding your finances are true), I'd take out some disability insurance and life-insurance (if your kids have some years to go before independence), and get a discount brokerage account and then invest in some dividend and bond ETFs. Something like 30% CDZ (Canadian Dividend etf), 20% CPD (preferred shares), and 50% CAB (Bond fund), the combination of which would have fairly low chance of losing money in the long-term, and taxed much more favorably than GICs, with MER less than 0.7% per year. [Note: I'm not affiliated with Claymore in case anybody is wondering.] At least, that's what I'd do, but I also wouldn't take the word of one stranger on the internet.
If you are set on GICs, look for best rates on GICs given out by the CDIC covered institutions at least. With the rates the big banks give these days, you'll be lucky to come out in front of inflation. And probably nobody on this forum would recommand investing with a mutual fund that has more than 2% MER, considering that people here are mostly DIYs divided between stock pickers and index fund investors.
The new information you added suggests that the whole sum does not need to be liquid. The rule of thumb is 3 to 6 months living expenses in an emergency fund in liquid investments, so maybe up to $50,000 in your case.
What to do with the rest is a whole other issue.
No fancy investments means things haven't changed.
What I or anybody else would you is meaningless.
I recently freed up about 200k.
The bulk of the money went towards a few new residential rental purchases. And a place in the sun.
I've very happy with the decisions.