# High net worth individual and how to invest it wisely



## 007 (Mar 4, 2014)

Hi everyone, I'm new here but have been following this forum for a few months now. The wealth of information here is great so I thought why not ask some questions here rather then a financial planner!

Background, I'm in my late thirties, have a significant other, no kids. Recently sold my business and made a profit of one million dollars. Have a house that is paid off (worth about 400k). No debt besides living expenses. Drive a shitty car. Live fairly frugally. 

Thinking of investing the whole million 50/50 stocks to bonds but am concerned the market is getting toppy. Fairly knowledgeable about stocks and stuff but am worried about getting in at the top, then seeing a correction and waiting years to recover. What would you folks do??? 

I figure I can still work part time and make around $1000 a week. Significant other makes 65k annually and has a great pension plan, benefits etc. I have not been an employee for a number of years so I have barely contributed to CPP therefore I am assuming I wont get much come 65. Is that something I should be concerned about?? Does everyone qualify for OAS irregardless of CPP???

To summarize I currently have the following assets:

75k in a pension plan from previous employer invested in Sunlife mutual funds aggressive style weighting (MER around 1%)
100k in my corporation invested in an RBC monthly income fund (1.2% MER)
60K in RRSP sitting mostly in cash!! NOTE RRSP IS maxed.
0 dollars in TFSA but will soon change that.
1 million sitting in a RBC high interest savings account wondering where to put it.
$375-400k house paid in full.

My significant other is nagging me non stop to move to a nicer house and rent the current house out. Not feeling very comfortable buying real estate in this market so will probably rent something as I have no interest in selling current house. Can probably rent my current house out for $1600-1800 a month. 

Was thinking of buying a bundle of high quality stocks with decent yields. The typical CDN large caps: CPG, TD, RBC, BCE, Telus, IPL, etc. and also a few large American companies like Microsoft, big banks, GE, home depot, etc for a total of around 20-30 stocks. I usually spend a couple hours a day watching and analyzing the markets but have not jumped in yet due to the high valuations of many things. Just finished reading Benjamin Graham's The Intelligent Investor.

The bond part I have no idea what to do. 

In summary, what would YOU do given my situation for long term growth and retirement planning assuming you only want to work part time going forward. I figure I would probably stop working completely when I have saved 2 million not including the house.

p.s. One of my friends said I should get life insurance, before I turn 40. IS that a smart move also??

Cheers and thanks for any insight.


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## Spudd (Oct 11, 2011)

Congratulations on your success! 

I see no point for you to buy life insurance. The purpose of life insurance is to replace lost income that would be needed by your spouse if you were to die. In this situation, you have a bundle of cash in the bank already and your spouse makes a good salary on their own - not to mention, any "lost income" you might want to replace sounds like it will be fairly low as you plan to work part-time. 

Studies show that investing in a lump sum tends to beat dollar cost averaging. However, I totally understand the trepidation you must feel regarding putting such a large lump into the market all at once.


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## Just a Guy (Mar 27, 2012)

First off, after owning a business, it's very hard to go back to being an employee.

Second, renting a house worth $400k for $1600-1800 is not a good ROI. Plus it shouldn't be a bad house.

Finally, a million dollars is not a lot of money in the grand scheme of things, especially at your age...it's very easy to blow it all, especially with a nagging SO...so be careful, and discuss a plan with her.


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## RBull (Jan 20, 2013)

Congratulations. That's a nice net worth for most people, let alone someone in their 30's.

Ditto what was said above re entering the market at this time. However, if you don't need the money and have a longer time horizon timing isn't as crucial. No one knows what is going to happen or when. Might drop 10% tomorrow, might not drop and be up 10% by year end. Lots of people are replacing bonds with a GIC ladder.

Yes, OAS isn't related to CPP. If you're planning to work for someone else you'll start contributing to CPP pretty much at the max based on your income projection. 

I agree with JAG on the house rental. Why keep and rent it if the income will be that low? 

Not sure why your friend thinks you need life insurance. Life insurance on your significant other might be more important than for you since she may be earning more than you, but doesn't sound at all critical with your situation. 

Good luck working out something with your SO.


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## peterk (May 16, 2010)

I'm not sure what I'd do in your position. Probably a house upgrade, and the rest 50:50 stocks and GICs

Can you buy a controlling stake in a local business with a few hundred thousand and work your magic again?


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## MoreMiles (Apr 20, 2011)

007 said:


> Hi everyone, I'm new here but have been following this forum for a few months now. The wealth of information here is great so I thought why not ask some questions here rather then a financial planner!
> 
> Background, I'm in my late thirties, have a significant other, no kids. Recently sold my business and made a profit of one million dollars. Have a house that is paid off (worth about 400k). No debt besides living expenses. Drive a shitty car. Live fairly frugally.
> 
> ...


I have to disagree with some other posters. Here is a list of my opinions.

1. Yes. You should move to a larger house and sell the current one. If you move to a $600k house, you are only adding $200k extra so even if there is a crash, you will be losing only $50k max (assuming a bad 25% RE correction). Your existing house is already paid for, so either way it should not affect your decision to spend more or not. So if you have only $50k extra to lose, but a happy wife and better quality of life to gain, it is priceless. If there is an appreciation in RE value, you get to gain that tax free in the future.

2. Yes. You should buy an insurance, make sure it's a permanent non-cancelable insurance as your health may change, especially when you are old in your 40-50's. You should get a Universal Life policy under your corporation and use that to shelter "before tax" money. You get to enjoy only 15% corporate income tax loss only, then save 85%... and get the whole lump sum out later. You can borrow against it, set up a trust, etc.

3. Yes. You should hire an investment counsellor to handle your finance. You may try TD Waterhouse or RBC PHN. You can find one with a total management fee, including their underling pool funds, for 1%. You will get a receipt for the fee, which is tax deductible. With your high marginal rate, it is almost like 0.5% after tax! Most posters here are not at your level so they don't see the benefits. The problem of buying $1 million dollars in equities is that you need to have 100 stocks to diversify or you will end up with $100,000 in one single stock. Do you know each one will give you tax receipt... Can you imaging tracking ACB and dividend taxes with 100 T5 slips? This is not a problem that low net worth clients will encounter.

4. Yes. $1 million in investable asset is considered "high net worth" but only low end. Mawer, the mutual fund company, will only sell you their Series O Fund if you have $2 million to spend. Goldman Sachs and Morgan Stanley Canada both have Canadian branches, their minimum to enter is $10 million. They will decline to meet you with your described wealth. So it is good but not "rich" by current standard.


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## Pluto (Sep 12, 2013)

Here is a couple of ideas. If you buy the bigger house, don't rent out the other one. Your estimated annual rental income is about 5% of 400,000. That's not enough. Sell it, and use the cash for a new house. You might even consider
selling the house, and renting a 600,000 house, instead of buying another one. 

Get a discount margin trading account. Put your available cash in there. Put it in short bonds for now - EG: short bond etf XSB for safety of capital. Start nibbling on some of the conservative stocks you mentioned, if you are in a rush to buy some stock. When the next crash comes, and the stocks you already bought are offered at much lower prices, buy more with all available cash. Then hold for a long time and collect the dividends. (If you dare, when the prices plummet, use margin to buy even more, then get off margin in 1 - 2 years.)

I'm quite cautious on stocks right now. They seem pricey. Given all the government stimulus, it isn't impossible stocks could go much higher from here, but why risk it? I have no idea when the crash will come - the odds are with in 1-2 years - but when it does, it will be an opportunity to make some serious money.


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## MoreMiles (Apr 20, 2011)

Why are you asking him to leverage with margin? The guy already has enough cash to get a comfortable portfolio. Are you advising him to buy $3 million in stocks? That is not wise for HNW client. 

Remember if you are rich, you have made if already, you cannot be rich twice... so the goal is CAPITAL PRESERVATION and not massive gain. 

If you have $5 million in cash, you can put all in GIC and still be comfortable with retirement. If you have $50k then you need to depend on stocks on margins. 

To the OP, I would not handle the whole asset without professional help.... just like you certainly did not run a cooperation, remit corporate tax return, and sell the business without professional help. So don't be penny wise and pound foolish.


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## the-royal-mail (Dec 11, 2009)

Welcome. You have some good problems. 

The one thing that sticks out to me is why your significant other wants you to upgrade your house. $400K is plenty of house for any individual. That is paid off. Why not simply enjoy? Why get into fussing with tenants and giving yourself a monthly rent liability to someone else? The place you have now is your own, which you've worked on for years. Why not enjoy it? I do not understand the need for you to play RE shell games.

I don't think you should bother with bonds right now. I do like your idea to invest the money in stocks. You probably have enough money in cash and such that you could easily live off the proceeds if properly invested and not even need to work part time at all.


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## GoldStone (Mar 6, 2011)

MoreMiles said:


> 3. Yes. You should hire an investment counsellor to handle your finance. You may try TD Waterhouse or RBC PHN. You can find one with a total management fee, including their underling pool funds, for 1%. You will get a receipt for the fee, which is tax deductible. With your high marginal rate, it is almost like 0.5% after tax! Most posters here are not at your level so they don't see the benefits. The problem of buying $1 million dollars in equities is that you need to have 100 stocks to diversify or you will end up with $100,000 in one single stock. Do you know each one will give you tax receipt... Can you imaging tracking ACB and dividend taxes with 100 T5 slips? This is not a problem that low net worth clients will encounter.


MM: when you post stuff like this, you should disclose that you work in the investment industry. You have a conflict of interests... please disclose it!

1% off $1 million is $10,000/year. That's a lot of money. What exactly does it buy him? One hour annual meeting and a Christmas card?

100 stocks, 100 ACBs and 100 T5s? Puh-lease. I can build a solid portfolio with 2-4 ETFs. Total cost: under 0.2%. That's $8,000 saved each and every year.

Couch potato strategy is not rocket science. Anyone can do it. Especially the person who was smart enough to build a million dollar business.


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## GoldStone (Mar 6, 2011)

MoreMiles said:


> To the OP, I would not handle the whole asset without professional help.... just like you certainly did not run a cooperation, remit corporate tax return, and sell the business without professional help. So don't be penny wise and pound foolish.


Again, please disclose your conflict of interests when you post advice like this.


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## MoreMiles (Apr 20, 2011)

You may be skeptical but I am not in investment industry. However, that is my view. Most people get scared when they lost $5000 per day or $20,000 per week... If you DIY your portfolio, do you really have the displicipline to see $1 million stock portfolio losing the value of your house, $400,000 in a bad correction? Most people will say yes but in reality, most people cannot handle the heat in a real situation. 

Remember the guy did not get rich by trading stocks. He did well from running his business. My suggestion is 'don't change your daytime job' and let professional take care of your million$ retirement fund.


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## liquidfinance (Jan 28, 2011)

I don't think bonds are a bad thing. 

I would just follow the Couch Potato Method and leave an allocation for some individual stock picks such as the ones you mentioned. 

As for bonds just remember the following

http://canadiancouchpotato.com/2011/07/07/holding-your-bond-fund-for-the-duration/


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## andrewf (Mar 1, 2010)

It's really not a good idea to hold most bonds in a taxable account because they trade at a premium, especially for those with high incomes. If you want a safe, tax efficient bond fund, XFR is a good choice.


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## uptoolate (Oct 9, 2011)

Agree with Goldstone on need for professional advice. Depends on the person and their level of interest in finance. I definitely wouldn't go with an 'AUM based fee' on a million dollars but that's me. A fee-only (and I do mean straight fee-only) plan and start with a core of 3 or 4 index based holdings would be my likely approach.


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## humble_pie (Jun 7, 2009)

GoldStone said:


> MM: when you post stuff like this, you should disclose that you work in the investment industry. You have a conflict of interests... please disclose it!



goldstone just wondering, how do you know MM "works in the investment industry."

normally private investment counsel is quoted at roughly 1.50%, breaking down into roughly 1% for portfolio management & the remaining .50% for custodial services, which should nearly always be an outside hi-quality agency.

if the TD is bundling TD'S own custodial services (which are excellent & highly reputable btw) in with their portf management fees in order to offer a slightly lower all-in fee to clients, i would not be against such practice, although i feel it should be lucidly & transparently explained to clients. MM doesn't seem to have got it straight.

small boutique investment counsel firms are often thought to offer far better services to individual clients; however in their cases it is crucial that custody of actual securities be handled by arms-length outside professional custodians.

once we get up into the 1.50% fee level for portfolio management plus custody, we are talking about $15,000 to manage a million dollars. This is a staggering amount of money to "manage" a portf that consists, or should consist, at least for the most part, of fairly conservative securities which many investors can learn to choose for themselves.

here in cmf forum we have a big generation of maturing DIYers, many already possessing advanced investment capabilities. It will be interesting to see what they do with their portfs in old age. They will be the first generation to have been severed in youth or middle age from traditional financial advisors, the first generation to have gotten used to running everything themselves.

will they run to traditional investment counsel & pay them 1.50% for fairly staid & conventional investment management? i don't think so. 

what new forms of sound & reliable advice are going to spring up, to serve these clients?

how can these new forms of sound & reliable advice be democratized, so they can be made available to all DIY investors who might wish to pay a reasonable fee, now & then, for specialized advice on a particular issue?


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## Pluto (Sep 12, 2013)

MoreMiles said:


> Why are you asking him to leverage with margin? The guy already has enough cash to get a comfortable portfolio. Are you advising him to buy $3 million in stocks? That is not wise for HNW client.


I don't recall advising him to use margin; I think I said, if he dares, and I think I said, under specific circumstances, not now. 

My suggestions are more conservative than advice to just buy stock. One of the stocks he mentioned is RBC. Is it worth it right now? According to ValueLIne it has a recent 12 p/e, and a 10 year growth rate of 10%, giving it a PEG of 1.2, indicating 20% over valued. At one point in 2009 it had a PEG of .75, indicating a 25% under valuation. 

Essentially, my suggestions to him was to pay attention to value. And if he does, and is patient, he can spend his money at levels where he doesn't have to e concerned about serious losses. Then if he dares, at a time of undervaluation, if he dares, use some margin. Why not? If he buys at a low enough price, and he buys stocks proven to snap back in a downturn, that's more conservative than advising him implicitly to buy anytime, and ignore valuation. 

If he nibbles on the ones he mentioned, and then suffers a 25 - 40% paper loss in the next crash, he'll have a first hand look at it without doing too much damage. The first crash for an investor is always the most horrifying. If he can stand it, that is the time to buy a lot with his cash stash, and if he dares, buy a bit more on margin until the market recovers. 10 to 20% margin would be good, provided the stock valuation is good, and there is decent appreciation potential. I don't say he should do it, just something for him to consider. 

If he spends all his cash now on stock, and in, say 12 months, is down 25%, how's he going to feel? Not as good as he would feel if he had a cash hoard to spend at lower prices. 

Generally the markets are overvalued. Happiness, complacency, and rationalizing why this market is OK, and going higher is the order of the day. The other day I watched an interview of a trader who said stocks are going much higher from here because there's nowhere else for all this money to go. He was speaking of the massive Fed stimulation still in effect. That guy might make money, but he is a professional trader who has no commitment, really, to investing. He is in and out, and he will not tell people when he is out. When he is out, the new investor who was influenced by him will still be thinking everything is hunky dory. The unwary, who let his thinking influence them and go all in, better be prepared to make their own decisions about when to pack it in. 

Right now, the valuation profile of, for instance, the Canadian Banks, is very similar to their profile in 2007. My advice to new investors right now is caution. If the new investor holds off, and the market suddenly goes higher, it'll temporarily look like bad advice. At that point some will buy in and get creamed, and the ones who stayed out will end up with a hoard of cash to spend at good prices.


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## Eder (Feb 16, 2011)

Sell your house & upgrade so wife is happy...you need to live with her another 40 or 50 years so this should be your first priority.

Open an investment account where you pay minimal fees ( I use CIBC and get trades for $6.95) Open a self directed TSFA as well joined to your investment account.

Keep 100k in a HISA joined to your investment account.

20% in GIC ladder ...you can use your TSFA $ for part of this ladder. Negotiate best rate with your bank in advance.

80% in CN,RBC,TCP,BCE, and TCK.B

Life insurance in your case is unnecessary...you may reexamine if you have kids

I just saved you 10k in management fees...buy me a beer!


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## Oldroe (Sep 18, 2009)

The OP US investments. I would stay away from US banks. They are not like Canadian banks they can and do go broke almost every month.

Take a small amount 20k and practice invest.. I will give the same advice. 

IT'S GUT WRENCHING Nausea WHEN MARKETS CORRECT> Suicide have happen over it.


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## marina628 (Dec 14, 2010)

PM me if you wish as we sold our business and assets in last year or so as well for much more than you did.For the record I did not seek any professional advise but have spent much of the past 3 years studying up on things in preparation for the day we did cash out.Eder has a very close idea as to how we are structuring our money ,I have a few more stocks than he has listed.


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## marina628 (Dec 14, 2010)

I figure I may as well share with you guys what I have done with my money and my main goal is to keep the money safe so currently we put 60% of the funds from sale of our business in GIC/HISA and to offset that poor ROI I decided to take some risk with remainder of the money and I evenly split it into 5 non registered accounts.I opened these accounts over past 12-15 months ago with all cash holdings and over this time I bought the stocks listed.Please do not look to me for any advise on investing as some of these moved I considered a gamble and yes I know I am paying some high MER on Portfolio #5 

Portfolio 1
BNS ,CM ,CNQ ,DIS,ENB ,TD current ROI 22.47

Portfolio 2
TDB906 
TDB911
ROI 26.82

Portfolio 3
BCE,IPL,T,TD,TDB902,TDB911 ,TDB976
ROI 17.33

Portfolio 4
ENB
IPL
TDB902
ROI
22.89

Portfolio 5
td entertainment and communication
TD DJIA Index
TD DIVIDEND GROWTH(CAD)
TD NASDAQ Index
ROI 22.88%


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## Sherlock (Apr 18, 2010)

http://subway.ca/OwnAFranchise


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## richard (Jun 20, 2013)

When it comes to the investments, the first thing you need to ask is if you are a long-term investor who can commit to a strategy and stick with it for several decades while your portfolio grows and provides you with income. In that case you can forget about what the price level is at today. Yes it was better in 2009 but we have to choose from the options we have now. In a perfect market to buy into everyone is too scared to do anything. 

I don't find cash very attractive, and personally I don't find bonds attractive either but you're in a position to make different decisions about the risk you want to take since you don't need to rely on portfolio growth as much and it might be worth having more safety.

I'm not sure what your expenses are but it sounds like you wouldn't think about making withdrawals for at least 10 years. 50% in bonds would be a little conservative for that but overall it won't leave you poor.

If you are comfortable with the risks, a collection of 20 - 30 dividend-paying stocks could grow nicely in that time. If you do have that long, then waiting for a correction (which might start from a higher price level if it doesn't happen really soon) could cost you more than getting in a little above your ideal price. Either going 50/50 now or going with only dividend stocks and moving gradually over 1-2 years would make sense for a long-term plan.

My own portfolio is all stocks, divided between index funds for Canada, US, and international to diversify it. I haven't looked at what yields are on large dividend stocks but it seems like there are still some reasonable buys as long as you don't put too much in one company or industry. Unless you're spending 200k/year you have a large margin of safety so you don't need to worry about what will happen in the next few years. There are several good strategies, and sticking with one good strategy for a long time will do far better than constantly switching to try to find something better.

There are people that do really well using a simple portfolio. They just don't have the same advertising budget as the big banks so you don't hear about them as much


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## blin10 (Jun 27, 2011)

ya it's tricky with markets all time high... I def. would not hire any financial adviser because all they care about is getting their cut and if they were good they wouldn't work there... 
I would split it up, leave most in HISA (for now), buy some dividend paying stocks, get some GIC's... if you do buy stocks, do not buy penny stocks, gold stocks, airline stocks unless you want to be +10% one day and -50% the next


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## OnlyMyOpinion (Sep 1, 2013)

marina628 - *"I evenly split it into 5 non registered accounts"*
No explanation necessary - but having 5 separate accounts to allocate and track would make our head spin.


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## marina628 (Dec 14, 2010)

OnlyMyOpinion said:


> marina628 - *"I evenly split it into 5 non registered accounts"*
> No explanation necessary - but having 5 separate accounts to allocate and track would make our head spin.


Well I do have time on my hands but they were split for various reason and also at different banks .These are technically our business investment accounts we also each have a RSP TFSA and our daughter's RESP besides this plus two non registered cash accounts .He has his in USD , mine is in cad lol I am getting very good at excel spread sheets


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## Soils4Peace (Mar 14, 2010)

Sell the house and upgrade. 

Neither of you need life insurance. 
Learn Modern Portfolio Theory and the Fama-French 3 factor model for equities and the 2 factor model for bonds. 

If you go with a high bond allocation make 20 to 50% of the bonds real return (RRB). There aren't many Canadian issues so you might as well just ladder individual Federal ones. 

For non-RRBs, CAB is a low cost ETF with diverse issuers and durations. 

Make sure you diversify your stocks to include some outside of Canada. You can do that with a small group of low MER ETFs, e.g., VTI (US), VEA (developed), VWO (emerging). That way you can focus on the Canadian scene for individual stock selection if you want. Or you could hold XIC (TSX Composite) for a mere ~0.06% MER. That's $60 per year on $100k to hold interest in more than 200 stocks.


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## hboy43 (May 10, 2009)

humble_pie said:


> once we get up into the 1.50% fee level for portfolio management plus custody, we are talking about $15,000 to manage a million dollars. This is a staggering amount of money to "manage" a portf that consists, or should consist, at least for the most part, of fairly conservative securities which many investors can learn to choose for themselves.
> 
> how can these new forms of sound & reliable advice be democratized, so they can be made available to all DIY investors who might wish to pay a reasonable fee, now & then, for specialized advice on a particular issue?


Well, my portfolio is in this ball park and I guess I could have paid someone $15,000 last year to do my one transaction which was a partial RRSP withdrawal ...

Seriously I just don't see 99% of money management as rocket science. Consider this partial list of skills I have:
bicycle mechanic
sailor
electrical and plumbing
drive a car
put up a small building including concrete slab
1st year calculus (maybe, it has been 25 years)
darkroom (Ok that one is obsolete)
etc.

Either my list of skills or yours, I just don't see the vast majority of money management to be so magical that it should ever climb higher than the bottom quartile of any reasonable person's list. Any person with a university or college degree/diploma should be able to do this, the technical stuff that is. Likely most high school graduates should be able to do this. The emotion and psychology is another matter and maybe this is why an adviser should skim 1.5%. 

Certainly there is scope for specialty work, but far better to pay $200/hr when you identify this stuff as you need it: will and estate planning, trusts etc.

Some years I make money, some years I lose money, but every year I don't pay someone 1.5%. It is one of the few certainties in investing, so I grab onto it myself.

hboy43


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## Pluto (Sep 12, 2013)

richard said:


> When it comes to the investments, the first thing you need to ask is if you are a long-term investor who can commit to a strategy and stick with it for several decades while your portfolio grows and provides you with income. In that case you can forget about what the price level is at today. Yes it was better in 2009 but we have to choose from the options we have now. In a perfect market to buy into everyone is too scared to do anything.
> 
> 
> 
> ...


What concerns me Richard is your statement that "In a perfect market to buy into everyone is too scared to do anything". 
So therefore buy high, and diversify. That's scary. My concern is the OP will buy a group of stocks, then in about a year see 30 - 40% of his equity vanish. Lots of people who are knew at this panic, and sell out at the wrong time. Then the vanishing is permanent. Then they are totally turned off stocks, and stay in GIC's for the rest of their life. If one can not bring themselves to buy during times of fear, then they are very vulnerable to sell during times of fear. 

I don't understand what is so scary about low prices. And what is so safe and pleasant about buying over valued stocks. 

Lots of people think they are comfortable with the risks, but if they can't bring themselves to buy during times of fear, panic, and low prices, then they are not comfortable with the risks. I don't get it Richard, you imply you are comfortable with the risks, yet you imply that it's too scary to buy when prices are low. So you, really are not comfortable with the risks.


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## Pluto (Sep 12, 2013)

marina628 said:


> I figure I may as well share with you guys what I have done with my money and my main goal is to keep the money safe so currently we put 60% of the funds from sale of our business in GIC/HISA and to offset that poor ROI I decided to take some risk with remainder of the money and I evenly split it into 5 non registered accounts.I opened these accounts over past 12-15 months ago with all cash holdings and over this time I bought the stocks listed.Please do not look to me for any advise on investing as some of these moved I considered a gamble and yes I know I am paying some high MER on Portfolio #5
> 
> Portfolio 1
> BNS ,CM ,CNQ ,DIS,ENB ,TD current ROI 22.47
> ...


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## My Own Advisor (Sep 24, 2012)

I don't think it's going to blow up Pluto...maybe a correction of 10-20% at some point???

As for advice...well, I would probably follow suit with a previous comment:

1. Get a home that keeps your wife happy.
2. Put 50% of money into CDN blue-chip stocks, most of them you'll find in XIU. Buy and hold these guys and collect dividends. Put rest into indexed ETFs.
3. If you are more risk adverse, buy a few indexed ETFs, one from Canada, US, International and collect distributions from them vs. holding stocks directly.
4. Put some money in a GIC ladder or low-cost bond ETF that will spin off distributions. Put in TFSA.

Enjoy life 

Well done.


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## Mortgage u/w (Feb 6, 2014)

If I were to come upon a $1 million lump sum, my main focus would be capital preservation. Returns are low but then again, how much more do you really need in life? I would really hate to have worked so hard for such a nice payoff and then loose it all for trying to grow it aggressively.

OP, all depends what you want to do with the rest of your life. If you want to further grow your money in the stock market, then you'll be dreaming stocks even while your awake. There are more interesting things do in life.

My opinion: I would secure the money as much as possible. Low risk; GICs mostly. Bonds are low right now. I may consider 20% in solid, dividend paying stocks. As for the house, really depends if you like it. If not, buy another one!
Then, find a hobby and enjoy life peacefully and stress free.

As for insurance, until you don't have kids, no need to get any. I like to view life insurance as a means to pay the tax man should you and your wife pass away. Your estate will be heavily taxed and the life insurance will cover that while preserving your assets. I would seriously consider opening a family trust and grow all your assets within it.


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## Pluto (Sep 12, 2013)

My Own Advisor said:


> I don't think it's going to blow up Pluto...maybe a correction of 10-20% at some point???
> 
> Enjoy life
> 
> Well done.


Maybe I'm just a worry wart right now, but I suspect not. At least you are advising only 50% in stocks. 
The financial memory is very short. In 2000 investors had forgotten all about the scare and a sudden 30% drop in 1998. By 2007-8 investors seemed to be totally unaware of what happened in 2000-2002. 

I guess what makes worry warts like me seem irrelevant is we start worrying too early and the market just keeps chugging along. I do think that the Canadian blue chips as a group will more or less go sideways until the easy money party is over. It wouldn't surprise me if we have a 10 - 20% correction, and a recovery which will set up the complacent for a big fall. 

However, it is the OP's money, and he will do as he wills. I think he should find himself a good book on contrary investing to add to his read of the "Intelligent Investor". With a million in cash at his age, and some contrary investing and value investing skills, he might end up buying his wife a small palace. 

Any way, I'm big into capital preservation right now, and not into trying to squeeze every last nickel out of a bull market. If this was 2009, 2010, 11, or 12, I wouldn't be this concerned. In those years, there was no over valuation in Canadian blue chips to be concerned about.


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## BC Eddie (Feb 2, 2014)

I am going to throw my two cents in here in defense of money managers. I will state upfront (for what it is worth) that I am not one, nor do I have anything to gain by supporting them.

I understand that a number of posters here have had great success managing their own money, and to them I honestly say "good for you". However, I do not agree that it is as easy as some of you make it sound. I am not a stupid person -I have masters degree in Stats and in fact I was actually a member of Mensa for a few years. I have worked in systems for over 30 years so I am comfortable with complex calcs, spreadsheets and doing financial research. I also enjoy reading about finance.

So with this background, back in the early 90's, I thought it would be a good idea for me to ditch the so-so advice I was getting from my banks. I tried doing my own stock picking with bad results (JDS Uniphase and Webvan just to name a couple). Sure I picked a few winners but overall I just broke even. Plus it was a lot of work, stress and responsibility.

So now I use a boutique money manager (Morgan Meighen) and I am very happy with the result. I pay what I think is a reasonable 1.25% management fee. For this, for the last seven (12/31/2006-12/31/2013), challenging years, I have gotten a compounded annual return for the total portfolio of 4.8%. This is compared to 0.8%, 3.9% and 4.2% for the TSX, S&P 500 and Dow, respectively. I am happy with that.
of course I am aware others have done better but I am even more aware that many, many more have done worse. 

There is also the very real risk that on forums like this we tend to hear about the success stories where individuals have done well managing their own money. People tend not to tell others about their failures. And if it really is that easy why do we always hear that most money mangers never beat the indexes?

I suppose I could try to do it myself again and save the $18,000 per year on fees but I would rather not; just like I no longer do my own oil changes and home renovations.


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## GoldStone (Mar 6, 2011)

BC Eddie said:


> So with this background, back in the early 90's, I thought it would be a good idea for me to ditch the so-so advice I was getting from my banks. I tried doing my own stock picking with bad results (JDS Uniphase and Webvan just to name a couple). Sure I picked a few winners but overall I just broke even. Plus it was a lot of work, stress and responsibility.
> 
> So now I use a boutique money manager (Morgan Meighen) and I am very happy with the result.


BC Eddie,

You make it sound like these two options are the only two options available. Either you do your own stock picking, or you hire a money manager. This is a false dilemma, also known as the fallacy of false choice.

Wikipedia: A false dilemma is a type of informal fallacy that involves a situation in which limited alternatives are considered, when in fact there is at least one additional option.

With this preamble out of the way, let me throw out one additional option that you didn't mention: couch potato strategy. Are you familiar with it? It's not a lot of work, stress and responsibility. You don't need a Mensa IQ to be successful at it. Complex calcs and spreadsheets are not required.

Please note, I'm not trying to change your mind about your investment approach. Morgan Meighen did a good job for you. You are happy with their results. Perfect. :encouragement:

I just wanted to point out the false choice of pitting DIY stock picking versus professional money management.


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## richard (Jun 20, 2013)

The research on investment results of Mensa members suggests they may not be successful at running a couch potato portfolio. "It's obvious this is the perfect time to get out of the market based on the complex statistical correlations!"

It certainly will reward very lazy investors.


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## Ihatetaxes (May 5, 2010)

richard said:


> The research on investment results of Mensa members suggests they may not be successful at running a couch potato portfolio. "It's obvious this is the perfect time to get out of the market based on the complex statistical correlations!"
> 
> It certainly will reward very lazy investors.


Smart ones too (smart enough to realize that market timing and stock picking don't work well for them).


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## BC Eddie (Feb 2, 2014)

Goldstone

I understand your point of view and accept it. I did not imply that there were only two options, and I think if you go back and read my post you will see that. I was just trying to present my POV in defense of money managers. I find there is a tendency for people to be highly critical of professions that charge for a service that people, with enough time and experience, could do for themselves (e.g., realtors, headhunters, money managers, etc.). However it has been my experience that people who are good at their job are worth the money and I value their service.

But yes, I am sure there is a continuum of strategies ranging from zero effort to 24/7 obsession with personal portfolio management. I have read about such strategies as couch potato and fully believe a basket of indexed funds could provide reasonable returns relative to the market. 

I am open to other methods, especially if they save me money for results that are as good as what I am getting now or better.

So I would like to compare my 4.7887% annual compounded return (ACR) with the performance of other methods. I could not find the equivalent values for the Couch Potato funds as of Dec 31, 2006 and Dec 31, 2013. However, I could find them for the "Sleepy Portfolio" which seems to include many of the same ETFs. (2006/12/31 - $129,438 2013/12/31 $173,557. When I do the math for the same period I get an ACR of 4.2791%. Not a big difference from my result but a difference that would have given me about $45,000 less in my portfolio. Another, non trivial point is that over the seven years my worst return was -12% in 2008 as compared to the -19% for the Sleepy. 

If you can provide the equivalent numbers for the couch Potato I would be very interested. 

If you see any flaw in my thinking here I would more than welcome your input - I can only gain from it.


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## BC Eddie (Feb 2, 2014)

richard

Maybe I am misinterpreting your comment but, if I am right, I think I can understand your reaction. By throwing in the Mensa point in my first post I did not intend to sound as conceited as it now does after I have re-read it. I was just trying to stress that I failed at managing my own portfolio even with a background that should have helped me. I concede that a "Couch Potato" indexed style can be effective.


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## Spudd (Oct 11, 2011)

This might help with the comparison - unfortunately it doesn't have the 7-year as one of the periods, though.
http://canadiancouchpotato.com/wp-content/uploads/2013/01/CCP_Model_Portfolio_Perf_1998-2012.pdf


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## My Own Advisor (Sep 24, 2012)

Thanks Spudd.

Goes to show, as well, if you buy and hold equity ETFs or ride the market, you're likely bound to earn 7% or so over 10, 15 and 20-year investment periods. 

I'd take 7% going-forward every year.


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## BC Eddie (Feb 2, 2014)

Spudd
Thank you for this information. 

The only period I could match my results to was the 5 year return of 4.76%. As the chart was labeled 1998 -2012 I used my results from 12/31/2007 to 12/31/2012 which is 4.82%. So my number appears to be only slightly better. However, I stress again, I am calculating a Compounded annual return and the Couch Potato says the numbers are "Annualized percentages" and I am assuming non-compounded. 
When I convert the Couch Potato Annualized number to Compounded Annualized I get 4.36%. This would result in almost a $27,000 reduction in my portfolio over the same five years. So my results are better again. 

So far I continue to be convinced of the value of my Manager. However, I do accept that these, low effort, EFT strategies provide comparably good returns. 

(The following is from this site http://www.plancorp.com/compound-vs-annual-returns.html) (Ironically this is not my manager’s site but rather from another firm that promotes passive investing with index funds.)

Difference between Compounded and Average Annual Returns

Compounded Annual Return
The compounded annual return is the rate of return on your investment taking into consideration the compounding effect of the investment for each year. This is a much more accurate measure of performance than the average annual return.

Average Annual Return
Average annual return is the return realized when you divide the cumulative return on the investment by the number of years. This calculation is used by many newsletters and financial gurus to inflate their returns.

Here's an example of the difference between the two:
If you average just a tad more than a 14% return for each year for 5 years you will have doubled your money. And, it's not just a 70% (5 x 14%) return, but a 100% return on your money. The reason is that there is compounding for each year that your money made 14%. The unscrupulous will use the 100% return, divide it by the 5 years and say that you made an "average annual return" of 20%. If we carry our example out another 5 years, you now have made a 300% return, and if you divide this by the 10 years you've held the investment, it appears to be an average annual return of 30%. However, all of this actually happens by just using a constant 14% "annual compounded return" for 10 years.
So, be aware of the hype, and the people promoting very high "average annual returns". Insist on knowing the "Compounded Annual Return" for a constant and true measure of comparison.


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## fraser (May 15, 2010)

I would be very happy with 7-8 points, capital preservation assured, over 15-20 years. 

I suspect that the numbers would vary considerably based on when you first entered the market or started keeping track. Entering a low point would show higher returns than entering a high, just prior to a crash.


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## GoldStone (Mar 6, 2011)

BC Eddie said:


> However, I stress again, I am calculating a Compounded annual return and the Couch Potato says the numbers are "Annualized percentages" and I am assuming non-compounded.


I think your assumption is wrong. "Annualized return" typically means geometric average, i.e. compounded return.


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## BC Eddie (Feb 2, 2014)

GoldStone,

That may very well be true in this case but I did not know that. I have also found (as the site I included in my previous post points out) results on the web where some people are very relaxed in the use of the terminology. Not being able to see the actual values at each year and only being provided with the 5 Year number I could not be certain.


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