# Help me advise my father please



## praire_guy (Sep 8, 2011)

Hello there. A co worker suggested this site for all things financial , and thus my first post with a request for some input.

I really dont like to get involved with my parents finances, but my father has asked my opinion, and I could use some feed back.

His "story:

70 years of age, retired comfortably, rsp/cpp/pension, etc.

30k mortgage @2.25%
17k car loan @ 2.9%

He has recently inherited 100k, which he views as free money, as he is not dependant on it.

He purchased a new toyota with 20k down (from inheritance).

His "girl" at his bank whom he trusts wants him to invest the balance of his money in the BMO select class security portfolio which is a corporate structured mutual fund.

She is guaranteeing him about 8% return, and on an investment of 95k can give him 485 a month TAX FREE. (whats the catch?)

Since nothing is free I am guessing the tax free money is simply a return of his own capital over time, until it is time to withdraw the dividends and interest earned from the fund.

Alternatively he wants to invest everything into canadian dividend paying stock and enjoy the hopefully growing income.


My initial thoughts are why is he investing? He is already set, and not getting any younger, so since it is free money why not enjoy it? The new toyota is a start. He could buy a computer, travel, buy one of those big green egg bbq things he has talked about for years.

My initial thoughts are for him to pay off the car loan, and the mortgage. No debt. None. Zero. A good place to be, and he gets a an absolute guaranteed after tax return of 2.25, and 2.9%

With the remaining money, open up a TFSA for himself and my mom, and either buy GIC's, or leave it in cash. Splurge and enjoy.

If he really wants to "invest" I suppose he could buy some cdn dividend stock.

I would really hate for him to plunk down 100k and then see it drop to who knows what. Sure the dividends dont change, but I dont know if he would panic and sell at the wrong time.

At least if he invests a smaller amount it would be easier to stomach, and he would get about a grand or so a year in dividends to play with.
I also dont want to see him plunk it into a mutual fund thinking he gets 500 a month "tax free" when it really isnt.

He initially wanted to be debt free but his "girl" at the bank said the interest was cheap and their fund could do better.

So I say he should go debt free, and enjoy the rest.

Not sure what he should do investment wise for the balance.

Personally I think he should spend it all. Buy the big green egg bbq, and have your son over for juicy rib eye's once a week! 

I would appreciate your thoughts, on what he should do, or even if I should offer any advise at all.

I have always gone to him for advise, and this is the first time he has asked my advise on anything of significance.

I dont want to lead him down the wrong path, but I also dont want anyone else to do the same thing. (i.e "the girl" at the bank)

I would like to thank you in advance for your input, and thoughts.

Have a great day!

PS, please tell me I am not the only one having a hard time reading the "image verification" code.


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## Cal (Jun 17, 2009)

My guess is that he is pretty happy with his life as is. 

Yes, I would get rid of all debt. 

Then I personally would invest the money. Yes even at that age. But that is just me, and I am sure that many out there will recommend to put in GIC's. You said he is already comfortably retired....some extra yield would make things a little more comfortable for your parents, and perhaps they have an interest to pass something on, and not draw down everything.

And you are right when you state that the TFSA if unused would be his best bet to maximize the tax free yields that some of his envestments might produce.


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## praire_guy (Sep 8, 2011)

Wow, thanks for the quick response!

I figured the TFSA was a good idea. I dont understand the bank telling him not to bother? Other than buying the BMO fund, which he could also do within TFSA??

As for investing you feel equities are ok? I surfed around at dividendgrowth.ca

It seems to make a lot of sense:

"when reasonably priced, buy and hold canadian dividend paying (growing) stock for the (hopefully) growing income"

As a bonus you *should get capital growth in line with the dividend growth.

How do you feel about the BMO corporate fund? Am I correct in the return of capital? If so since they are giving him his own money back each month, why not just spend your own money and skip the 2.7% MER?

Perhaps a TFSA "couch potatoe" mutual fund would be a better idea?


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

Welcome to the forum! 

This is actually very simple - the bank makes a killing on fees. They have trained their staff to try and get as many people invested as possible. The moment we buy one of their expensive mutual funds they start collecting fees from us.

I agree with your answer for the $100K. Pay off all debts and buy _cashable_ GICs with the rest, keeping the remainder in fluid cash.

Don't buy into the rhetoric that money sitting in a savings account is toxic. It's not. It's very safe, esp for someone in their 70s.

Let us know how it goes?


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## DanFo (Apr 9, 2011)

I agree with the others as well... tell him to pay off the debts....The banks getting all those interest payments (even if they're at a low rate) and now they want the mutual fund management fees as well...prob a nice commission for "the girl" as well....Eliminating those payments each month will add more spendable cash into their bank than the monthly return of capital from those funds...they can invest the remainder however they wish (mutual funds or dividends).....preferably inside thier TFSA's


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## Four Pillars (Apr 5, 2009)

I would suggest that he pay off the debts first and then do whatever splurging/investing he wants to do.

I wouldn't worry about him buying risky stocks - if he doesn't need the money, what does it matter if they go down in value?


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## humble_pie (Jun 7, 2009)

there are excellent suggestions in this thread but my eye fell upon this item:

_His "girl" at his bank whom he trusts wants him to invest the balance of his money in the BMO select class security portfolio which is a corporate structured mutual fund._

a while ago a well-known cmf forum member who had worked in an advisory capacity at a schedule I bank (not bmo, but comparable) posted how all the banks urge their staff to sell house products such as this mentioned bmo fund.

she explained how staff are better compensated to sell house product.

coincidentally, i myself was strongly hustled by bmo to buy this or similar bmo house product a few months ago. My reaction was to end up disrespecting the hustler, so nothing else he had to say mattered any longer.

i have no citation to back me up but i know of no study anywhere that has found these house funds to do any better than average. A difficulty with them, unlike etfs, is that quotes are not available from exchange feeds, but would have to be retrieved by visiting an individual bank website ... for nothing-special i'd find that a pain.

a PS: here's hoping your father enjoys a wonderful long life to come & sets up a TFSA as soon as possible so that he can commence reaping tax-free income.


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## humble_pie (Jun 7, 2009)

_" wouldn't worry about him buying risky stocks - if he doesn't need the money, what does it matter if they go down in value? "_

?

this must be a delayed attack of spring fever


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## praire_guy (Sep 8, 2011)

Very quick responses guys.

My main concern was my father wanting to hold debt while under the "assurance" his investment return would exceed his costs.

He is now talking about paying off all debt, but does not want GIC's, nor mutual funds for that matter.

He is really bent on canadian dividend paying companies with a history of dividend increases.

These do not seem like "risky" stocks.

He had me look up some stocks for him. I am thinking a pipeline, utility, a bank or 2, and maybe power corp for some diversification, although power has not raised the dividend in a while.

Fortis, and endbridge seem to be consistent, and the banks have started raising dividends again. Not sure on where power is at.

Do you think he should buy all one stock, or spread it out?

I really hate giving him specific stock "advice". I will turn out to be the best son in the world, or his least favorite. Good thing I am an only son!

These stocks are mentioned in a few Rob Carrick globe and mail articles (which is where he got the dividend stocks idea in the first place)

I still say he should buy the green egg!


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## CanadianCapitalist (Mar 31, 2009)

First of all, I think you are doing just fine on your own. But since you asked, I agree with your opinion: Pay down the debt even low interest rate debt. It makes little sense to have some debt and also own some GICs at the same time. Spend some and if he really, really wants to invest some in stocks if and only if he is completely okay if the stocks drop in price. Also investing must be done in the context of his overall asset allocation since he also has some RRSP assets. As for a TFSA, yes absolutely. 

PS: The image verification sucks. We know that but unfortunately, we don't have a better solution to fight spam. The good news is that you should already be able to post without IV.


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## Oldroe (Sep 18, 2009)

Zero debt is the way to go. Then keep another 40% for yepee money.

Then I'm guessing your dad's having a shinny eye for the tulip. Let him have fun. In something with lower MER.


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## humble_pie (Jun 7, 2009)

hello praire, i reread your first message & feel there must be something i am not getting.

for the simple reason that if debt (30k + 17k = 47k) gets paid off as you proposed - and 100% here were in favour - & given that 20k has already been spent on the lovely new car ... then ...

would not only 33,000 be remaining ??

hallelujah. This is exactly enuf for 2 spiffy handsome new tfsas, one for each of your parents, plus a wee sum of 3000 left over which could be saved up for january 2012 tfsa contributions (2 x 5000) or else spent immediately on something wonderful.

you didn't mention your own investment experience, so i'm not sure what experience & knowledge you 3 muster up among yourselves at present. But perhaps, if not so much direct portfolio management experience as of yet, then consider broad-based etfs only as investments in the tfsa, possibly along with a GIC or 2 as safe ballast. Keep some tfsa $$ as HISA or short-term one-year GIC (in registered account they probably both pay the same, which will, alas, be very little) so that your parents will have liquidity if they wish to change their investments later.

this would mean leaving the individual dividend-paying stocks for later. Because funds can be withdrawn from a tfsa tax-free at any time, your parents could spend a little while learning more about the individual dividend payors before setting out to buy them.

re power corp, this stock has been a dog. It's heavily dragged down by its huge interest in european finance house Pargesa. I own power. It's dropped even below the level where i've been able to patch it by selling options. I managed to sell half around $28 a while ago, thinking i might re-purchase, but not once have i ever considered this re-purchase seriously. There are, btw, plenty of other & better companies paying out power's dividend yield or even better.

best wishes to all.


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## praire_guy (Sep 8, 2011)

Thanks for all your input so far.

The 100k was from the sale of my grandmother's home, so yes the math adds up to around 33k.

But there were also some bank accounts, etc, so all said and done after probate fee's legal fee's, squaring up property taxes, unpaid bills, etc my dad said there would be just shy of 40k left over.

My experience so far has been that of an index couch potato via TD eseries.
Easy, low fee, no fuss, no muss.

But now my dad brought up the dividend strategy, which led me to Rob Carrick, which led to Tom Connely ala dividend growth.ca which is a wealth of information.

Through his site I found a book on dividend based investing called the single best investment.

Being the cheap guy I am , I borrowed the book from my library. I find the strategy appealing, and the more I browse Tom's site, and read the book, I think my dad is onto something.

In regards to power corp, this would not be a stock Tom would buy as he always looks for a recent dividend increase as a safer purchase. While power may or may not increase the dividend, the strategy revolves around growing income, so I just threw power out there for the sake of spreading it around. (diversify).

But it is all about learning, and Tom has some good arguments against indexing.

I did talk to my dad this afternoon. He talked to "his girl" today. He brings up a good point in that she told him he is too old to be invested in the stock market, so he asked her "isnt the BMO fund also invested in the market, and how is that different?"

She said he can choose how much he wants invested in the market, and that he is hiring professional money management which is much safer than buying individual stocks.

He pointed out that most of the stocks he wanted to buy were in the top 10 holdings of the BMO fund, so if they were too risky for him to buy, then why would he want a fund too buy them? Long phone silence followed!

She also said she was a salaried employee and there was "nothing in it for her" if he bought the BMO fund. 

Anyhow, this is what he has decided:

-Pay off ALL debt, and owe nothing to "the man"
- open up 2 TFSA investment accounts and transfer cash into them
-do nothing for the time being as it will take a week or 2 to set up the accounts/transfer money, etc.
- buy a computer so he can learn online about investing
- once he knows more, and has explored different options he will invest

I am going to actually by a copy of the book I am reading. It is that good. I thought indexing was the end all be all. I will beg Tom to see if he will accept new subscribers to his site as I think there is some good information available. (simply going by what he has provided on the free side of his site.

Knowing my dad, he will probably buy some dividend stocks. He figures a 3.5% yield will give him 1400.00 a year of "free" money that should grow each year.
All he wants is to maintain todays income with inflation, something that some of these dividend stocks seem capable of doing (fortis comes to mind, over 31 years of increases)

I feel better know. Thank you all for your input.

My dad will not be taken advantage of by "his girl", and I may be changing my investment game plan as well.

But most importantly, I am now spending more time with my dad, on the phone, and over coffee talking investing.

Losing a grandmother was the first time I have lost a family member, and has made me realize how important time spent with my dad (and rest of my family is).

This new time spent is far more valuable than ANY investment strategy, and ANY investment return.

You can quote me on that, and you can take that to the bank


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## financialnoob (Feb 26, 2011)

Glad to hear everything's worked out, and more importantly, that you and your dad are spending more time talking. There's no price tag for something like that.


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

Wow what an excellent plan. I feel much better that he was able to go back to her armed with sharp questions like that. The bank makes money on fees when you are invested in their funds. 

Dividends are certainly worthy of consideration but setting up your own brokerage account isn't for the faint at heart. You may not need to go that far. With the cash in the TFSAs you'll likely be earning 1.25% on that money, which is a nice bit of extra change. Just make sure the interest is paid more than once or twice per year! 

Your plan assures me that you've done well to take the advice we provided here and used it to protect your interests as much as possible. Well done, all the best. I love happy endings like this.


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## Mensa (Oct 19, 2010)

^^This

But please tell us he's gonna get the egg too!


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## praire_guy (Sep 8, 2011)

My dad has the gift of whit, thats for sure.

I think of the same things he did, but I would phone the bank girl back because it takes me a while to think of things whereas my dad does it on the fly.

He will actually throw a comment, or shot back at you before you are done firing something off to him.

I have in the past seen him take down a few comedians in a comedy club.

I hope he gets the egg. I thought what a waste of cash, as these things are about a grand.

But his friend has one, and they do produce the best rib eye you have ever had, and I have been to many a fine steakhouse over the years.


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## KaeJS (Sep 28, 2010)

I won't give my 2 cents on everything that was said here,

But I think your father made the correct decision and it was great of you to seek advice for him.


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## OhGreatGuru (May 24, 2009)

Sounds like your Dad is a pretty smart cookie, and on the right path. I like the way he dealt with his "girl" at the bank.

Buying blue chip stocks is not necessarily a bad thing when you're 70, if you are not dependent on the dividends for your essential living costs.


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## Plugging Along (Jan 3, 2011)

Just a side question, that's sort of related to this thread. Advice was given to put the money in a TSFA. I thought you could no longer contribute to TFSA once you're 65, not sure why I though that, but is there an age limit?


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## HaroldCrump (Jun 10, 2009)

Plugging Along said:


> I thought you could no longer contribute to TFSA once you're 65, not sure why I though that, but is there an age limit?


No


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## Karen (Jul 24, 2010)

There's no age limit, PA, thank goodness. TFSAs just came into effect the year I turned 65 and I've contributed for each of the three years since.


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## Cal (Jun 17, 2009)

praire_guy said:


> She said he can choose how much he wants invested in the market, and that he is hiring professional money management which is much safer than buying individual stocks.


I have to wonder if she really thinks that or if that is what the bank has taught her to think.

I haven't seen many equity funds that have done great during downturns, even if they did the MER cuts into the return for the investor.

If you liked that book, and have access to a library, pick up 'The Lazy Investor', don't buy it, you can read it in an afternoon. Same sort of basic idea.

All the best.


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## LBCfan (Jan 13, 2011)

I agree with get rid of the debt. After that, CDs or MM funds for stuff he might need. After that, whatever he likes (or doesn't). TSFA is a great place to keep any assets.


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