# Eggs in one basket, but it's a great basket



## motainai (Apr 4, 2009)

My parents have the majority of their retirement savings, including the proceeds from the sale of their house, invested in the small retirement complex that they live in. The are also investing money into a TSFA. They are in their mid-70s. My dad is getting the Ontario teachers pension. 
The retirement complex is full and will likely continue to be in the future. The retirement complex's financial situation is backed by a provincial church body. The likelihood of the church conference going insolvent is very low, as it could rely on the national church conference for financial support. 
The interest on the retirement complex investment is 4.5%. My wife and I also have the majority of our savings invested with the retirement complex.

The question: how great is the risk in having my parents' savings invested in this one basket?


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## Rickson9 (Apr 9, 2009)

motainai said:


> The question: how great is the risk in having my parents' savings invested in this one basket?


The answer lies clearly in the financial statements of the basket. I would assume that you inspected them before investing.


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## Cal (Jun 17, 2009)

Depending upon the complexity of the 'basket', you may have wanted to run some of their financials by an accountant or lawyer prior to putting your life savings into it.

I am sure that you did your due diligence, however some of these things can be complicated, at the outset I would relate it to investing in a condo corp. But even purchasing a single condo unit would get a review of paperwork from a RE lawyer, before the transaction is complete.


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## motainai (Apr 4, 2009)

Thanks for both of your responses.
We are part of one of those religious communities where we believe everyone is God-fearing folk (until they run away with our money). My dad taught Sunday school to the guy running the place, if that gives you some idea of what is going on.
So both of you are stating exactly what we should do and haven't done: confirm the basic financial situation of the retirement complex.
Getting on that right now.


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## osc (Oct 17, 2009)

I don't know what's a church conference, but if it involves religion-based tax exemptions and donations from religious people, then the probability of it going insolvent in the medium term (10-20 years) is pretty high. The reason is that religious activities will probably be taxed like every other commercial activity and there will be fewer and fewer donors as people abandon bronze age beliefs.


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## Rickson9 (Apr 9, 2009)

motainai said:


> Thanks for both of your responses.
> We are part of one of those religious communities where we believe everyone is God-fearing folk (until they run away with our money). My dad taught Sunday school to the guy running the place, if that gives you some idea of what is going on.
> So both of you are stating exactly what we should do and haven't done: confirm the basic financial situation of the retirement complex.
> Getting on that right now.


Specifically the income statement and the balance sheet.


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## Spidey (May 11, 2009)

motainai said:


> Thanks for both of your responses.
> We are part of one of those religious communities where we believe everyone is God-fearing folk (until they run away with our money). My dad taught Sunday school to the guy running the place, if that gives you some idea of what is going on.
> So both of you are stating exactly what we should do and haven't done: confirm the basic financial situation of the retirement complex.
> Getting on that right now.



Religious people are often vulnerable for the reasons you've stated. They tend to be very trusting, especially among members of their congregation. Unless one is an expert in a certain area, I don't think it's a good idea to have all your eggs in one basket. Even Warren Buffett, who people often use as an example of someone who concentrates his portfolio in certain areas, still has his portfolio spread into several industries.


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## Berubeland (Sep 6, 2009)

It is a very bad idea to have all your eggs in one basket even if it is a great basket in case something happens to the basket.

This has nothing to do with being religious many people make this mistake and if they are lucky nothing happens. People who have all their savings tied up in their company pension.... People who buy one house and put all their money into it and then the area turns bad. 

Further I think that the risk of you being ripped off doesn't increase because you are religious there are plenty of secular people who get ripped off. If anything the incidence is lower it's just that people like a sensational story and Man of God steals from the elderly reads much better than another scumbag rips off another victim. 

The point is there seems to be a "blame the victim" mentality theme among all these cases. These fraudsters are a lot better at tricking people than we are at discerning them. Sure look at the books but what if the books are cooked?


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## leslie (May 25, 2009)

I agree with all the above responses. I have a problem with the OP's reliance on "*The retirement complex's financial situation is backed by a provincial church body."* Obviously i don't KNOW how it is set up, but I'm 95% sure there would be no backstopping if bad things happened. That is just not how thing are set up with investable vehicles.

But really most of your parent's net present value is the Teachers pension plan. That is gold, and would most probably easily pay the rent if the complex went south.


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## spp_24 (Apr 13, 2009)

Another consideration in this case my be liquidity. If you (or your parents) need to access a large amount of capital quickly in case of emergeny or life altering event can you sell your shares or interest in the property? Either quickly or without incurring significant penalties


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## motainai (Apr 4, 2009)

Thanks, again, for all your replies.
We are still waiting for the financial statements, with the most up-to-date ones coming in Spring.

*spp_24* asked:
_ Another consideration in this case my be liquidity. If you (or your parents) need to access a large amount of capital quickly in case of emergeny or life altering event can you sell your shares or interest in the property? Either quickly or without incurring significant penalties _

Yes, they can withdraw without penalty with 2 or 3 weeks notice before receiving the funds.


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## canadianbanks (Jun 5, 2009)

There's nothing sure in life, and having all your capital in a single investment is a bad idea at least for me.


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## Square Root (Jan 30, 2010)

*one basket*

I don't think religion and investing mix well. Peer pressure is part of it.


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## John_Michaels (Dec 14, 2009)

ya...I'm sure this is NOT the case here but affinity fraud came to mind.


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## Racer (Feb 3, 2010)

Motaini,

It sounds like you have gotten some great comments here. Especially the comments about financials, liquidity issues, and affinity fraud. 

You said that the retirement complex is run by a provincial religious group (you called it a "conference" - not sure what that means other than a group of people - so this may or may not be a registered society) is "backed" by a national religious group. I think that what you are referring to (correct me if I am wrong) is that religious groups raise money and engage in business in a way that is not legally enforceable against the group (which may or may not even exist as a legal entity), and yet is, at the same time, reliable in the practical sense... so reliable that the members of the group may not even consider their obligations to be voluntary. 

What the other posters are saying is that if that group somehow falls victim to bad luck or fraud, then you and all of the other investors will technically be left holding the tab. There may well be fundraising efforts or other measures taken by the religious group to make up for the loss, but those will not relieve the heart-stopping period where you stop earning interest, the strain on relationships, and the possibility that the loss may not be made up at all. The risk of that last possibility arising may only be low or moderate (I don't think that anyone, after witnessing the recent madness that unfolded in the USA, the ripples in the financial market, and the global recession that all of that triggered, would dare to say that any such risk is "remote" ), but you can reduce that risk by investing in other things. 

The 2-3 week lag in removing your funds indicates a serious liquidity issue, if you ask me. If things go south, and you get wind of it, and you try to protect your family by pulling your money out... just how much do you think you are going to be pulling out after a 2-3 week lag time? I don't mean to sound harsh -- just remember that a business can encounter difficulties that don't necessarily have to be caused by Enron-level deceit. Running a business is difficult, and cash flow is an ongoing challenge. 

I appreciate the personal relationship with the fellow who is running the complex -- that is certainly of value. There is still some risk, however. Even accepting that he is an honest man, there is no guarantee that he himself will not fall victim to fraud, poor planning, bad luck, inept employees, etc. Maybe your personal relationship with him is close enough that you have an in-depth conversation about the business every month or so. Maybe it isn't. That's up to you. Please also consider what will happen if he leaves. 

I haven't yet heard a reason not to invest some money in this complex, assuming that they aren't carrying huge debt or paying grossly inflated operating expenses. But I would caution you against investing all of your savings in any single enterprise, when you aren't intimately familiar with the practical and financial concerns of the business. 

Other than that, it sounds promising. Good luck with everything and please keep up posted.


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