# $500,000 to invest - looking for input, suggestions, etc.



## gordholio (Nov 23, 2010)

Hi everyone:

First-time poster and total investment newbie here. Just sold our house because 1) We no longer want a mortgage, and 2) I do think we're in the midst of a fairly large housing price correction. It's already happening in the smaller towns, and I believe it'll soon make its way to even the "bubbliest" of cities. But that's a different topic. 

So, my wife and I now have nearly a half million dollars to invest (virtually all from the sale proceeds of the house), and no debts. We have no house, but at least we have no debts. I'm 52, she's 51. We're deciding what to do with the money. We are not financial risk-takers. And we woudl like to keep things fairly "liquid" in case we buy another, less expenisve, mortgage-free house in the spring in case the market's flooded with all the houses that aren't selling right now.

We're immediately going to open TFSAs and maximize them. I'm also considering placing $200K into a straight-up high-interest savings account at Ally or one of those online Manitoba credit unions. But that still leaves us with $250,000. I'm trying to study and learn as much as possible, but I'm just wondering if I can get some suggestions from the folks on this forum. Maybe I can have my eyes opened to something I hadn't thought of before.

Thanks in advance to anyone who replies.


----------



## jamiechese (Jul 13, 2010)

I am not sure of how much knowledge you currently have with investing but my reccomendation would be to check out a few ETFs in Canada and/or US ones. I do reccomend checking out Canadian Couch Potato at...
http://canadiancouchpotato.com/model-portfolios/

its a great website to get an idea of what an ETF portfolio would look like. Also consider IF you are not big risk takers dividend paying stocks. As in why not generate monthly income with that large amount of money aswell as using DRIPs to grow your capital .

Hopefully my small amount of info will help you out but dont take my word, make sure you research everything yourself and make a decision that suits your lifestyle/needs.


----------



## Potato (Apr 3, 2009)

gordholio said:


> I'm 52, she's 51. We're deciding what to do with the money. *We are not financial risk-takers*. And we woudl like to keep things fairly "liquid" in case we buy another, less expenisve, mortgage-free house in the spring in case the market's flooded with all the houses that aren't selling right now.
> 
> We're immediately going to open TFSAs and maximize them. I'm also considering placing $200K into a straight-up high-interest savings account at Ally or one of those online Manitoba credit unions. But that still leaves us with $250,000. I'm trying to study and learn as much as possible, but I'm just wondering if I can get some suggestions from the folks on this forum. Maybe I can have my eyes opened to something I hadn't thought of before.



Well, I think the first step is to decide on where you fall on the risk tolerance spectrum. Zero risk? Some risk? A moderate amount of risk? If you buy a new house, will you only use the $200k in cash, and if needed get a mortgage for the rest, or will you need access to the rest of your nest egg? What are your longer term plans for retirement? Do you have pensions, or do you need to start investing for that as well?

For your age, ~ half in GICs is fairly conservative, so you could invest the rest in higher-rate bonds (higher than GICs, not necessarily "high yield"), and a mix of Canadian, US, International stocks, and perhaps some REITs. 

Take some time, do some more reading, soul-searching, etc., and figure out where you want your money to be, and when you need to get it back.

If you want to go self-directed, I'd recommend something along the lines of the following ETF portfolio (lots of liquidity). 

First figure out how much of the $250k to be in equities or riskier assets. Call that proportion X. That number will be totally up to you based on your risk tolerance and time horizon (e.g., if you have no risk tolerance and need to have that money ready to go next year, you may have X be essentially zero).

Then just aim for simplicity (there are lots of articles around on these types of basic portfolios)

Bonds (higher yield than GICs, bit more risky), 1-X (i.e., the rest of the $250k not in riskier assets). Some ETFs might be XCB or XSB, etc.

Canadian equities, 0.3X. One ETF might be XIC.

US equities, 0.3X. XSP

International, 0.3X. XIN [there's an all-in-one option for the rest of the world, go with 0.6X in XWD, but I wouldn't recommend that as the liquidity isn't there - though Vanguard may have an option trading on a US exchange]

And finally some REITs if you want some real estate exposure, 0.1X in XRE.


----------



## NorthernRaven (Aug 4, 2010)

The high-interest savings is probably a good short-term idea even if you aren't going to keep it there for good. At 2% the interest on $500K is over $27 a _day_, and depending on where it is parked right now you may be getting less than half of that. Pays for a lot of extra lattes...  With Ally (a federal bank) you may want to keep within the the CDIC $100K deposit guarantee limits, but you get separate limits for 3 accounts (1 for you, 1 for your wife, and a joint account) if you wish to work it that way.

I'd second the recommendation for the Canadian Couch Potato model portfolio page - it is nicely laid out and the site is helpful for basic index investing and ETF information. It (and also Canadian Capitalist's articles) certainly helped me.

Just out of curiosity, were you thinking of downsizing from the previous house, or just keeping an eye out for something similar at a lower price? If you are looking at paying cash for a similar house, you wouldn't want to tie up too much of that other $250,000 in something like stocks that you might not want to liquidate at the time (they might have taken a temporary downturn, for instance). I'm house-poor like you right now, but my sister lives in Toronto, so for her sake I hope house prices don't fall as much as you expect...


----------



## Four Pillars (Apr 5, 2009)

I don't agree with all the suggestions to buy equity ETFs. The original poster clearly indicated they might need the money as soon as this spring, and they want to keep it liquid.

I think this pretty much limits them to high interest savings accounts.


----------



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

Welcome to the forum!

I like the idea of splitting this money among several institutions, so you are protected by CDIC for the entire sum of money. If you invest it all at the same bank, you are only insured on 1/5th of your money. Not good.

If you do some simple math, you will see that even at 1-2%, that amount of principal will bring in quite a bit of interest. Just make sure you scrutinize the interest calculation and payment schedule in case you are going to rely on the interest to pay for stuff. No two are alike.

You might also want to put $100 into one of those expensive hospital lotteries. In your case it's a cheap risk to take.


----------



## CanadianCapitalist (Mar 31, 2009)

gordholio said:


> Hi everyone:
> 
> First-time poster and total investment newbie here. Just sold our house because 1) We no longer want a mortgage, and 2) I do think we're in the midst of a fairly large housing price correction. It's already happening in the smaller towns, and I believe it'll soon make its way to even the "bubbliest" of cities. But that's a different topic.
> 
> ...


It will be hard for others to offer portfolio ideas without a clearer idea of what your goals are. It sounds as if you may purchase a home in the near future and would like to be debt free if possible. Depending on where you live, you may not have much left over if you happen to purchase a home in the near future.

If your goal is a house in the next 1-2 years, your investment options are limited. High-interest savings are one option (like other members point out make sure you are within the CDIC limits). Cashable GICs or really short-term Government bonds are other options. 

I agree with Money Smarts. Stocks are likely too risky given the timeframe of your goals.


----------



## kcowan (Jul 1, 2010)

Selling short real estate indicate you have a strong inclination to follow your hunches. So why not share with us what your hunches are about markets in general.

Any equity is going to offer a high risk. Is it higher than real estate? Maybe not!


----------



## fatcat (Nov 11, 2009)

sorry to be so direct but it seems to me like a really bad plan ...

you are trying to time the markets with your most important asset ... your house

you are now out of real estate but state that you are ready to get right back in again

what if you are wrong and housing doesn't drop or even rises ?

in order to be liquid so you can buy back into the market you will have to take fairly low interest rates unless you want to risk losing principal

if you are not going to buy real estate and stay as renters (a reasonable plan) then i would just read some of the web sites with really good model portfolios and pick one that matches your risk tolerance and long term goals


----------



## gordholio (Nov 23, 2010)

Thanks for all the replies, suggestions, etc. Much appreciated!

Fatcat, NorthernRaven: I think timing the market in real estate is easier - at least for me - than timing stocks. We definitely sold at a high point (it's never been higher in the Vancouver area when we sold, and especially in our suburb). As I said in my original post, real estate is an entirely different topic and I don't want to get too deeply into my thoughts about it, but I will say that the "correction" is already underway in areas outside the major centers (I'll point to the Okanagan, Vancouver Island, the Fraser Valley, etc, where prices are already down - 10-20% in some cases -and days on market are already way up.) I watch this stuff like a hawk and am on several realtor "hot lists," all of which are now filled with price reductions.

I think, given that mortgage rates have nowhere to go but up and that Canadians are indebted, on a per capita basis, more than the population of virtually any other developed country, that it's only a matter of time until greater Vancouver also softens - at least somewhat. But even if it doesn't, my wife and I personally have the option of moving to one of these other communities/areas where prices are already down. More importantly, we'll have gotten out of a house that was too big for us and still had a $180,000 mortgage to be paid. Now, we can buy, with cash, a smaller home in a less pricey spot such as the Okanagan or Vancouver Island or the Fraser Valley. That alone was reason enough to pull the trigger.

But yes, we may end up as permanent renters too. No purchase tax, no property taxes, no upkeep costs, etc. I think this spring will be a very telling time. So...for the next few months, we definitely don't want to get into investments that are too volatile - simply because we may need the bucks in five-six months time (when I *think* that the spring market will be flooded with homes).

To everyone else who's responded, thanks again. I'm researching my head off and your input has been welcome. I'm glad to see no one thus far has said that sticking a bunch of the money with Ally (or an equivalent) is a dumb move. Two percent isn't much, but at least it's safe. And yes, I'm heading over to Couch Potato next to look at some of the model portfolios.


----------



## Eclectic12 (Oct 20, 2010)

the-royal-mail said:


> Welcome to the forum!
> 
> I like the idea of splitting this money among several institutions, so you are protected by CDIC for the entire sum of money. If you invest it all at the same bank, you are only insured on 1/5th of your money. Not good. [ ...]


You make a good point about maximizing the CDIC coverage usng several accounts.

The one thing I'd add is that if the spring house purchase works out, ask about holds and anything that would slow down putting say $300K together for a house, well in advance. Then *double-check* everything.

I took a year between selling my house in the old city and buying one in my new city. In the meantime, I used my brokerage account as it was paying the best interest. When I went to buy, I had arranged the transfer of the money in advance so that the holds various institutions placed on such a large amount would clear.

What I didn't plan on was:

a) the online money transfer from brokerage to bank was rejected as the amount was higher than the online limit. I had neglected to mention the 
transfer would be done online. 

The good news was I discovered this in the morning and had time to find out what the problem was plus how to get the necessary approvals. The bad news was that it was down to the deadline when everything was finally in order. If it had taken until the next business day, it could have been a lot more than a one day problem.

b) the "within the same financial group" transfer was supposed to take three days. I added a buffer of two days but the money didn't show in the bank account for six days. Fortunately the withdrawal didn't happen until the seventh, so it all worked it. I however, didn't need the additional stress!!


----------



## smihaila (Apr 6, 2009)

gordholio said:


> But yes, we may end up as permanent renters too. No purchase tax, no property taxes, no upkeep costs, etc.


The property taxes will be factored in the monthly rent price, so there is no way to escape them. Ahem, unless you move to Ireland (but even that country is forced by EU to introduce them).


----------

