Personal finance writer Gail Bebee and the winner of our investing quiz, whom we can identify only as Steve, are into their fourth, and final, week of mentoring.
In this final instalment of the new investor mentoring series, we’ll walk through the steps our iTrade contest winner Steve took to arrive at his decision on where to invest his $10,000 prize money. I've noted significant aspects of our mentoring discussions to give readers a feeling for some of the thinking that contributed to his conclusions.
After reviewing his personal financial situation, Steve decided to set up a family emergency fund using $4,000 of his prize money and earmark the remainder for home renovations he is planning in three to five years. The two risk questionnaires he completed indicated that a 50-50 mix of lower and higher risk investments would suit his appetite for risk. He realized that while he is interested in investing, he doesn’t have much time to devote to managing his investments given his family responsibilities—he’s the proud dad of a two-year-old daughter—and a busy job that involves frequent travel.
Steve and I discussed a number of specific investments that might fit his investor profile and achieve his financial goals.
Because an emergency fund by definition must be readily available to deal with life’s unexpected events, the $4,000 allocated for emergencies should be invested in low risk, liquid assets. The iTrade Cash Optimizer Account, a high-interest savings account where his prize money currently resides, meets this requirement. Because this account earns only 0.75 per cent interest, we looked at other fixed income investments that might offer better returns. Bond mutual funds offer a higher return, but can be volatile and are not guaranteed. A cashable GIC is another safe, fairly liquid option.
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Gail Bebee's Investing Mentor program:
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