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How much should this couple invest in a mutual fund? Zero sounds about right

A reader sold a house in Toronto and was looking for some advice on what to do with the money left over after buying a condo. Their bank had just the thing for her and her spouse.

The bank suggested they put their extra money in a balanced mutual fund "designed for retirees," this reader said in an e-mail. The fund was described to her as being largely build with income-generating bonds and blue chips. "Is this a good way to go?" the reader asked. "How much should we invest, if this is an appropriate strategy?"

Zero seems about right. This is no comment on the mutual fund, mind you. It's much more of a response to a financial planning question being answered with an investment product. My suggestion to this couple is to see a financial planner – either a fee-only planner who charges by the hour or a flat rate, or a planner who also manages investments. They should talk with the planner about their current financial situation, including any debts, their family situation (dependent kids or parents), and their goals for retirement and beyond. Turning the discussion to investments should happen only a couple of hours after a big picture talk about their goals and such.

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This is unlikely to happen in a bank branch, particularly if you're talking to account reps. They're typically trained to sell mutual funds, not provide advice. Asking them what to do with the proceeds from selling the family home is their dream come true. Most people who buy funds from branch staff are investing tiny amounts in three or four figures, not six. There are accredited financial planners in many branches these days, and they're an improvement over account reps. But these planners are there to sell rather than plan in some cases.

As for that bank mutual fund, it might actually be a reasonable choice. Some banks do a good job of running diversified income funds appropriate for some retirees. But you should never make a substantial investment in a fund like that without first comparing it to its peers in terms of fees, consistency of returns, performance in down markets and portfolio mix (percentage of stocks and bonds). You won't likely get that done for you in a bank branch.

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About the Author
Personal Finance Columnist

Rob Carrick has been writing about personal finance, business and economics for close to 20 years. He joined The Globe and Mail in late 1996 as an investment reporter and has been personal finance columnist since November 1998. Rob's personal finance columns appear in The Globe on Tuesday and Thursday, and his Portfolio Strategy column for investors appears on Saturday. More


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