Home ownership is not a retirement plan.
But sometimes, things work out that way. Take this story related by a reader recently. Her mother-in-law recently sold her home for something in the area of half a million dollars. This 68-year-old is described as receiving about $600 per month from the Canada Pension Plan and Old Age Security, with little in personal savings.
“The house proceeds have to last the duration of her retirement, including rent, health care etc.,” this reader wrote. “How can I build a suitable portfolio for her? What online platform should we be using? What is a reasonable rate of withdrawal?”
Ideally, this reader’s mother-in-law would have some retirement savings to draw on so that she wasn’t dependent on selling the house. Houses may figure into your retirement planning, but it’s nice to be in a position where selling and downsizing are done for lifestyle reasons more than financial necessity.
On the plus side, there’s roughly half a million dollars available thanks to the sale of that house. Using this money effectively is vital, so let’s not jump into any investment decisions right away. First, it makes sense to buy a consultation with a fee-for-service financial planner – someone who provides planning services for an hourly or flat fee and doesn’t sell products.
A planner can help this reader’s mother-in-law determine her living costs. Then, using realistic forecasts for investment returns and inflation, the planner will determine an appropriate amount to regularly withdraw from the house sale proceeds to supplement CPP and OAS payments.
The calculation of a sensible withdrawal rate is where the planner really earns the hundreds or thousands of dollars charged to the clients. The amount needs to be sustainable through stock market ups and downs, and interest rates that will likely remain modest by historical standards, even as they move higher in the months ahead.
Only now does the choice of investments come into play. Some fee-for-service planners can help with this, but many are not licensed to discuss specific investment products. The most they can do is go over the right mix of stocks, bonds and cash. Another option is to find an investment adviser to handle the account, while another is to use a robo-adviser that builds a portfolio according to the specifications laid out in the financial plan.
An investing account at an online broker is one more possibility, but it requires a serious degree of investing expertise. Mistakes or even inattention over a few months could have a seriously negative impact on those home sale proceeds.
-- Rob Carrick, personal finance columnist
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Stocks to ponder
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Traders hoping for an even better ‘January Effect’ this year
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Canadian dollar seen higher if global economy copes with COVID variants
The Canadian dollar is expected to strengthen over the coming year as global economic recovery continues from the COVID-19 crisis but gains for the currency could be kept in check by Federal Reserve interest rate hikes, a Reuters poll showed. Fergal Smith of Reuters reports on what strategists are predicting.
Investors brace for quantitative tightening as Fed sends hawkish message
Another barometer of Federal Reserve hawkishness is making a bigger appearance on investors’ dashboards: quantitative tightening. Minutes from the Fed’s December meeting released on Wednesday showed that officials had discussed shrinking the U.S. central bank’s overall asset holdings as well as raising interest rates sooner than expected to fight inflation, with “many” judging the appropriate pace of the Fed’s balance-sheet reduction would be faster this time. David Randall of Reuters reports on what this may mean for investors.
Still dancing to mega tech’s beat, markets wary of tech tantrum
Apple’s $3 trillion market cap landmark underscores the influence Big Tech holds over U.S. stock indexes - but also the vulnerability of passive investors to any lurch lower of the leading lights of the sector. As Jamie McGeever of Reuters reports, some of the numbers are startling.
Others (for subscribers)
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Ask Globe Investor
Question: I have been holding Brookfield Infrastructure and Brookfield Renewable Partners for a while, collecting the dividend along the way. I had imagined these as long term holds but lately I wonder if it’s time to go elsewhere. Any advice? – Charles D.
Answer: These are Brookfield limited partnerships based in Bermuda, but their businesses are very different so let’s look at each separately.
Brookfield Infrastructure Partners (BIP-UN-T) invests in a wide range of core industries, mainly in the Americas, Europe, and Australia. These include railroads, ports, cell towers, toll roads, etc.
On Nov. 3, the partnership released third quarter results. Brookfield reported net income of US$413-million (72 US cents per unit) for the three-month period to Sept. 30. That compared to a loss of US$5-million (12 US cents per unit) in the prior year.
Funds from operations (FFO) was US$422-million for the quarter, reflecting a 16-per-cent increase compared with the same period last year. Results were supported by strong growth from the base business and the initial contribution from Inter Pipeline Ltd., which was acquired earlier this year. The results exclude the impact of the sale of various assets, which raised almost US$2-billion of net proceeds for Brookfield Infrastructure this year.
Although there have been pullbacks along the way, the overall trend for BIP.UN this year has been up. The units closed in Toronto on Monday at $73.87, a little off their high for the year. The yield is 3.5 per cent.
A rising market trend and a decent yield suggest this is not a stock to sell at this time.
Brookfield Renewable Partners (BEP-UN-T) is in the green energy business. Its primary focus is on hydro power, but it also owns wind farms and solar projects.
Green energy stocks performed well in 2020, partly in anticipation of incoming President Joe Biden’s commitment to combatting climate change and the anticipation that Congress would approve legislation providing financial support for corporations and consumers tied to environmental initiatives.
However, investors pushed the green energy stocks too far too fast, and almost all have suffered losses this year. BEP.UN opened the year at about $62 per unit but was trading at $44.80 on Dec. 20. The yield is 3.4 per cent.
These numbers make BEP more problematic. The one-year trend line is down, although there has been a small uptick recently. The yield is decent but there are many other more stable stocks that offer a better return. I still like BEP as a long-term hold, but if you’re uncomfortable with it, sell and move on.
What’s up in the days ahead
Shopify this week lost its crown to Royal Bank as most valued Canadian stock. Should investors take this as a signal to tinker with their portfolios? Ian McGugan and David Berman will have some thoughts.
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Compiled by Globe Investor Staff