Parents today have financial issues that previous generations never had to grapple with.
Example: How to invest the money they charge their adult children in rent.
“We are collecting rent from our millennial and we want to keep it separate from our finances, but invested,” a reader writes. “What are the investment options when we will have monthly contributions of $500-$600?”
There are two ways to answer this question, one of them reflecting a desire to return the rent money to the adult child at some future date.
If that’s the case, then don’t invest. Add the money to a high-rate savings account and let it accumulate risk-free. Interest rates for these accounts top out around 2.3 to 2.8 per cent these days, which keeps you a bit ahead of inflation.
For parents who plan to keep the rent money, a simple investing solution makes the most sense. Those comfortable using an online brokerage account should consider one of the new generation of balanced exchange-traded funds, where you get a fully diversified portfolio of stocks and bonds in a single ETF. Use online brokers Questrade or Virtual Brokers and you’ll be able to make small monthly ETF purchases with no commission (the usual sell commissions apply). Otherwise, you’ll pay $6 to $10 or so per purchase.
Robo-advisers are another option. You pay an annualized fee of 0.25 to 0.5 of a percentage point to have a portfolio of ETFs set up and managed for you. Feed money to the robo-adviser every month and it will be automatically invested in a diversified portfolio designed according to your needs. The fees charged by your ETFs will add to the overall cost of investing, but only by a small amount.
Mutual funds are still another low maintenance option. You could set up an account at your bank’s online brokerage arm and make regular contributions to the D-series version of your bank’s Canadian dividend fund. D-series mutual funds have lower fees than regular funds because they’re intended for DIY investors who get no advice. Bank mutual funds vary widely in quality, but Canadian dividend funds are typically quite competitive.
Suggestion to parents receiving rent money from their adult children: Make it a teachable moment. Show them how easy it is to set up an automatic plan to save or invest and then let it ride.