Need Investment Help

[Captain X]

Hello,

My mom just came into a $20K CAD inheritance and wanted to put it into some kind of savings. She is planning on using it in 2006 for real estate, but wanted to put it somewhere that could make decent interest or maybe get an Ipod or something good out of it. Would a GIC be the best option?

Any feedback from RFD amigos would be super appreciated!

Thanks and Merry Xmas or Happy Holidays... whatever applies ! :|

[mcewen]

Chances are if she is going to be using the money within a year you won't get much return on your money (IE anything more than a couple %).

My recommendation would be a high interest savings account. That or a money market account (which you might only get a couple percent anyways). If you can get a GIC which will do better than an ING or PC financial account, go with that, but I doubt you will for under a year.

Best of luck,
M

[napoleon]

I second mcewen's suggestions of a high-interest account at ING or PCF.

A riskier but possibly more profitable investment is a monthly income fund like the BMO Monthly Income Fund (http://globefunddb.theglobeandmail.com/gishome/plsql/gis.fund_pro?fundname=BMO+Monthly+Income&pi_universe=PUBLIC_FUND&product_id=). I'm not sure what the minimum time frame (probably 30 - 90 days) you have to be invested without penalty. The BMO M.I. Fund provides a monthly distribution (of $0.06 per unit) on top of the daily market fluctuations for a potential capital gain.
There's also the AGF Dividend Income Fund (http://globefunddb.theglobeandmail.com/gishome/plsql/gis.fund_pro?fundname=AGF+Dividend+Income&pi_universe=PUBLIC_FUND&product_id=) (formerly ING Dividend Income Fund) which I think you can still invest in via ING that may be of interest to your mom.

It all depends on your mom's risk tolerance.

[mcewen]

I second mcewen's suggestions of a high-interest account at ING or PCF.

A riskier but possibly more profitable investment is a monthly income fund like the BMO Monthly Income Fund (http://globefunddb.theglobeandmail.com/gishome/plsql/gis.fund_pro?fundname=BMO+Monthly+Income&pi_universe=PUBLIC_FUND&product_id=). I'm not sure what the minimum time frame (probably 30 - 90 days) you have to be invested without penalty. The BMO M.I. Fund provides a monthly distribution (of $0.06 per unit) on top of the daily market fluctuations for a potential capital gain.
There's also the AGF Dividend Income Fund (http://globefunddb.theglobeandmail.com/gishome/plsql/gis.fund_pro?fundname=AGF+Dividend+Income&pi_universe=PUBLIC_FUND&product_id=) (formerly ING Dividend Income Fund) which I think you can still invest in via ING that may be of interest to your mom.

It all depends on your mom's risk tolerance.

With such a short time horizon, risk tolerance doesn't matter. GIC or MM fund or Bank account is the only responsible options no matter how much risk a person thinks they are willing to take.

M

[B40]

With such a short time horizon, risk tolerance doesn't matter. GIC or MM fund or Bank account is the only responsible options no matter how much risk a person thinks they are willing to take.

M

Yup, with such a short time period the risk tolerance in this case is no risk at all.

GIC or high-interest is the way to go.

The interest you get in 1 year will definetly be more than enough to get an iPod though :D

[nvr4geti]

Given the lack of time and risk tolerance (Due to the fact that money will be needed in 2006), safest bet is GIC from ING. But then again........


ING Direct Investment account (2.75%)
$20,000 X Interest Rate 2.75%
$20,550 after 1 Yr, Profit of $550 before Income Taxes

ING Direct 1 Year GIC (3.75%)
$20,000 X Interest Rate 3.75%
$20.750 after 1 Yr, Profit of $750 before Income taxes

Mutual Fund - Monthly Income/Dividend are good options

BMO Dividend Last 3 Yrs (2005 - 20.27%, 2004 - 15.28%, 2003 - 23.55%)
$20,000 X 19.7% (average rate of return from last 3 yrs)
$23,940 after 1 Yr, Profit of $3,940 before Income Taxes

RBC Monthly Income Fund (2005 - 14.89%, 2004 - 13.42%, 2003 - 16.21%)
$20,000 X 14.84% (average rate of return from last 3 yrs)
$22,968 after 1 Yr, Profit of $2,940 before Income Taxes


Mutuals funds have no comission fees when purchased from your bank, only required to hold for 90-120 days, minimum invest is $500 generally. Best option; allocate money in both GIC and Mutual funds.

[redmaple]

Mutuals funds have no comission fees when purchased from your bank, only required to hold for 90-120 days, minimum invest is $500 generally. Best option; allocate money in both GIC and Mutual funds.

Really?
I'm a student and was looking into Mutual Funds to invest my >$5000 savings. But I heard stories about how commission fees will practically eat away at my earnings anyway?
I bank with TD. So according to you, if I go to TD and tell them I want to buy mutual funds from them, there are no commission fees?
Sorry, I really know nothing about mutual funds. I"m picking up my reserved copy of 'Mutual funds for Dummies' from the library this week though. :cheesygri

[B40]

Really?
I'm a student and was looking into Mutual Funds to invest my >$5000 savings. But I heard stories about how commission fees will practically eat away at my earnings anyway?
I bank with TD. So according to you, if I go to TD and tell them I want to buy mutual funds from them, there are no commission fees?
Sorry, I really know nothing about mutual funds. I"m picking up my reserved copy of 'Mutual funds for Dummies' from the library this week though. :cheesygri

There's 2 different type of fees...there are loading (purchasing/selling) fees and management expense ratios..

There are lots of no load (no fee) funds, but every fund has a MER.

[napoleon]

I bank with TD. So according to you, if I go to TD and tell them I want to buy mutual funds from them, there are no commission fees?


No commission fees if you buy TD mutual funds at TD.
The usual MER fees are 'included' in the funds themselves.
It's good to hear that you're taking the initiative to read up on mutual funds.
While on the subject, another good read for someone just starting out in investing is "STOP WORKING: Here's How You Can Using the Strategy of Canada's Youngest Retiree" by Derek Foster.



As for the monthly income funds, don't forget to include the monthly distributions in your calculations of potential returns.

[redmaple]

Thanks!
Wow...i just went to reserve the STOP WORKING... book from the library and there's >270 people waiting in line for it already. >.<

[napoleon]

http://www.retireearlyhomepage.com/stopwork.html has a pretty good review and summary of the book for those who can't wait to read it.

A more recent article regarding the author's strategy and portfolio can be found in a Money Sense magazine issue from a few month's back (September, I think).

Basically it provides a different investment methodology than that what you usually hear from the so-called experts in the industry. Basically, invest in stocks / income trusts with proven histories of increasing their dividends and slowly but surely, you'll make money. He also goes into saving money by not wasting it but then again, us RFD'ers already know this :)

[nvr4geti]

B40 is correct, no purchasing or sellings fees, just MER. MER is included in all funds, no deductions are made from you. So for the two funds I used as example no fees will be deducted.

[basis]

You can't use past performance as an indicator of future performance. The Dividend and Income funds have potential of increase due to interest, dividends, and capital gains. However, the potential for capital loss sometimes swamps the other three items in certain years (which future year in unknown).

For example GlobeFunds reports that for BMO Dividend the returns were 2002 -1.8% loss, 2001 2.75%, 2000 34.88%, 1999 6.55% and 1998 2.21%.



Mutual Fund - Monthly Income/Dividend are good options

BMO Dividend Last 3 Yrs (2005 - 20.27%, 2004 - 15.28%, 2003 - 23.55%)
$20,000 X 19.7% (average rate of return from last 3 yrs)
$23,940 after 1 Yr, Profit of $3,940 before Income Taxes

RBC Monthly Income Fund (2005 - 14.89%, 2004 - 13.42%, 2003 - 16.21%)
$20,000 X 14.84% (average rate of return from last 3 yrs)
$22,968 after 1 Yr, Profit of $2,940 before Income Taxes

[nvr4geti]

Good Point Basis, past performance can never dictate future performance. If memory serves me correct BMO has only went negative once since its inception, with only one negative result coming in 2002 at -1.8% Since 1994 it has produced an average yearly return of 15.55%. By no means am I recommending this fund, I am only suggesting an altenative investment to a GIC and used BMO Dividend as an example. Past performance may not produce future performances but it does help us gauge risk and reward ratio.

[basis]

I agree. The past will give you an indication of the risk and reward ratio.

P.S.: It was good of you to include the actual annual returns not the compound annual returns. Many mutual fund companies including BMO and TD like to show only the compound annual returns to mask and hide the individual down years. For example if a fund went changed -10%, +10%, and +30% they would like to report a 10% compound return over 3 years (ignoring compounding in this example). It sounds like on average 10% return each year is good but in reality it went from $100 to $90 to $100 and then to $130. The important thing people want to know is what is the potential of loss in any given year which is shown in the individual calendar year returns.


Past performance may not produce future performances but it does help us gauge risk and reward ratio.

[Senk]

This is a great book on mutual fund investing:

http://www.penguin.ca/nf/Book/BookDisplay/0,,0_0143016237,00.html

http://www.penguin.ca/static/covers/all/7/3/0143016237L.jpg

It's on sale for $16.75 at Chapters.ca