Investors who crave safety can find little more growth

Q. I am in the process of deciding how to invest about $400,000 that I received from the sale of my home. I have maxed out my TFSA in Exchange-Traded Funds VXC, VGRO and XIC, and have purchased $300,000 in laddered GICs with maturities over a span of one to three years but would be interested in the potential of a better return on investment than a three-year GIC. Any recommendations?

A. Dave, I have a thousand questions about your question: How old are you? What is your family composition? Do you have a pension? What other assets do you have and how are they invested? What is your risk tolerance? When do you need access to that $300,000? And, of course, what is your favourite movie of all time?

Unfortunately, this isn’t the format for a two-way dialogue. So I’ll focus very specifically on the question of how to do better than the crummy returns offered by GICs. Perhaps consider another Exchange Traded Fund. I asked Terry Shaunessy to weigh in. He’s is the president and portfolio manager at Shaunessy Investment Counsel. He says: “My answer is pretty simple. Forget GICs. The loss of after-tax purchasing power is too steep a price. It is worth enduring the periodic volatility and looking at other asset classes.”

Shaunessy says that since you’re already familiar with Vanguard’s multi-asset ETFs, you should “use VGRO as the default investment allocation for any funds with a time horizon greater than one year. It is very difficult to beat the combination of good returns and managed volatility that a balanced portfolio provides.”

In other words, you’ll enjoy steady income, and the opportunity for bigger gains through your investment’s appreciation in value. “VGRO yields approximately 2%—competitive with a GIC—and that dividend should grow over time. Vanguard does all the re-balancing so there are no worries in that respect and all for about 0.25%,” Shaunessy says.

Vanguard isn’t the only firm offering a product like this. Blackrock’s iShares brand offers similar all-in-one ETFs under the ticker symbols XBAL and XGRO.

I understand why GICs are your go-to. And that may be where you end up, even after consideration of Shaunessy’s advice. But $300,000 is a lot of money. I’d encourage you to consider your whole financial picture to see how you can minimize your risk and maximize your return.



The post Investors who crave safety can find little more growth appeared first on MoneySense.

Source link

Leave a Reply

Your email address will not be published. Required fields are marked *