A newsletter last week asked for ideas on how a reader who sold a home and plans to rent for a while should invest proceeds from the sale. The comments that keep pouring in tell us a lot about the psychology of investing and home ownership in 2021.
First off, many homeowners have either sold a home and pivoted to renting or are thinking about it. “I think this idea is brilliant as I have just done the same,” one of the 100+ responses said. “Finally someone else is thinking about what I just did,” said another.
Quite a few responses were from people who think this reader made a mistake because house prices are headed higher. “I have anxiety for this person as they sit and realize the market will continue to appreciate or stay high for many years to come,” one response said.
Suggestions on what this reader should do with the proceeds from the sale of his property can be divided into three categories – conservative, risky and hyper risky. Overall, the comments reflect the fact all kinds of financial assets have jumped in price over the past year and investors are feeling cocky.
The conservative take on what to do with the money was to use guaranteed investment certificates and/or high interest savings accounts. Several readers mentioned using Canadian Tire Bank, which as of mid-week offered 1.55 per cent on savings.
The problem with high interest accounts and GICs is staying within deposit insurance limits. Canada Deposit Insurance Corp. (Canadian Tire Bank is a member) covers eligible accounts to a limit of $100,000 in combined principal and interest. Credit unions may have higher limits, or unlimited coverage.
The reader who asked for suggestions on what to do with his house sale proceeds plans to rent for two years and then reassess. Several readers sensibly said that’s too short a timeframe for investing in stocks, and that would be my view as well.
But many people felt comfortable suggesting stocks, notably dividend stocks.”[You] really can’t lose if you play it smart,” said one response. “If he does his due diligence and places in safe stocks with dividends he will be laughing.”
Bank stocks were suggested up a lot, as were dividend stalwarts like BCE and Fortis. Note: Dividend stocks are in no way immune to stock market plunges.
Several people advised this reader to keep his money in real estate by purchasing shares of a real estate investment trust, or REIT, or a mortgage investment corporation, or MIC. The most offbeat suggestion: “Buy Italian real estate.”
The hyper risky suggestions focused on crypto currency. “Buy bitcoin,” one response said. “Keep it in cold storage and don’t sell for five-plus years.”
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Rob’s personal finance reading list
Three hours of work to save $180 per year
A personal finance blogger on the nonsense she had to put up with when calling her telecom provider to see if a better deal was available on her plan. I had a similar experience recently when I called to discuss our Internet and TV plan. Telecom companies are a customer service mess.
The perfect number of days to work at home
Working at home has become a matter of personal finance because of all the money saved by not commuting and not buying lunches or coffee. But what happens when the pandemic is over? The argument made here is that the best arrangement is two days at home and three in the office every week. More important than the actual numbers is the freedom to decide where you work.
10 things investors shouldn’t care about
A well thought out list of things investors are likely to worry about, but shouldn’t. Examples: How rich other people are getting, timing the market perfectly and recent performance. Now for a well-documented argument in favour of low-cost index investing from the director of research at a respected portfolio management company.
Where Costco rules
A popular thread on Reddit, the online community, about the things people will only buy at Costco. I’ll say this about Costco – it has passionate customers.
Ask Rob
Q: I’m planning on selling my house and I will need to decide how to “spend” the proceeds. I am 77 years of age and in reasonable health with approximately $390,000 in investments as well as a pension, CPP and OAS. Distributing the funds to nieces and nephews early will help to avoid some probate fees. Is this a wise move? Am I allowed to give them the money without any tax implications for them?
A: I get detailed questions like this from readers fairly often and my usual response is to suggest a big-picture analysis from a financial planner. And so, once again, I present a national directory of fee-for-service financial planners who work on an hourly or flat rate and aren’t compensated through the sale of products or management of investment portfolios.
Do you have a question for me? Send it my way. Sorry I can’t answer every one personally. Questions and answers are edited for length and clarity.
Today’s financial tool
Keep track of the economic news that drives financial markets on Statistics Canada’s The Daily website.
The money-free zone
A longtime running mix favourite of mine - Animal of One, by The Fresh & Onlys. The last minute of the song is guitar brilliance.
On Twitter
Some useful thoughts here on why a variable-rate mortgage might make sense – nor not.
In case you missed these Globe and Mail personal finance-related stories
- Why millennials’ wills and estate plans are so unique
- Tangerine, RBC highest rated banks as overall satisfaction with banks drops: report
- The CRA is focusing online to collect taxes
More Rob Carrick and money coverage
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Even more coverage from Rob Carrick:
- 🎧 Catch up on Stress Test: Are your parents giving you money? • Why it’s time to stop shaming the renting lifestyle • Is now the right time to buy a house? • Why are young Canadians leaving the cities they love? • Eating in: How COVID has shifted our food spending • Crisis-proof your finances? • Can you afford to live downtown? • The cost of kids
- ✔️ The housing file: The housing boom is ripping apart the financial fabric of Canada • Shut out: A well-qualified millennial home seeker throws up his hands after losing multiple bidding wars • Big city housing affordability is over – now what? • She sold her Toronto house to retire somewhere cheaper, but it didn’t work • How young adults and the whole country win with a tougher mortgage stress test for home buyers • Can’t afford your house? It’s likely not your fault
- 📈 Investing: Robo-advisers have grown out of the novelty stage. Here’s help in finding one right for you • The 2021 ETF Buyer’s Guide: Best Canadian equity funds • The 2021 Globe and Mail online brokerage ranking: Who’s best for investing ... and answering the phone • Are these the stock market returns of a lifetime? • On the cusp of retirement and wondering about an ETF that pushes the limits on aggressiveness
- 💰 Your money: The five most important numbers for checking the health of your personal finances • Today’s freakishly low mortgage rates can’t last. What will pandemic home buyers do when they rise? • There’s a cost in money, isolation and family stress when seniors choose to remain in their own private homes • Taking CPP early can cost you $100,000 and limit your long term options • Fleeing the city for the suburbs? Watch out for higher property taxes, more cars and other costs
Are you reading this newsletter on the web or did someone forward the e-mail version to you? If so, you can sign up for Carrick on Money here.
