My investment strategy is quite simple. I invest primarily in quality companies with a history of having sufficient cash flows to regularly increase their dividends. I have a firm belief that over the long-term this strategy will provide me with investment income that, combined with my work and government pensions, will allow me to comfortably enjoy my post retirement life.
I understand and accept that it will not always be a smooth path, and despite the relatively conservative nature of this strategy, there will be at times when my portfolio value decreases. Like most dividend growth investors, I am prepared to live with this, knowing that over the long run, quality companies will recover from short-term blips. Moreover, despite temporary downturns, my dividend stream continues to increase.
Despite my confidence and my strategy, I must admit I find it somewhat more challenging to assist my parents with their investments. I could not have asked for better parents. Throughout my life they have sacrificed for their children, and I would not be where I am without them. We lived a typical middle-class existence, and while we were certainly not rich, I do not recall wanting for anything.
My parents are now in their mid-80’s, and after having lived in the same house for 45 years, they have recently moved to an assisted living facility. This was certainly not without its challenges, but gradually they are settling in. The facility is very nice, although my mother remarked that “everyone is so old”. Hmm, go figure). While not inexpensive, they are able to pay for it with their government and private pensions, with a small amount left over. Since retirement they have always spent within their means, investing whatever small amount was left after expenses. Over time this amounted to a low six figure sum, which has historically been invested in a large Canadian balanced fund.
With the sale of their house, they need to decide where to invest the proceeds (several hundred thousand dollars), and although they have a bank “advisor”, they have shown unassailable judgment and asked me for assistance. While I am happy to do so, the challenge is that their goals and risk tolerances are of course different from mine. As result, it is not as easy as simply investing the money as if it were my own.
Capital preservation is paramount. This of course could be accomplished simply by investing in GICs. While that would preserve the capital (plus a small amount of interest), in all likelihood it would not keep pace with inflation, and therefore is not an option I endorse.
My inclination at this point is to keep a small amount, somewhere in the neighborhood of 5% – 10% in cash and/or redeemable GICs. This would allow for sufficient liquidity in the event of an emergency or a larger purchase, but would not be significant drag on returns.
There are infinite options with respect to the remaining proceeds. With capital preservation in mind, I am leaning towards investing approximately 75% of the remaining capital in a low-cost balanced fund, likely the Mawer Balanced Fund. It has an excellent track record, and while I do not typically endorse investing in funds, Mawer has a well-deserved reputation of offering quality funds at a reasonable cost. In this case, the MER is 0.94%, which is significantly lower than the MER of just over 2.10% charge by the balanced fund my parents are currently in.
In keeping with the conservative investment goal, I would likely target a bond fund for the remainder of the proceeds. I am well aware of the real possibility of rising interest rates, and the potential negative impact this could have on bonds. However, I am not anticipating a rapid rise in rates, and my view is that a short-term laddered bond fund, or a quality active managed bond fund, should be able to capably manage a gradual rate increase.
There are a number of short-term laddered ETFs that could likely meet this goal. However, at this point I am leaning towards the Phillips Hager & North bond fund. This fund has an exceptional track record with what I believe to be a quality management team, and one that I was invested in for several years prior to 2012. At 0.60% the MER is more than competitive, particularly in light of the fund’s impressive long-term track record.
The purpose of this post is not to solicit specific investment ideas. Given that readers know little of my parents situation beyond the generalities set out above, that would be a senseless request. I think the point I am trying to make is twofold. First, one size does not fit all. My goals, life expectancy, risk tolerance and financial status do not mirror that of my parents, and our investments strategy should reflect this. I am a dividend growth investor, but that does not mean this must be the strategy they adopt.
Moreover, regardless of what suggestions I offer to my parents, I know that on at least some level I will be second-guessing myself. That is because they have always given me sound advice when it was most needed, often firm, but never judgmental. This is a chance now for me to help them, and I want to do everything I can to provide the best counsel I can. Even if my advice turns out to be spot on, it would fall well short of the repayment they are owed, but never once sought, for a lifetime of guidance provided.