Wednesday, August 20, 2014

Attempting to lower risk of suffering a large loss

About a year ago my wife opened a tax free savings plan with $15,000 in seed money from the sale of my antique British roadster: A Morgan Plus Four. I divided the sum to invest by the going share price of Dundas Reit shares and bought 500 and kept the remainder in cash.

In total, she has made 8.93 percent on her initial investment and today cash makes up almost 11 percent of her total plan. She is enjoying a cash return of 7.63 percent based on her original contribution. I consider anything above seven percent a good return. Both my wife and I are satisfied. We are in no rush to invest the balance.

By the way, the cash is sitting in the TDB8150 investment savings account fund. There are no hidden charges and the account is paying 1.25 percent currently. This is not great but it helps to keep the cash from withering under the constant attack of inflation.

At some point, I will move the cash from TDB8150 to a bond fund - possibly one of the iShares offerings. But before than happens, I want to see interest rates climb somewhat.

The nice things about all of this is that this tax free savings plan is slowing evolving into a nicely balanced investment. At the moment the mix is 89 percent equity (risky) and 11 percent cash (safe).

At some point in the future, my wife will need to draw on this account to live. We need thousands every month to keep our books in the black. It is not hard to imagine this one account, with no more than its original $15,000 deposit, kicking out enough money annually to enable my wife to balance the books for one whole month. And she will be able to do all this without ever touching the principal which will be growing with inflation.

The really nice part here is that the money is tax free, it goes much farther, and the plan does not factor into the old age security clawback calculations.

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