Q: My wife and I recently sold our house here in the Vancouver area and are trying condo living by renting. We are both in our mid to late 50s with no debt. We have approximately $500k in RRSPs and TFSAs combined and those are invested in Tangerine balanced funds. My question is how to invest the $1.2 million we received from the sale of our house? I am leaning towards a robo-advisor type of investment.
A: I think one of the first things to consider, David, is if you think that you and your wife may be home owners again, whether you ultimately like the condo thing or not. If there’s a chance you may need some or all of the $1.2 million to buy a condo or a house, I would be inclined to keep whatever housing budget you could need aside. Keep this in cash for the next six to 12 months until you make a decision.
Your existing Tangerine solution is a pretty good one compared to most mutual fund investment options. Fees are almost half the going rate at 1.07%, with other balanced funds generally in the 2% range.
From a strictly fee perspective, robo-advisors could more than cut that in half, especially given the potential size of your account. Robo-advisors follow the same indexing approach that you have presumably taken intentionally with your existing Tangerine savings.
If you believe in passive investing, robo-advisors* offer a good solution, primarily because of the automatic rebalancing and the asset allocation oversight. Your risk tolerance may actually dictate that you should have more or less stock exposure than your typical, plain vanilla balanced mutual fund, David. Robo-advisors will ensure you are matched to an asset allocation accordingly.
One consideration that a robo-advisor may or may not be able to help you with unless you ask them specifically relates to taxation. If you and your wife plan to be renters in retirement and you will be investing all of this $1.2 million, that’s a lot of taxable investment income that will be generated – likely $25,000 or more a year depending on how you invest it.
Ideally, you would want to have more tax efficient investments like Canadian stocks held outside your RRSPs* and less tax efficient investments like bonds held inside your RRSPs. With an investment advisor or as a DIY investor, you may be better able to influence these decisions as compared to working with a robo-advisor. So be sure to raise this as a consideration when you have the mandatory human interaction if you do go the robo-advisor route.
One question I think you need to ask yourself is if you would invest this money differently from your RRSPs and TFSAs*, why wouldn’t you change how you invest that money as well? I often find clients feel invested money is married to an advisor or an investment or an approach. Be sure to look at your portfolio holistically, David, as it may be that you should make a wholesale change to your investments.
For investors who believe in passive investing and who are not inclined to do it themselves, robo-advisors present a good option.