Portfolio Advice for Elderly Relative (Early 90s)

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Portfolio Advice for Elderly Relative (Early 90s)

Post by GreatLaker »

I have recently been appointed power of attorney for an elderly relative (early 90s) and am seeking advice on best way to position the portfolio. The main issue is there are 3 chequing accounts, 4 TFSAs, 2 non-registered savings accounts and 1 RRIF, scattered across 3 financial institutions. There is also a high % in cash from a recent property sale. Person is having challenges managing the money. Objective is to simplify the accounts, make it easier to manage, both now and after she passes. Getting a really good rate of return is a secondary concern.

Emergency funds: lots of unneeded cash in savings and chequing accounts
Debt: none
Marital Status: Widowed
Tax Rate: 20% Federal, 9% Provincial, MTR 29.65%, ATR 17%
Provincial Residence: ON
Age (a range would suffice): early 90s
Desired Asset Allocation: unsure, but leaning to 0% stocks and maximum 15% stocks
Desired Stock Allocation outside Canada: unsure, if any equities would split 1/3 Canada (XIC), 2/3 Global (XAW) or similar funds

Current Assets Total >100k, <500k To give a vague ballpark

Taxable
80% All in cash and short-term GICs

Tax-Free Savings Account
15% In cash savings and low-rate short-term bank GICs
Has about $25k available contribution room

RRIF (currently in a self directed account at a major bank discount broker)
5% split about 50/50 between TD Canadian Bond (TDB162) and TD Short Term Canadian Bond TDB967. (These have around 1% MER)

Pensions: Has a DB pension that covers all non-discretionary expenses
CPP: full CPP survivor pension
OAS: full OAS
Annuities: none

This person's Pension/CPP/OAS cover more than their total expenses, so the portfolio will likely all go to the estate's beneficiaries. Likely the assets would be liquidated and distributed in cash to the beneficiaries rather than in-kind.

We are leaning to 0% equities. Was pondering 15% equities split 1/3 XIC and 2/3 XAW (or similar Vanguard or BMO funds). But even 15% equities could put the portfolio in a loss position in a big crash, which given the person's age seems too risky wrt the possible upside.

Considering moving all the funds to the same discount broker where the RRIF is now held for simplicity in managing, plus it's a broker that I use so am familiar with its web and phone interface.

Portfolio we are thinking of:
  • 70% 3 year GIC ladder at the discount broker
  • 20% short-term bond ETF like XSB or VSB (this irks me somewhat given possible rate increases driving the price down, but the YTM-MER for XSB is >2% so likely it will return better than a broker ISA unless rates really spike up)
  • 10% cash in a broker ISA like TDB8150 or similar
Proposed allocation across accounts:
  • WIth the large % of assets in non-registered it will be hard to get a really tax-efficient portfolio. But we don't want to start chasing exotic assets to get more tax-efficiency. For example ZDB BMO Discount Bond ETF has a duration >7 years so does not fit the investor's timeline.
  • RRIF: All in cash in a broker ISA since it's not a large % of the portfolio
  • TFSA: All in a GIC ladder
  • Non-Reg: Split the rest of the assets here in GIC ladder, short-term bond ETF and the rest of the cash.
I think we have this reasonably well thought out, but I really appreciate any input, especially if anything proposed seems illogical or risky or missing something obvious. Thanks!
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Re: Portfolio Advice for Elderly Relative (Early 90s)

Post by AltaRed »

Don't have the time for a lengthy response but based on handling my mother's affairs for some 10-15 years before her death at 96, I would suggest you are on the right track for a sound, yet, KISS solution.
1. Consolidate everything into one FI. One TFSA, one RRIF, one non-reg account, one bank chequing account.
2. Since annuity income covers all non-discretionary expenses for now (but could change someday with assisted living or critical care), the individual's net worth will mostly be a legacy for heirs.
3. Nothing wrong with a 100% FI portfolio, but consider circa 15% equity and hold it steady. I held my mother's allocation at 15% equity in a Cdn eligible dividend fund in her non-reg until she died. No foreign equity. You might consider ZDB for low volatility but low yield, or you might consider XDIV for yield. You could preferentially fill the TFSA with that.
4. For the FI portion, I would hold one year of expenses in a brokerage HISA as reserve, and split the remainder 50/50 in a 5 year GIC ladder and a short term bond ETF, all in the brokerage. You don't need more than 5 GICs since the broker will likely charge the estate $100 per GIC to prematurely 'mature' the GICs in event of death. I also would not go chasing higher interest rates at multiple institutions as there is no reward in the effort required to try and juice estate value a small fraction just for eventual heirs.

All above based on simplicity while allowing for a bit if possible juice in equity markets.
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Re: Portfolio Advice for Elderly Relative (Early 90s)

Post by gsp_ »

GreatLaker wrote: 09 Feb 2018 12:40 WIth the large % of assets in non-registered it will be hard to get a really tax-efficient portfolio. But we don't want to start chasing exotic assets to get more tax-efficiency. For example ZDB BMO Discount Bond ETF has a duration >7 years so does not fit the investor's timeline.
Consider BXF.

CCP has more info and links. http://canadiancouchpotato.com/2015/03/ ... efficient/
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Re: Portfolio Advice for Elderly Relative (Early 90s)

Post by OhGreatGuru »

Desired Stock Allocation outside Canada: unsure, if any equities would split 1/3 Canada (XIC), 2/3 Global (XAW) or similar funds
I would go all-Canadian to avoid currency risk at his age. (I agree with Altared - a Canadian Dividend fund or a simulacrum.)

With the large % of assets in non-registered it will be hard to get a really tax-efficient portfolio.

OTOH it has security of capital, and minimizes the taxes due on estate at time of death (due to deferred capital gains), which is good for beneficiaries.
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Re: Portfolio Advice for Elderly Relative (Early 90s)

Post by GreatLaker »

AR, gsp, OGG, thank you for the advice.

I did not know about the cost to redeem a GIC in the event of the holder's death. The only inevitable things in life are death, taxes and, apparently, bank fees.

I will look at BXF in more detail. Short duration and tax efficient should work in the non-reg account.

Good point about holding only Cdn equities to avoid currency risk. Never thought of that.

Thanks again.
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Re: Portfolio Advice for Elderly Relative (Early 90s)

Post by Insomniac »

GreatLaker wrote: 10 Feb 2018 22:37 I did not know about the cost to redeem a GIC in the event of the holder's death.
You might not be able to redeem them at all. My MIL's account was JTWROS with my wife. When my MIL died, we were not allowed to redeem her GICs; we had to hang on to them until they matured.
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Re: Portfolio Advice for Elderly Relative (Early 90s)

Post by AltaRed »

Insomniac wrote: 11 Feb 2018 14:06 You might not be able to redeem them at all. My MIL's account was JTWROS with my wife. When my MIL died, we were not allowed to redeem her GICs; we had to hang on to them until they matured.
That is because it was a JTWROS account. That meant the undivided interest was now owned by your spouse. Why would the issuer permit the GICs to be matured?

Generally speaking, FI's will allow GICs to be matured on death.... at a fee of course. In theory, there is also a secondary market in which the GICs could be sold BUT they will be deep discounted and the holder of the GICs is at the mercy of vultures.
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Re: Portfolio Advice for Elderly Relative (Early 90s)

Post by Insomniac »

Of course. My post was meant as a warning.
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Re: Portfolio Advice for Elderly Relative (Early 90s)

Post by pmj »

I suspect that the rules on death vary from FI to FI. Here are two examples where no fee would be charged on "early" redemption:
http://www.scotiabank.com/ca/common/pdf ... rms.pdf?v2
https://www.meridiancu.ca/About-Meridia ... tions.aspx
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Re: Portfolio Advice for Elderly Relative (Early 90s)

Post by AltaRed »

I imagine that might be the more likely case if purchased directly from the issuer. My specific case experience was a GIC ladder in a brokerage.
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Re: Portfolio Advice for Elderly Relative (Early 90s)

Post by fireseeker »

If it were me, I'd go with an ETF rather GICs.
Your say your relative doesn't need the money, so any theoretical yield gain is inconsequential.
And in the case of some urgent change of circumstance, necessitating using the money, the liquidity of an ETF is a huge advantage over a GIC.
Finally, assuming the money winds up with beneficiaries, ETFs seem much easier to deal with than trying to trigger an early GIC maturity and paying the fees that go with that.
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Re: Portfolio Advice for Elderly Relative (Early 90s)

Post by DanH »

There is some good input here on products/structure so I will jump in with some higher-level thoughts that may affect the specific implementation details.

You say that this is for an elderly relative; but that this money is not needed to cover ongoing living expenses. In other words, this money is really being invested for the heirs/estate beneficiaries. If the elderly relative is aware of the surroundings and daily goings on, then you'll want to incorporate this relative's desires, goals, and tolerance for risk (as much as you can ascertain) as much as possible. But you'll also want to integrate - again as best you can - the goals/risk of the heirs.

Nothing in equities might still be the right decision; and emotionally it might feel right based on the current market direction/momentum. But try to think of it from these angles - i.e. relative & heirs - in deciding on an asset mix strategy. I worked on a client file in the past that is similar at a high level in that there is the owner of the money and the people who are decision-makers on behalf of the owner.

The strategy really was driven by the owner (i.e. similar to your elderly relative) and satisfying his needs. (In this case, the investments are funding the payment of lifestyle expenses.) But we risk-profiled the other 'decision-maker' people because those are the ones we answer do on the owner's behalf. (Think trustee/beneficiary type roles.) We also run into this on foundations; where money is invested (usually for a very long time horizon) to fund annual payouts. But the money is overseen by a board or investment committee, which is made up of several unique personalities.

Accordingly, we risk-profile each of those personalities in a decision-making position so that we can integrate those aspects with the goals and objectives of the foundation. I'm not suggesting that you need to go the extent that we do on this stuff but I thought the context might help in how to approach this and to add some perspective as you decide on asset mix.
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Re: Portfolio Advice for Elderly Relative (Early 90s)

Post by AltaRed »

As I mentioned earlier, I'd split the FI into a few components, simply to provide flexibility. Bond ETFs can have bad periods too, even a short term bond ETF. Having at least some FI in a HISA is a critical component.
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Re: Portfolio Advice for Elderly Relative (Early 90s)

Post by GreatLaker »

Thanks everyone for your continued ideas, especially DanH for sharing your detailed thoughts and experience.

Yes the investor is still well aware of what's going on and capable of making decisions but has a hard time with too much information and is not savvy regarding investing. We had a chat today and the direction I received was to do what I think is best. I explained the basics of cash, GICs, bonds and equities and how equities can fluctuate a lot. She still talks about how bad the investing environment was in the 1970s... talk about risk averse!

None of the accounts are joint to avoid attribution or taxation issues and any chance that the joint account could be construed as a gift. I understand those issues can be managed around but for now will just go with POA. I am the only one of the beneficiaries that cares much about investing, so probably best if the estate assets are transferred in cash not in-kind, so life expectancy of the investor is driving risk aversion for me.

TD told me that there is no cost to cash a GIC when the account holder passes away. Hopefully I will not find out for sure for a long time! Edit: to clarify, I specifically asked about GICs in TDDI.

I considered up to 15% diversified equities (ETFs) but when i think of the possible upside of that small an allocation to equities vs the possibility of a 2008 style crash or a 2000 style extended bear market causing even a small loss it just does not seem worth it. I/we will take the risk in my own portfolio.

So at this point my target portfolio is ~15% cash (broker HISA), and split the rest 2/3 in a 3 year GIC ladder at a discount broker, and 1/3 in short term bond ETF (VSB or XSB in registered and BXF in non-registered). Since even short-term bonds can decline in value if interest rates spike up unexpectedly, I prefer GICs, but will keep enough bond ETF and broker HISA for liquidity. Should give better returns than the current portfolio with minimal risk to principal and good likelihood of slightly outpacing inflation.

Thanks again.
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Re: Portfolio Advice for Elderly Relative (Early 90s)

Post by AltaRed »

GreatLaker wrote: 12 Feb 2018 21:26 TD told me that there is no cost to cash a GIC when the account holder passes away. Hopefully I will not find out for sure for a long time! Edit: to clarify, I specifically asked about GICs in TDDI.
At the risk of me being annoying, I would ask TDDI again and be specific in the request. I don't know if TDDI can really speak of behalf of 3rd party issuers like Home Trust GICs held in a TDDI account. Clearly TD and TDDI can speak on behalf of TD GICs, but given current rates, I doubt you are considering them. They will be more like Home Trust, Concentra, etc.
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Re: Portfolio Advice for Elderly Relative (Early 90s)

Post by GreatLaker »

I checked with TD again on cost for early redemption of a GIC and this is the response I got (specifically related to GICs purchased within TDDI from non-TD issuers):
With respects to charges to cash out GIC's upon death for non TD GIC's there would be no charge. The process would be started when notifying TD when the family or friend has passed away.
They could probably change the policy at any time though, and the consequences of finding out for sure are rather undesirable for the account holder.

I also asked for clarification on what online access a POA can have at TD and got this response:
I can confirm that Power of Attorney (POA) is not supported on TD EasyWeb, but is for TD WebBroker.

The account holder or donor can authorized someone as a trading authority or POA. The POA has full access to the accounts, whereas a trading authority can only trade on the accounts authorized. If POA is set up the power of attorney can use both TD WebBroker or call to complete any transactions on the accounts authorized. This can be set up through your local TD branch.
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Re: Portfolio Advice for Elderly Relative (Early 90s)

Post by AltaRed »

Good to know some brokerages do not charge. RBC DI dinged me $100 per GIC to 'mature' GICs in an estate. Alternative was to take a walk on the wild woolly side in the secondary market at steep discounts......Bastards!
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Re: Portfolio Advice for Elderly Relative (Early 90s)

Post by BRIAN5000 »

AltaRed wrote: 11 Feb 2018 21:42 As I mentioned earlier, I'd split the FI into a few components, simply to provide flexibility. Bond ETFs can have bad periods too, even a short term bond ETF. Having at least some FI in a HISA is a critical component.
Not that this needed confirming but this is pretty important to layer FI so you don't get in a bind. VAB and ZCM were holding up better then the shorter term VSC & VSB but all getting hit pretty good now.

Code: Select all

Symbol	Market	Description	Unrealized %
VAB	CA	VANGUARD CDN AGG BND ETF	-2.27%
ZCM	CA	BMO MID CORP BND INDX ETF	-1.65%
VSC	CA	VANGUARD CDN S/T CORP BND	-2.60%
VSB	CA	VANGUARD CDN S/T BND ETF	-3.43%
This information is believed to be from reliable sources but may include rumor and speculation. Accuracy is not guaranteed
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Re: Portfolio Advice for Elderly Relative (Early 90s)

Post by AltaRed »

VSB is getting hit harder than the others in the very near term because the yield curve shifted the most on the short end, in reaction to BoC/Fed overnight rate changes. Not what investors would have ordinarily assumed on the old rule of thumb about greater price sensitivity being proportional to greater duration. One just has to superimpose the yield curve from 2015 on to 2016 on to 2017 to see where yield changes are the greatest.

Over the longer term though, VSB will recover faster once current short duration bonds are shuffled out of the deck.
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Re: Portfolio Advice for Elderly Relative (Early 90s)

Post by adrian2 »

AltaRed wrote: 14 Feb 2018 17:21 Over the longer term though, VSB will recover faster once current short duration bonds are shuffled out of the deck.
VSB will recover faster because it has a shorter duration.
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Re: Portfolio Advice for Elderly Relative (Early 90s)

Post by GreatLaker »

If I remember Finance 101, short term bonds got hit harder because while rates went up, short term rates went up more, as the yield curve flattened. But still, I believe one of the fundamental tenets of fixed income is to align duration with timeline for needing the funds. I don't think it is wise for a person that is 92 years old to be holding an aggregate bond fund with duration ~= 8 years.

My understanding is:
  • GICs will give most certain return, should match or stay ahead of inflation, and liquidity is OK if laddered over 3 years.
  • Aggregate bond fund should give higher return than GICs, but subject to rate related volatility therefore risky for an elderly person
  • Short term bond fund should have similar return to GIC ladder, somewhat subject to rate related volatility but highly liquid
  • Broker HISA is highly liquid, not subject to rate related volatility, but will not keep pace with inflation
So my plan is still to have enough in HISA to meet unexpected cash needs, and split the rest 2/3 in a 3 year GIC ladder, and 1/3 in a short-term bond ETF. Layered as Brian suggested, avoiding longer term securities, and aligning duration with need for the funds as much as practical.

Yes, the money will likely be inherited by the beneficiaries, but probably be transferred in cash as most of them are not DIY investors, so not investing for the timeline of the beneficiaries.

Thanks everyone.
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Re: Portfolio Advice for Elderly Relative (Early 90s)

Post by AltaRed »

:thumbsup: I agree that is a good plan. The POA does not have an obligation to the beneficiaries. The obligation is to the grantor of the POA.
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Re: Portfolio Advice for Elderly Relative (Early 90s)

Post by BRIAN5000 »

and 1/3 in a short-term bond ETF
Not sure if this is worth the bother most HISA are about 1.5%.
The main issue is there are 3 chequing accounts, 4 TFSAs, 2 non-registered savings accounts and 1 RRIF, scattered across 3 financial institutions. There is also a high % in cash from a recent property sale
I'm sure you know all this need cleaning up, except having lots of cash is never a problem make everything as easy and straightforward as possible.
Desired Stock Allocation outside Canada: unsure, if any equities would split 1/3 Canada (XIC), 2/3 Global (XAW) or similar funds
We don't really know how the new Vanguard asset allocation funds will turn out but a small amount in one of the new three would be dead simple, TFSA?

All my mom's assets were in cash or Gic's, IT WAS her money, invested to her temperament. She once lost $500 in Templeton Growth fund didn't like that it was sold on her request. How much would 1 or 2% make on this amount of money.
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Re: Portfolio Advice for Elderly Relative (Early 90s)

Post by AltaRed »

BRIAN5000 wrote: 16 Feb 2018 01:49
and 1/3 in a short-term bond ETF
Not sure if this is worth the bother most HISA are about 1.5%.
Which broker currently HISA pays 1.5%? I am not aware of any myself. That said, I think I recall the OP saying something about TD, and so does TD Bank have a special* type savings account that has higher rates for either higher sums, or for sums held a longer period of time? That would keep it all in the TD family, i.e. TDDI and TD Bank (chequing and savings).

* I know both Scotiabank and BMO have 'special' savings accounts that pay higher interest under certain terms. May not be worth that much more than the TDDI HISA though.
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Re: Portfolio Advice for Elderly Relative (Early 90s)

Post by BRIAN5000 »

Which broker currently HISA pays 1.5%? I am not aware of any myself.
I'm not aware of a broker either but he has three Financial Institutions to choose from per his post. Even at BNS you can get 1.65% for 90 days. TDDI has pretty low GIC rates if hes trying to consolidate at TDDI a short bond fund might be best :(
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