A reader named Peter, acting as power of attorney for his 88-year-old father, is considering investing the proceeds from the sale of his father's house. The father, who recently moved into assisted living, will have approximately $500,000 after selling his paid-off home. He has a long-term care plan and a generous company pension, so the money is not immediately needed. Peter is leaning toward placing most of the funds in a solid fixed-income fund, with $30,000 kept in cash for emergencies, focusing on capital preservation rather than growth.
Expert Analysis on Investment Strategy
Financial expert Allan Norman, in response to Peter's query, suggests that if the father's pension covers his future needs, there may be no reason to avoid growth-oriented investments. Norman points out that the primary risk of a capital preservation-only approach is inflation, but inflation is typically a long-term risk that diminishes with age. Since the father receives Canada Pension Plan, Old Age Security, and a company pension—all indexed to inflation—this risk is further mitigated.
Considerations for the Power of Attorney
Norman acknowledges the responsibility Peter holds and the potential challenges, including differing opinions from siblings. He proposes an alternative: if Peter is likely to inherit the money, he could consider investing it as he would his own funds, or even gifting it to himself now to save on taxes and avoid probate. However, this comes with risks, as the father may need the money later. Norman emphasizes that Peter's prudent approach is understandable, given his role as power of attorney.
Account Type Recommendations
The first step, Norman advises, is to determine the appropriate account type. He recommends maximizing the Tax-Free Savings Account first, with the remainder placed in a non-registered account. This strategy balances tax efficiency with accessibility.
Ultimately, Norman suggests that if the pension is sufficient, a growth-oriented investment could be more beneficial than a fixed-income fund, as it may provide better returns over time while still preserving capital for potential future needs.
