Are mutual funds a good investment at 81?

Hey there, time traveller!
This article was published 31/07/2024 (668 days ago), so information in it may no longer be current.

Dear Money Lady,

I am 81 years of age. I have $50,000 to invest. In your opinion, what is the best investment today – GICs or mutual funds? My banker wants me to buy into a TD mutual fund.

Thank you,

Grant

Dear Grant,

Considering your age, I would think you are better off with GICs (guaranteed investment certificates) rather than mutual funds, regardless of which bank you choose. Current GIC rates are posted at 3 to 4.5 per cent (June 2024). Of course, you stand to make more money on your investment if you place it in the market, but my concern would be stock-market volatility.

If the market turns volatile because of an unforeseen future event, you could lose a fair chunk of this investment and would need to leave it invested to realize the recovery when the market comes back. Also, we are going into a U.S. election this fall and, even though this is in another country, please do not underestimate the market swings that we encounter from our Southern neighbours. To be honest, Grant, I would rather see you in a GIC than in the stock market.

That said, if the market is where you would like to go, why not consider ETFs (exchange-traded funds) rather than MFs. They are much less costly and can be traded multiple times throughout the day, unlike MFs which must trade at the end of the day, based on the overall NAV price (net asset value per share). The following ETFs have lower fees and will follow a reliable market index you can count on. Please remember that these funds are equity heavy and prone to much more volatility, but over a long-time horizon, because they are growth-oriented investments, you should expect an overall return of 7.1 per cent.

• BMO S&P 500 ETF

• Vanguard S&P 500 Index ETF

• Vanguard FTSE Canada All Cap Index ETF

• iShares Core S&P US Total Market Index ETF

If the stock market is something you would prefer to steer clear of, you could choose GICs. I would suggest you split and ladder up your funds into Canadian bank GICs. To give you access to your money should you need it, I would suggest putting $10,000 to $20,000 into a one-year term cashable GIC offered by all the Big 5 banks at 3 per cent (June 2024). Local credit unions typically have higher redeemable rates on one-year cashable GICs since they want to increase their deposits. You could likely get a one-year cashable GIC from a credit union at 4 per cent today (June 2024).

By placing $20,000 into a cashable GIC, you still have the ability to access and use these funds should you change your mind or need money for an emergency. The balance of your investment, the $30,000, should be put into a one-year term, non-redeemable GIC currently offered by all banks and credit unions at 4.5 per cent. If you were to invest your $50,000 this way, you would earn $2,150 over the next 12 months.