The question of the year in personal finance is shaping up to be this: What do you do with the proceeds from selling a house after the stunning price increase of the past 12 months?
I see a definite uptick in the number of readers asking about this. The most recent inquiry comes from a 50-year resident of a city just outside Toronto who expects to have $500,000 from the sale of her home. She’s 50 years old and four years from retirement from a municipal job. “I’m single and not sure if I will rent or buy another home,” she adds. “I don’t have a financial adviser, either.”
There’s an obvious answer here: Keep the money safe in high-rates savings accounts and/or guaranteed investment certificates. But these are exciting days in the investing world. With the price of all kinds of assets rising over the past 12 months, it’s tempting to invest in stocks, exchange-traded funds and, for the adventurous, cryptocurrency.
For a bunch of reasons, it seems like this reader should avoid taking any risk with that $500,000. For one thing, she comes across like a newcomer to investing. Now, after a huge runup in asset prices, is a terrible time to venture out as a rookie investor.
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Second, she’s not sure about her next move in the housing market. If she wants to buy, she may well need every cent of that $500,000 for her next home. There’s too much risk of losing money outside of savings products and GICs.
Third, this reader is looking ahead to retirement in a few years. The proceeds from selling her house could be an important part of her retirement plan if not used to buy another home. In fact, now would be an ideal time to consult a financial planner about retirement and how that $500,000 could best be deployed.
A practical comment on putting the $500,000 to work: If you’re using high rate accounts and GICs for the proceeds of a house sale, it’s because you value security. For that reason, it makes sense to keep your money protected by deposit insurance.
Ontario credit unions are worth a thought because their provincial deposit insurance plan covers up to $250,000 for non-registered accounts, while registered accounts have unlimited coverage. This compares to a maximum of $100,000 at banks that are members of Canada Deposit Insurance Corp. Manitoba credit unions, many of which operate online banks with attractive rates, have a provincial plan with unlimited coverage on all deposits.
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