Q&A: Unsure about advice

Zoomer | November 22nd, 2009

Question: I’m 62 and two years away from retirement. My advisor feels GICS are a bad investment for me because they don’t account for inflation and the rates are so low. She recommends buying solid mutual funds that pay out dividends so once I retire I can use the income from the dividends, not dip into my principal. Most experts recommend at my age to have a large portion of investments in GICs. What do you think? Thanks. – Liz B.

Gordon Pape answers: GICs are safe, which is one reason they are recommended for retirees who cannot afford to take big risks with their money. But your advisor is correct when she says the returns right now are extremely low. I certainly would suggest staying short-term if you choose to invest in some GICs as I expect interest rates will be on the rise by this time next year and returns will be better.

When it comes to mutual funds, be careful. Many people were hurt badly by the market crash when they put too high a percentage of their assets into stocks and equity funds. The key is to find an appropriate portfolio mix that limits risk while generating a reasonable return. Your advisor should be working with you to achieve this. If she is pushing only equity funds, I suggest you ask for a second opinion from an unbiased, fee-for-service advisor.

Also, be careful about the term “dividend”. It is often used as a catch-all word for all types of distributions, some of which may not be eligible for the dividend tax credit. And remember that dividends received in a registered plan do not qualify for a tax break.

In short, you need to ask a lot more questions and make sure your advisor is carefully balancing risk and return before you act.

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