Louise, an 84-year-old woman with a net worth of over $1.7 million, is facing a common dilemma in financial planning: the Multi-Millionaire's Dilemma. This dilemma, as described by financial planner Ed Rempel, is the struggle between the desire for security and the potential for growth. Louise, who has built her wealth largely through equities, is now looking to simplify her investment portfolio, minimize taxes, and maintain her current lifestyle. She wants to continue traveling and age in place in her Vancouver home, bringing in any additional help she might need.
Louise's current portfolio is diverse, with $1 million in guaranteed investment certificates (GICs), $70,000 in dividend-paying stocks, $80,000 in exchange-traded funds (ETFs), $220,000 in gold wafers, $110,000 in cash, $130,000 in a tax-free savings account, and $110,000 in a registered retirement income fund, also invested in GICs. Her annual income is $66,000, consisting of pension, CPP, OAS, dividends, and interest income from GICs. Her largest expenses are monetary gifts to her family and charities, and she spends $10,000 a month to maintain her lifestyle.
Rempel sees Louise's situation as a classic case of the Multi-Millionaire's Dilemma. He suggests that Louise plan for the next 10 to 15 years, regardless of her investment strategy. If she invests for growth over the next 10 years, there is only a 3% chance that her investments will be down at the end of her life, and she is likely to miss about $500,000 of growth from compounding. However, if she sticks with GICs, one GIC for each account type could help make things more manageable.
In terms of tax efficiency, Louise's income is comfortably below the OAS clawback threshold. Rempel recommends that Louise consider a few questions to help her make her decision: What are the odds that her investments will be down at the end of her life? How much are they likely to be down in the worst-case scenario? How much less is she likely to make by investing in GICs versus equities? It all comes down to whether the focus is on money as security or money as freedom.
In my opinion, Louise's situation is a perfect example of the Multi-Millionaire's Dilemma. She has more than enough money to maintain her current lifestyle and support the causes she cares about. However, the fear of losing money and the desire for security can be overwhelming. I think Louise should consider investing in equities, as she has been comfortable with the risk in the past. However, she should also consider simplifying her portfolio by buying one broad-based equity ETF or working with a portfolio manager to look after it for her. Ultimately, the decision should be based on her personal financial goals and risk tolerance.
