Where to the invest proceeds from a house sale - MoneySense

Where to the invest proceeds from a house sale

Looking to protect your capital and lower your tax burden. Bruce Sellery shares his thoughts.




We have $375,000 to invest after we sold one of our two homes. We are both making good salaries and plan to work for two more years, at which time we will both be 55 and will retire with modest pensions that should cover most of our costs. We expect that we will not need this money for 15 or 20 years, but we don’t want to lose the capital. We have about $200,000 in RRSP money that is invested in equity and bond indexes, and both of our TFSA’s are maxed out with riskier stocks we buy through an online broker. We really don’t want to pay more taxes. What should we do?


You need to book a fantastic vacation. It doesn’t have to be expensive, but it should be one that is just outside of your comfort zone: India perhaps, or the Galapagos Islands.

Why? Because you have earned it. I’ll answer your question in a moment, but before I do I think you should celebrate your outstanding results: Abundant savings, a relatively low-cost lifestyle, double pensions, and at only 55-years-old, you have the time to enjoy it all.

Okay, here are some thoughts on taxes and investing.

Check with an accountant on taxes

Your first step is to check with accountant on how to handle the tax issues related to the sale of the house. As you may know, you are only allowed one principal residence as a family and choosing which one you designate may have big tax implications depending on the capital gain. It will be worth spending some time with a professional to go through your options.

Equalize retirement income between you

The other area to talk to your accountant about is equalizing your retirement income. You both have pensions and RRSP savings, but there still may be an opportunity to optimize the tax you pay as a family. “Your goal is to equalize your retirement portfolios as much as possible so that your income streams are reasonably similar; therefore, paying the least amount of family income tax,” says Adrian Mastracci, a fee-only portfolio manager with KCM Wealth Management. “Before making any investments, review whether it makes sense to utilize the 1% prescribed rate loans between spouses.”

Review your overall asset allocation

Your assets are in a bunch of different places—RRSPs, TFSAs and of course your pensions. Before you decide where to invest this money, it is important to step back and look at your overall asset allocation in terms of bonds versus equities. Let’s say for example that your RRSP currently has $125,000 in bonds and $75,000 in equities. Your TFSA of $40,000 is all equities meaning that your current asset allocation as a couple, excluding your pension, is about 52% bonds and 48% equities. That is about right if you apply the rule of thumb that bonds should approximately equal your age, in your case 53.

However, if you then invest your $375,000 entirely in bonds your asset allocation will shift to more than 80% bonds. Sure, you’ll preserve your capital, but at a cost. You have said that you don’t think you’ll need the money for 15 years and you both have reliable pensions. Given those circumstances, I think you’d be leaving money on the table unnecessarily with too risk averse a plan. Instead, you could consider a middle ground where some of the money goes into bonds and some goes into equities.

Open up a non-registered account at your online brokerage

You already use an online brokerage account with your TFSA investments. And you are familiar with buying products that mirror the performance of equity and bond indexes. I would recommend you open up a non-registered account at your online brokerage to invest the proceeds from the house.

The contribution room on both your RRSP and TFSA will increase each year, so you might consider transferring assets from the non-registered account into both of these accounts each year as your room increases. Because of a pension adjustment, you probably won’t get much added room in your RRSPs, but you’ll have $10,000 per year as a couple on the TFSA.

Consider dividend paying stocks or ETFs

I have written in the past on ETFs that are more likely to preserve your capital. Should you decide to focus the entire sum on bonds, the iShares DEX Short Term Bond Fund (XSB) is one option. But further to my point above about taking more risk, I’d consider putting some of the proceeds into dividend paying stocks or in to an exchange traded fund that bundles several of these stocks together so you don’t have to pick the stocks yourselves. The strategy will definitely mean more risk because even dividend paying stocks can decline in value. But with risk there is an associated reward, over time. For example, Canadian banks have delivered pretty consistent dividends over the years, even as the price of the shares themselves have ebbed and flowed.

Consult a fee-only planner

One final thought. I think it would be worth consulting a fee-only planner and having them map out your financial guide for the rest of your lives. You may only see them a few times so the cost will be limited to say $1,000 or so. I think it would give you increased confidence in your plan, because it will outline very clearly if you have enough money to fund the retirement that you want.

From all you have said, you are in a very good position. So be sure to enjoy it.