Today I’m answering reader mail for a feature I call the Money Bag. I’ll answer questions and address comments from readers on a wide range of money topics, myths, and perceptions about money. No question is off limits, so hit me up in the comments section or send me an email about all the money things you’re dying to know.

To start, we’ve got a question from Robb (not me) who received an early inheritance and is looking for the best way to invest the lump sum to meet some unique objectives:

Investing a Lump Sum for Monthly Income

“Hi Robb, today my wife and I received news that my mother-in-law would like to gift us $300,000. The money is currently in a CIBC income fund paying her approximately $1,500 per month.

 

Her only request is that we continue to pay her $1,500 per month while she’s alive. She turns 85 years old this summer. It is a request we are more than happy to continue for her.

 

Our question is: What is the best way for us to invest the funds for the short-to-medium term to meet the goals of paying her $1,500 per month, manage the additional tax we will face with the additional income, and keep the funds earning a return while being able to access it in case my mother-in-law needed a lump sum for some unforeseen expense. We’d appreciate your professional opinion and insight.”

Hi Robb, thanks for this question. Very interesting. Here’s an option for you to consider.

What I’d recommend is putting $54,000 (three years’ income for your mother-in-law) into a high interest savings account such as EQ Bank Savings Plus Account. The account pays a 2.3% everyday interest rate* and acts as sort of a hybrid chequing/savings account. Funds are eligible for deposit insurance.
*Interest is calculated daily on the total closing balance and paid monthly. Rates are per annum and subject to change without notice.

Then I’d take $90,000 and invest it into a GIC ladder – something like this:

  • 1-year GIC = $18,000
  • 2-year GIC = $18,000
  • 3-year GIC = $18,000
  • 4-year GIC = $18,000
  • 5-year GIC = $18,000

When the 1-year GIC matures, put that money into the EQ Bank savings account to replace your mother-in-law’s first year of spending. Rinse and repeat each year as those GIC’s mature.

You have lots of options with the remaining $156,000. One suggestion would be to put a lump sum onto your mortgage (you might be allowed to put down 15 percent of the original mortgage, for example. That might be $45,000 or $50,000.

You could use another $50,000 or so to accelerate some of your RRSP and TFSA contribution goals (i.e. make two years’ worth of contributions to catch up on any unused contribution room).

Finally, you could open a non-registered (taxable) account and invest the remaining $50,000 or $60,000 in something like VBAL – the one-stop balanced ETF from Vanguard.

With this balanced approach you’ll have three years worth of liquid cash, plus the GIC’s renewing every year for another five years, so essentially eight years worth of income for your mother-in-law. You’d also have the VBAL investment acting as more of a longer term hedge.

Plus, you’ll have made big contributions to both your mortgage and to your retirement savings. I’m sure your mother-in-law would feel good about helping you accelerate your retirement goals while still preserving her monthly income stream.

After two or three years you could evaluate her health and how the plan is working and make any necessary adjustments. If you feel you need to have a larger lump sum available for health reasons or an unforeseen expense you could certainly sell some VBAL (or if markets are down use some of the EQ Bank savings and replenish it when markets pick back up).

You would have to pay some taxes on the interest income and to deal with that perhaps you keep an extra few thousand of the lump sum on hand in your personal chequing/savings account to take care of that (the extra RRSP contributions should offset any taxes owing, though).

Best credit card for general spending

Here’s Andrew, who wants to know what the best credit card is for everyday spending.

“Hi Robb, I have the Capital One Aspire World Elite MasterCard (grandfathered version) with 2 percent return on spending. Do any other rewards credit cards have comparable returns to this card on general spending? The BMO World Elite and MBNA World Elite used to be comparable, but returns on both have been devalued.

 

I do also have the American Express Cobalt and Scotia Momentum Visa Infinite for spending in specific high-yield categories such as groceries and gas, but that’s not what I’m asking about.”

Hi Andrew, I’ve found that nothing beats the 2 points back on every purchase offered by the grandfathered Capital One Aspire Travel card and so that’s why, like you, I’ve hung onto it and still use it today. (Ed. Note: Capital One unfortunately closed the Aspire Travel card to new applicants some time ago but continues to keep it open for existing cardholders).

I will say that I’ve gotten more into credit card churning lately and so if I have a new rewards card that needs to reach a minimum spending requirement before the bonus points kick-in then I will funnel all of my spending onto that card until I reach the minimum spend (i.e. spend $1,500 in three months). The return on these bonus points typically far outweighs the 2 percent back I’d earn with the Capital One card.

Here’s what I have in my wallet:

Daily spending

  • Capital One Aspire Travel World Elite MasterCard – Everyday spending when not churning a card. Also useful for Costco shopping (pays 2x points on every purchase).
  • American Express Cobalt – Groceries at Safeway, Save-On), plus liquor, and dining out (pays 5x points in these categories).
  • PC World Elite MasterCard – For groceries and gas at No Frills (30 PC points per dollar spent at Loblaw stores and Shoppers Drug Mart).

Travel cards

  • Scotia Passport Visa Infinite – no foreign exchange fees
  • American Express Platinum Card – big bonus points, unlimited airport lounge visits, hotel perks
  • Marriott Bonvoy American Express Card – hotel points, perks
  • RBC WestJet MC – airline points, perks

Churning cards (I always keep an eye out for these promotional offers)

  • American Express Gold Card – when it’s first year free and 25,000 bonus points
  • Scotia Amex Gold – when it’s first year free and 15,000+ bonus points
  • RBC Avion Visa Infinite – when it’s first year free and 25,000 bonus points
  • TD Aeroplan or First Class Visa Infinite – when it’s first year free and 25,000+ bonus points
  • CIBC Aventura Visa Infinite – when it’s first year free and 25,000+ bonus points
  • BMO World Elite or World Elite Air Miles – when it’s first year free and 35,000 points or 3,000 Air Miles

And, you can check out the always up-to-date hot credit card deals (courtesy of Credit Card Genius) in the links below this post.

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