Handling your investments as you age and planning for your heirs to take over your portfolio requires investment help from people you thoroughly trust.

At any age, it’s a good idea to arrange your affairs so that you have someone you trust to take charge of your finances and investments if you can’t handle them yourself. However, it’s best to choose someone you trust thoroughly for investment help, and give that person as much latitude as possible. The alternative—leaving fixed instructions—introduces a random element that can only hurt you.

After all, it won’t add to your wealth to set up fixed instructions (such as “If I lose the ability to make sound investment decisions, then convert all my holdings into T-bills, and reinvest them as they mature into new T-bills, until my death or recovery”). But these or any fixed instructions may force your representative to make bad choices.

How Successful Investors Get RICH Learn everything you need to know in 'The Canadian Guide on How to Invest in Stocks Successfully' for FREE from The Successful Investor. How to Invest In Stocks Guide: Find 10 factors that make your investments safer and stronger.  I consent to receiving information from The Successful Investor via email. I understand I can unsubscribe from these updates at any time.

Investment help as you age: Are fixed-return investments a good idea?

This subject came up a while ago with a portfolio management client who is 82 and is now in excellent health. She recognizes that at her age, things can change quickly. So she asked about leaving fixed instructions to automatically convert her portfolio into bonds under certain circumstances.

Fixed income investing is an investment strategy designed to provide a fixed stream of current interest income. Fixed income instruments can include T-bills, GICs, bonds and bond ETFs and mutual funds.

Interest rates are currently historically low–and with low interest rates, fixed-return investments are apt to steadily reduce the purchasing power of your wealth. But if, like our client, you expect to pass most of your money on to your kids, you really should invest with their objectives and time horizon in mind. If you confine your estate to a fixed-return limbo, it may be stuck there for years if not decades. This can devastate its value.

Most investors are better off to give a medical power of attorney to their most trusted family member. This power can only be exercised if your doctor agrees you are no longer competent. In addition to financial decisions, it also covers medical questions such as choice of treatment, or when to discontinue treatment.

If you prefer not to burden a single family member with the job, you could choose a group of, say, three people—chosen from among family members, your doctor, lawyer, accountant, family friend, or clergy, say—to act for you. It’s something to discuss with a lawyer well in advance of when you might need it.

This common dilemma has no neat solution that fits every case. However, any straightforward arrangement that involves family members and trusted professionals is unlikely to go too far wrong. You can’t say that about fixed instructions that may come into effect just when they can do maximum harm to your finances.

Investment help: If you expect to pass most of your money on to your kids, invest based on your heirs’ timelines

If you have substantially more money than you’ll need for the rest of your life, and you plan to leave the excess to your heirs as part of your retirement planning, it makes sense to invest at least part of your legacy on their behalf. That is, as mentioned earlier, invest based on their time horizon, not yours.

For instance, if your heirs are in their 40s, your retirement planning should involve holding at least part of your Successful Investor portfolio in a selection of investments that would suit investors in their 40s. Of course, you’d still want to invest conservatively with our Successful Investor philosophy in mind. But you’d want to take advantage of the many years that 40-somethings have till they reach retirement age.

If your retirement planning involves holding your money in T-bills for the last few years of your life, it will generate a minimal return after taxes—you may actually lose money after accounting for taxes and inflation.

After your death, it may take months or longer to settle your estate. After that, your 40-something heirs may need time to put your legacy to work, especially if they are inexperienced as investors. They may have passed 50 by the time they get around to investing in an age-appropriate fashion. Missing out on, say, three years of even moderate returns can take a big bite out of the funds they’ll have a couple of decades later, in retirement.

Investment help for setting aside inheritance money

For many investors, setting aside inheritance money for their heirs and loved ones is a natural part of retirement planning. But doing this successfully is not easy, and fortunes rarely last for long.

One reason why so many family fortunes are lost over the long term is that the prospect of an inheritance can undermine the ambition of heirs. Many young people find it difficult to put their best efforts into low-paid, low-status entry-level jobs. If they expect to receive inheritance money, it may undermine their motivation all the more.

However, a dose of modern reality can counter this tendency. You may even consider having such a discussion with your heirs as part of your retirement planning.

What is your biggest portfolio concern as you grow older?

What plans do you have for your investment portfolio as you age?