Mutual Fund Trailer Fee Disclosure – Good Move, But Won’t Make Much Difference

I agree with Rob Carrick that better disclosure of mutual fund fees and rate of return is worth the extra cost to investors. I’ve already written in the past however, that while I think more mutual fund fee disclosure is good, I doubt it will make much of a difference.

Most investors don’t read anything other than the account balance on their statements.  Even if an investor does read about trailer fees and rate of return, they would still need to know what the numbers mean and if they are paying an amount appropriate to the service they are getting.

I can’t get people to look at their investment statements, but I can explain mutual fund trailer fees and personal rate of return.

What are mutual fund trailer fees?

Trailer fees are ongoing fees which are taken out of each mutual fund you own and paid to the company your advisor works for.  The advisor will receive a cut of the trailer fee.

Most equity funds charge 1% annually which is based on the daily balance of your fund.  If you have $100,000 of mutual fund A and that balance never changes – you will pay $1,000.00 in trailer fees in one year.  Of course, all mutual funds do change value on a regular basis, so the trailer fee calculation is done on each business day.

The important fact to know is that these fees are taken out of the mutual fund itself and is reflected in a slightly lower price for your funds.  The fees are not currently shown on statements and you will never be asked to pay the fees directly.

It’s very easy for an investor not to realize that trailer fees exists.  It’s kind of like getting a paycheque which only shows your net pay and doesn’t indicate the gross pay or any of the taxes taken out.

What is a mutual fund personal rate of return vs the rate of return for the fund?

A mutual fund return is the investment performance as calculated for a mutual fund.  A personal rate of return is a combination of the mutual fund return and the activities of the investor.

For example a company might advertise that a fund has a “12% annualized five year return”.  This means that if you bought this fund exactly five years ago and didn’t do any other transactions, your return would also be 12% annualized.

But what if you bought it four years ago?  Is your personal return still 12% annualized?  It’s possible, but not likely.  If a good chunk of the positive five year return occurred in that first year, then your four year annualized return will be lower than 12%.

The other factor is your activities with the mutual fund.  When you buy mutual funds, do you purchase a lump sum and then never make more purchases or take money from that fund?  Because all transactions you do in a fund will affect your personal rate of return.

How to get investors clued in?

The most effective way to get investors to realize how much they are paying in commissions of any type is to get them to pay the fees directly.  Currently the fees all come out of the mutual fund and the investor never “pays” any fees and in most cases, have no idea how much the fees are or that they even exist.

Banning imbedded fees would mean that the financial industry would have to charge these fees directly to the investor, as in the investor will have to write a separate cheque for the money.  This won’t help the issue of an investor not knowing if they are getting a good deal, but they will definitely know how much they are paying.

Explaining the rate of return is difficult.  One suggestion would be to put the benchmark return on the statement along with the fund return, but even that is tricky.  If you own a mutual fund, the fees go to pay the administration and portfolio management of the fund as well as paying your advisor.  Those fees will be taken out of the performance of the fund, so it’s apples vs oranges to compare an active mutual fund you have purchased through an advisor with a do-it-yourself ETF.

Are you getting value from the advisor? Are they helping with tax info, asset allocation? You are paying for these services through the fees which impact returns. It might be worthwhile, but that’s something you have to evaluate yourself.

What do you think?  Will more disclosure of these fees make much of a difference?


Carnival of Financial Planning 09-21-2012

Best Personal Financial Planning and Personal Investment Articles this Week from Personal Finance Blogs

Carnival of Financial Planning – Edition #255 – September 21, 2012

Welcome to the September 21, 2012 Edition #255 of the Carnival of Financial Planning.

The Carnival of Financial Planning takes a long-term view of personal financial planning for individuals and families. We focus on efficient and sustainable personal financial planning practices that can lead to lifetime financial security. 

This edition is arranged by subject heading, so that you can browse efficiently.


The Skilled Investor, Editor

Budgeting and Economics

Bob presents What does a financial coach do? posted at Christian Personal Finance, saying, “What is financial coaching? What does a financial coach actually do? If you’re encountering ongoing financial difficulties, financial coaching just might be the ticket. Let’s explore what a financial coach does and see if one is right for you.

Jeff Rose presents I Hate Budgeting. YNAB to the Rescue! posted at Good Financial Cents, saying, “In case I have not made this abundantly clear on the blog – I HATE budgeting. Seriously, I would rather change 24 poopy diapers than to sit down and hammer budget. Luckily, there are guys like Jesse Mecham who aim to make budgeting cool. Is that really possible? Jesse would like to think so.

Maria presents Chi ldren and money: are we teaching our future the wrong things? posted at The Money Principle, saying, “We teach our children mainly how to save. But the relationship between children and money is better developed by teaching them how to spend.

Dan presents Wall Street Markets posted at Wall Street Stocks , saying, ” From the days when front-running involved actual running to the “Victorian Internet era” brought on by telegraphy, we can learn a great deal from looking back at a simpler era.”

Financial Planning

Jacob @ My Personal Finance Journey presents 11 Personal Finance and Life Lessons I Learned from Bicycle Racing posted at My Personal Finance Journey, saying, “This post describes 11 life and personal finance lessons that one blogger gleamed from his time actively training for a lot of intensive cycling races throughout his young adult life. It makes one wonder what personal finance or career lessons one has learned indirectly by participating in other seemingly unrelated activities.

CCS presents Why You Should Regularly Check Your Credit Report posted at Credit Card Smarts, saying, “People don’t take credit reports seriously enough. That could be costing you money. See reasons why you should regularly check your credit report.

SFB presents Money Lessons Learned On Vacation posted at Simple Finance Blog, saying, “I thought I’d budgeted for our family’s trip to Disney World; obviously, I thought wrong. Here are my top 4 money lessons learned on vacation.

PFP presents Tax Management  posted at Pasadena Financial Advisor , saying, “Locate” your investment assets for more optimal taxation.”

Jeff Rose presents What Is a Family Trust and Should You Set One Up? posted at Good Financial Cents, saying, “A family trust is a relatively simple and inexpensive, but potentially powerful legal vehicle, with many benefits for a wide swath of individuals.

Parker presents Index Funds posted at Preferred Funds, saying, “Some mutual funds and ETFs must be better than others, but which ones are they?”

Invest It Wisely presents Freelancing Revenue Report: Out of the Trenches and Climbing Up the Mountain posted at Invest It Wisely, saying, “Status Report I’m now in the eighth month of entrepreneurship – my, how time flies by! Much has happened since I took the plunge, read about my discoveries along the way.

PPlan presents Lending Money to Family and Friends posted at Provident Plan, saying, “Many individuals have been stuck in this situation: your friend complains that they have no money, and then they either directly or indirectly ask you if you


Liana presents What You Need to Know About Joint Credit Card Accounts posted at Card Hub, saying, “With the latest set of rules on access to credit, it can be difficult to see how you can build individual credit. One way that an individual without a paycheck can build independent credit is with a joint account. But it is necessary to understand what a joint account is first.

Insurance and Risk Management

Jeff Rose presents Reasons for or Causes of Higher Life Insurance Premiums posted at Life Insurance By Jeff, saying, “High or Higher Life Insurance Premiums can be determined by the severity of the health issue and what steps that policy seekers are using to address the issue. When underwriters see that a person has had long-term health issue with no signs of improvement then there will be higher premium cost since there would be the potential risk of that policyholder succumbing to any debilitating disease.

Lawrence presents Identity theft protection posted at Best Financial Planner, saying, “Identity theft sometimes entails a loss of your money, but is always take a very large amount of your time to fix.”

Passive Income Earner presents Family Finance: Understanding Your Car Insurance posted at The Passive Income Earner, saying, “The importance of understanding your car insurance costs and what it provides you.

My Own Advisor @ My Own Advisor writes How I Save Money on Auto Insurance – With auto insurance, you hope to avoid making a claim but if you need to, there is comfort in knowing you’ll get the best possible coverage for premiums paid. Here are ways I save money on auto insurance. I hope these tips help you as well.


Super Saver presents Recognizing a Losing Stock Trade posted at My Wealth Builder, saying, ” Use of these four letter words likely means the stock is a losing trade.

Kanwal presents Your Friend Just Gave You a Hot Stock Tip. What do you do? posted at Simply Investing, saying, “A friend, colleague or relative just gave you a hot stock tip. What should you do? Should you run out and go buy this stock? No! The simple answer is, Thanks, Ill look into it.Buying a stock, bond, mutual fund, or any other investment without doing your own research is not investing it is speculating.

Div Guy presents High Dividend Yield Stocks: What’s Wrong With Them posted at The Dividend Guy Blog, saying, “The reasoning behind high yield dividend stocks.

TSI presents Morningstar Star Ratings posted at The Skilled Investor , saying, “Because the stars are very widely used and often misunderstood, these are articles to help investors make more rational decisions about the stars.”

Dividend Growth Investor presents Dividend Investors are Getting Paid for Holding Dividend Stocks posted at Dividend Growth Investor, saying, “Dividends provide a return on investment, which is much more stable than relying on capital gains. Investors who select quality dividend paying companies with long histories of dividend increases can ignore the day to day fluctuations in the markets,as long as the company is paying the dividend every month/quarter like clockwork.

Franklin presents Traditional and Roth Accounts  posted at Early Retirement Planning , saying, “For most people, contributions to traditional tax-advantaged plans will probably provide a higher net present value over their lifetimes than Roth accounts.”

Managing Debt

Sean presents Gangnam Style in America posted at One Smart Dollar, saying, “Spending beyond our means is a huge problem all throughout the world and is the reason why so many people get themselves into debt. The popular YouTube video Gangnam Style shows how this is a problem in a South Korean neighborhood.

Jason Steele presents 5 Really Cool Things Your Credit Card Issuer Will Do, Just for Asking posted at PT Money Personal Finance, saying, “Not only does it not hurt to ask for these certain things from credit card companies, many times they’ll do what you ask, including these 5 requests.

Carrie Smith presents The True Secret to Paying Off Debt posted at ReadyForZero Blog, saying, “Do you know the true secret to paying off debt? In this post, Carrie Smith talks about the one thing that helped her finally eliminate debt from her life.

Sean @ One Smart Dollar writes Gangnam Style in America – Spending beyond our means is a huge problem all throughout the world and is the reason why so many people get themselves into debt. The popular YouTube video Gangnam Style shows how this is a problem in a South Korean neighborhood.

Real Estate

Miranda @ Financial Highway presents Steps to Buying a House posted at Financial Highway, saying, “If you are interested in buying a house, though, there are a number of steps you need to follow. A home purchase is a major commitment. It’s not something to be taken lightly, especially since you will be asking a lender to allow you to borrow a large sum of money. You need your ducks in a row if you expect to successfully buy a home.

TRL presents Real Estate Vacancy – How to Shorten the Time between Tenants posted at The Retired Landlord, saying, “Find out how you can shorten real estate vacancies and minimize the additional cost for you, the landlord.


SBB presents Simple Retirement Plan posted at Simple Budget Blog, saying, “Does the complexity of retirement planning or investing keep you from actually doing it? Find out how to simplify the process and get started today.

IMB presents Do You Need the Money You’re Investing? posted at Investing Money, saying, “Your need for the money that you are investing will influence how you invest the money.

Whitney presents Retirement Software posted at Retirement Savings, saying, “Build up your investment portfolio, and weather potential financial risk and misfortune across your lifetime.”

Jamie presents How I Invest for Retirement posted at Financial Footsteps, saying, ” See how I allocate my portfolio and why I do not own any bond funds.

Knowles presents S&P 500 Funds posted at Large Cap Index Funds, saying, “The Schwab S & P 500 Index Fund tracks the S and P 500 stock index and is one of the top 25 lowest cost index mutual funds.”

MMD @ My Money Design writes Social Security Spousal Benefits – Hook Me Up Elderly Sugar Momma! – Being married may not only entitle you to Social Security spousal benefits, but there’s a strategy that you could use to really maximize your benefits to full potential!


Corey presents How to Have Fun For Cheap posted at Steadfast Finances, saying, “Enjoying your free time does not have to break the bank. Find out how to have fun for cheap!

Freedom presents Saving Rates posted at Financial Freedom Plan  saying, “How your retirement withdrawal rate would affect all of  your retirement assets.”


John presents Why are Small Businesses Still Paying for the War of 1812? posted at Wallet Blog, saying, “Earning is an important factor in obtaining money to invest – When 75% of business in the US economy are Small Businesses, you would think that ridiculous tax burdens wouldn’t be imposed by local municipalities. But that just isn’t so. Take a look at one of the factors that drives out small business and hinders job creation.

Paul presents Retirement Tax Planning posted at Tax Software, saying, “Retirement planning software should automate projections of traditional IRA, Roth, 401k, 403b, SEP, Keogh, and other retirement plans.”


CAPI @ Creating a Passive Income writes Passive Income: The Secret of Making Money While you Sleep – Passive income is often the way to create income while you sleep. Find out several ways you can do it.

Aloysa @ My Broken Coin writes What I Wish I Knew About Life and Finances In My 20s – If we could turn back time, I wish I could go back to when I was 20 and do it again! Read my thoughts!

Daniel @ Sweating the Big Stuff writes Why Doesn’t Homeowners Insurance Cover Floods? – There are a lot of reasons why people can’t buy a home. In addition to the usual reasons, we can now add the high cost of homeowners insurance.

Suba @ Broke Professionals writes The Psychology of Saving – The Psychology of Saving is a post from: Broke Professionals if you enjoy it, please visit us and subscribe to the Feed. Saving is hard, especially when you don’t have much discretionary income. Saving over years and years is harder still. People do get saver’s fatigue.

Rod @ ROD Blog writes PerkStreet Financial checking account review – PerkStreet Financial Review : Is it a good alternative to the local big banks? Today there is no shortage to the amount of checking accounts out there to choose from and many of them don’t have any distinguishing features to set them apart from the competition. Once you eliminate the accounts that carry a fee,…

Amanda L Grossman @ Frugal Confessions writes Waste Not Want Not: Leftover Orange, Lemon, and Lime Peels – I studied abroad in London for a semester in college.

MR @ Money Reasons writes Saving Money Repairing Your Own Dryer – Instead of spending well over $1,000, I decided to saving money and DIY! Read and watch how repairing your own dryer can be accomplished for 9 dollars

YFS @ Your Finances Simplified writes How to Save For A Child’s Higher Education – According to an article posted in, the cost for an academic year from 2010-2011 is approximately $56,500 including tuition plus room and board.

Jester @ The Ultimate Juggle writes Are car parks really businesses? – As part of an initiative to promote retail, some parking fees are being waived in the West End this weekend. The beginning of the Olympics saw a drop in footfall in central London areas which retailers believe may be due to repeated warnings about traffic congestion and overextended transport hubs.

A Blinkin @ Funancials writes Buying a Car Won’t Help You Reach Your Dreams – I was flipping through the pages of Money Magazine when an advertisement caught my eye. The ad was promoting the All-New 31 MPG Highway 2013 Honda CRV. To soccer moms all over the world, this car is hella cool.It’s also hella expensive.My problem isn’t with the car itself, but instead with the Money Magazine advertisement.


That concludes this edition. Submit your blog article to the next edition of Carnival of Financial Planning using our carnival submission form. Past posts and future hosts can be found on our blog carnival index page.

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Reader Question – How Much Should You Save In Your RESP?

George asks:

I bought your RESP book and have been a long-time reader of your blog. I have a question I’m hoping you can help me with, but it you don’t have time I totally understand.

My question is this: at what point is an RESP ‘big enough’ that we should discontinue contributing to it?

We have two kids (7 and 5) and have an RESP self-directed family plan. We’ve contributed to it faithfully since shortly after our kids were born, and the balance now tops $37000. We’ve been contributing $2600/year/child to the plan to maximize the CESG grant.

Assuming that we want to fund about 90% of both children’s undergraduate (or trade school) studies, plus around 50% of any post-graduate work, at what point is the fund large enough to cover those costs without further contributions?

Estimating how much you should save for a expense that is far in the future is quite difficult. To estimate accurately, you need to know how much you will contribute to the account, the investment return and of course, the future cost of whatever it is you are saving for.

Saving for post-secondary education costs has all those difficulties plus two really big extra variables – you don’t know what kind of education your child will do and you don’t know if the child will live at home or on their own.

Will they do a four year degree? One year program? Will they live at home or be on their own?

Traditional retirement planning where you estimate contributions, rate of return, future withdrawals is a good model to see if you are in the ball park for retirement planning. However, it’s not hard to figure out that you should be able to get by with a retirement income that equal or less than your pre-retirement income. At the same time, unless you are very high income – you likely will need some minimum portion of your working income – say 40% just to have a minimum standard of living.

If you run some models using a replacement income ratios of between 40% and 75%. You can get a reasonable idea of how much you need to save to somewhere in that range.

Related:  Different types of retirement scenarios (lots of great comments)

The problem with educational costs is that the range of scenarios is greater. Your child could end up doing a one year program and live at home. Let’s say this costs a total of $10,000. On the other hand, your child could do a four year program and not live at home. This might cost $80,000.

Needless to say the difference between $10,000 and $80,000 is so large, it pretty much negates any kind of other variables that you might consider when estimating how much to save.

Related:  University costs might not be as bad as you think

At least with retirement planning, as you get older and closer to retirement, things become clearer. Factors like inflation and future contributions become less important because there isn’t much time before retirement.

With educational planning, it’s possible to not have any idea what the child will do until they go and do it. Yes, it would be nice if they are committed to a specific educational path, but for some kids – that’s not realistic.

RESP financial model

I did a rough RESP model on his situation and it appears that there should be about $53,000 available for each child in today’s dollars when they attend school.  This should work out to about $14,000 per year for a four year program.

If you assume a worst case scenario of $20,000 per year of educational costs, and George wants to cover 90% – that is $18,000.  According to my rough model, there will be a deficit of about $4,000 per year (in today’s dollars).

This is quite manageable.  If the student can contribute a bit more and cut some costs, the deficit should be eliminated.

What is the solution?

My advice to George is to contributing enough to get the maximum grants ($7,200) per child.  It sounds like this shouldn’t be a problem for George, but for anyone else – just contribute what you can.  Every little bit helps.

If you start early and have good returns, the RESP should have a lot of money by the time the child goes to school.

It sounds like George doesn’t want to overcontribute to the RESP which is a valid concern.  However, I would remind him that all contributions can be returned to the parents without any tax issues, so there is no penalty if the contribution amount ($36,000 per child) isn’t necessary.

The other thing to keep in mind is that withdrawals from the non-contribution portion of the RESP (EAP) is taxed in hands of student.  Students are likely to have little or no marginal tax rate, so again, it isn’t a big deal if some of the non-contribution money doesn’t get used for educational purposes.

Whatever you do – make sure you take out all the non-contribution money as an EAP even if the student doesn’t need it for education.

Read this article for more withdrawal details:  8 Things You Need to Know About Withdrawing Money From Your RESP Account

Personal Finance

So You Are Debt Free – Now What?

A friend of mine eliminated his mortgage a couple of years ago at age 35 and planned to save a good portion of the resulting extra cash flow.  So far he has just spent the extra money, even though he knows he should be saving more.

My wife and I had a big goal to pay our mortgage off, something we’d been working on for several years. This was accomplished last year and we have seen the exact same spending pattern as my friend. I had hoped to channel a good portion of the extra cash to savings, but that hasn’t happened at all.

After a major goal is reached – what next?

One theory I have about this situation is that a mortgage or any other debt is a very concrete target and it is both easy and gratifying to measure progress. Financial goals like saving for retirement are far less concrete because there are so many uncertainties around retirement planning. If you increase your debt payments by $3,000 per year, you can measure to the second how much quicker you will be debt free.

If you increase your retirement savings by $3,000 per year – how will that affect your retirement? Obviously it will be better, but how much better? Will the difference be enough to be noticed?  Is the increase in retirement lifestyle due to the $3,000 investment worth more than the decrease in your current lifestyle?  I have no idea.

Pent up consumer demand

One problem with going hard on a debt repayment plan is that it usually means that you are delaying spending that will happen later on.  House renos, consumer items you might want -it’s easy to say no when you are in debt-reduction mode, but it’s hard to keep sacrificing focus when the debt is gone.


Both my friend and I had very young kids during our major debt-reduction phase. For all the talk about how expensive kids are, we both found that young kids don’t cost much and prevent you from doing anything fun that costs money. I also found that having young kids is so tiring and time consuming that I never wanted to buy anything because it was too much work and I didn’t want to think about making choices or doing research.

Now that the kids are a bit older – our spending has changed as well:

  • More time to shop – I can even take the kids with me (although that is still risky).
  • More time to do stuff – I bought a road bike this year and enjoy a nice long ride every Sunday morning. This isn’t something I would have done a few years ago, because it is hard for one person to look after a newborn and a toddler at the same time.
  • More travel – We still tend to base most of our holidays around visiting the babysitters grandparents, but have branched out into camping and possibly the occasional hotel or cabin stay.  I’d love to do another Germany trip in a few years, which will hopefully be more fun than the last one.
  • More eating out – I used to hate dining out with the kids. It was horrible and not worth the money. Now – it’s still not great, but I don’t mind as much so we do it more often.
  • Kids’ activities – Now the kids are getting involved with various activities which cost money and require equipment. It adds up.

Is it worthwhile paying debt off quickly?

The issue of pent up consumer demand leads me to question if it is worthwhile to totally deprive yourself in order to pay down debt very quickly. If all you are doing is delaying spending, then the advantages of paying off debt faster are not necessarily all that significant.

I think there is something to be said for balance. If you are doing a very hardcore debt reduction, then I don’t want to discourage you. However, slowing things down a bit might not be a bad idea.  If you work too hard to pay down debts and then fall off the wagon – you might end up worse than if you had just started off with a more balanced approach to debt reduction and living your life.

I think we made a good choice to pay down our debt quickly, if nothing else we took advantage of the low spending years when the kids were young to attack the debt. But, I can see the argument that if we had taken another year or two to pay it off – the end result would be pretty much the same.

Set financial goals after debt payoff

Our next step will be to establish some financial goals. Hopefully that will get us to increase our savings rate at least a little bit. For now we have to pay for our new garage. Then I think contributing more to our TFSA accounts will be another goal. Lastly, our RESP account is not maxed out, so that will be another area we can put more money.

What do you think?  Is it possible to pay off debts too fast?


Linkstuff – Pinery Provincial Park Edition

Welcome back!  Hope everyone had a good summer. I know I did.

One of the great things we did this summer was camping.  We only only did one weekend doing tent camping, and the rest were in a Yurt or a Cabin which is a new feature in some Ontario provincial parks.  Basically it’s a cabin without running water.  It makes it a lot easier to pack and set things up which means we are far more likely to go.

This summer we spent four weekends “camping” at various provincial parks and I can assure you that if we were tenting for all of those weekends, at least half of them wouldn’t have happened.

Our last camping trip was to Pinery Provincial Park, which is located on the shores of Lake Huron near Grand Bend, ON.  This park is quite huge and features absolutely no privacy on the campsites, however the fantastic beach made up for it.  The weather was nice, the sand was great and the water was warm, so it was hard to complain about anything.

After leaving Pinery, we made a short stop in nearby Port Franks, Ontario where my grandmother used to live.  I have memories of her place from when I was a child and I thought it would be neat to try to find her old house.  My dad gave me directions which were out of date, since there was a new road in the area.  I found one house that was a possibility and talked to the owner who directed me to his neighbour.  The neighbour was 80 years old and apparently knew every resident who had ever lived in Port Franks.  I told him my Grandmother’s name and not only did he remember her and was able to direct me to her house – he also told me an amusing story about once seeing her trying to walk a dachshund dog and five pups (she used to raise them).

Her small cottage wasn’t there anymore and had been replaced by a large house.  I think the lot was the same size, but I didn’t recognize anything.  Nonetheless, it was interesting to return to the area where she had lived.

Globe & Mail mentions

I did an interview with Roma Luciw of the Globe & Mail recently and two articles came out of it:

Roma & I both have young kids and after chatting about the summer, it turned out that she was at the Pinery park camping on the same weekend we were.  Too bad we didn’t run into each other, we could have done the interview on the beach.

Best article of the last little while

Girls Just Want to Have Funds wrote a great piece called Are you treating your business like a hobby?  Don’t expect to get paid. It’s a funny article related to running a small business and even if you aren’t interested in the topic – it contains the best hooker analogy ever.  I loved this article

On with the articles

Mike Piper answers the question – Is 100% stocks ok for a retirement portfolio?

Miranda lists 30 ways to make more money over at Financial Highway.

Dan Bortolotti answers a good question about ETF trading liquidity.  A good read if you are thinking of buying an ETF with a low trading volume.

Boomer & Echo has 4 investing mistakes to avoid.  Send this one to a friend.

Steve L wrote a pretty good article about not listening to the media for investment advice.  His message is that bad news sells.



Family Accounts vs Individual, Contribution Amounts, Best Bank – RESP Reader Questions

Anne writes:

Looking for advice… We have three children ages 7, 5 and 3. We have a family account RESP setup through Nesbitt Burns but need to switch advisors. We have no other affiliation with Nesbitt Burns and therefore are looking into transferring our account to one of the major banks. I have 3 questions:

  1. Should we be doing a family account as opposed to 3 individual accounts, given the age ranges of our children?
  2. What are recommended monthly contribution amounts? and
  3. Any recommendations in terms of which bank to approach? We have ruled out BMO.

By the way, great website – thanks!

Ok, let’s look at each question:

Family RESP vs individual RESP

It sounds like Anne is thinking that because the ages of the kids are relatively close, a family plan would make more sense.  One misconception about family plan RESPs is that they are the only way to share funds between siblings.  Not true, as sharing can also be done between individual accounts as well.

There are pros and cons to be considered – a family plan might be cheaper if you are paying annual account fees and there will be less paperwork in the mail such as confirms and statements.  On the other hand, I think individual accounts make it much easier to track the amounts that each child has and don’t have the problem of potentially losing RESP grants if you pay out too much money to one child.  See point #6 of the article 8 things you need to know about withdrawing from an RESP account for an example as well as this article – How to distribute contributions and EAPs in a family RESP account.

I have a family plan for my two kids and although I have considered switching it to two individual accounts, so far I’ve stayed with the status quo.  I like the convenience of writing one cheque whenever I make a contribution.  I also like having less accounts.

The RESP rules between siblings are the same whether they are in a family account or individual accounts, so I think Anne has to consider the different pros and cons and see which setup is more convenient for her.

Related:  Family RESP account vs individual RESP accounts

Recommended monthly contribution amounts for RESP

To figure out the proper monthly contribution amounts, you have to determine what your goals for the RESP are.  Is it to contribute to get the maximum RESP grant?  To pay a certain percentage of the post-secondary education?

It’s very difficult to know in advance how much post-secondary education will cost.  How many years will the student go to school?  Will they live at home or away from home?  Will they be in an expensive city?

It’s a lot easier to figure out how much to contribute to get the maximum grant, so let’s do that and then Anne can try to contribute that amount or if she can’t quite reach that goal – at least she’ll have something to shoot for.

The maximum amount of RESP grant that one child can receive in their lifetime is $7,200.  If the parent is higher income (I’m going to assume Anne is) and doesn’t qualify for any low income RESP grants, then it will require $36,000 of contributions to reach the maximum of $7,200.  These contributions have to be made by the end of the year that the student turns 17.

If a child is born in January and you manage to get an account set up in that same month (good luck with that), then there will be 18 years where contributions can be made or 216 months.  $36,000 divided by 216 is $166.66.  So if you start early enough, it will take $166.66 of contributions per month to get the maximum grant amount.

For someone like Anne who has older kids and accounts already set up – she will have to determine how much grants have been paid to each child* and then take $7,200 minus grant paid and divide by 0.2 to get the remaining contributions.  Divide that amount by the number of remaining months before the end of the year when the child turns 17 and you have your monthly contribution amount.

*To find out how much grants have been paid – contact your financial advisor or call the HRSDC at 1 888 276 3624.

Related:  Why a university education might not cost as much as you think

Best bank for RESP account

I don’t have an opinion on which bank offers the best RESP.  The banks are all pretty much the same in my view, so take your pick.  My article – How to set up the safest, cheapest and easiest RESP account, covers GIC RESP accounts and also takes a look at an RBC mutual fund which is geared towards educational savings.  If you want to work with an advisor, then try to spend some time finding someone you can work with.

Related:  How to run a background check on your Canadian financial advisor

Related: Different types of Canadian financial advisors – which is right for you?


Carnival of Financial Planning – Edition #247

Best Personal Financial Planning and Personal Investment Articles this Week from Personal Finance Blogs

Welcome to the July 27, 2012 Edition #247 of the Carnival of Financial Planning.

The Carnival of Financial Planning takes a long-term view of personal financial planning for individuals and families. We focus on efficient and sustainable personal financial planning practices that can lead to lifetime financial security. 

This edition is arranged by subject heading, so that you can browse efficiently.


The Skilled Investor, Editor

Budgeting and Economics

Young presents Starting Your Career Rurally posted at Young And Thrifty , saying, “Starting Your Career Rurally can give you an edge over people living in the cities, we’ll show you why. ”

Charles presents The Rise of Digital Currencies posted at Wallet Hub , saying, “Is digital currency where we are heading? Take a tantalizing glimpse at a cashless future! ”

Janet presents Expense budgets posted at Independent Financial Planner , saying, ” Many people do not track their living expenses and do not understand the magnitude of their consumption.”

Suba presents The Hidden Costs of My Husband’s New Job posted at Broke Professionals , saying, “My husband’s new job has come with some major hidden costs. Here’s what we’re doing to attempt to deflect his job’s negative impact on our bottom line. ”

Financial Planning

Hank presents Five Professional Athletes Who Are Struggling Financially posted at Money Q&A , saying, “I always find it so interesting to see some of the inner workings of professional athletes and famous people’s finances. Below are five professional athletes who filed bankruptcy. ”

Aloysa presents My Top 10 Worst Shopping Mistakes posted at My Broken Coin , saying, “Read these top 10 worst shopping mistakes! Do you do the same ones? ”

Jeremy presents Does Everyone Need An Emergency Fund? posted at Modest Money , saying, “I just cannot wrap my head around the concept that apparently everyone should tie up a large sum of money in a low interest savings account. While it does make sense for people with debt problems, it just does not seem logical for anyone with decent credit. In such cases a small emergency fund should be adequate. ”

Marie at Family Money Values presents Considerations When Starting a Family Business posted at Family Money Values , saying, “If you and your spouse are thinking about starting up a website together; or if you and your grown children are wanting to work together to buy and manage real estate; or, in fact, if you want to involve your family or close friends in any business venture; know that family owned businesses can have special problems. If they aren’t addressed, you stand to ruin family relationships in addition to suffering business losses. Here are tips on things to consider when starting a family business. ”

Amanda L Grossman presents My Family’s Circle of Savings posted at Frugal Confessions , saying, “I try to imagine the looks on the faces of Transportation Security Administration Inspectors when they x-ray my bag full of liquids, perishables, drugs ”

Luke presents How to Predict Inflation and Deflation posted at Learn Bonds , saying, “Inflation is something that market participants care a lot about. How exactly do you go about predicting inflation? Learn here. ”

PFP presents Tax Management  posted at Pasadena Financial Advisor , saying, ” You should also consider how to “locate” your investment asset allocation with respect to more optimal taxation.”

Daisy presents Handling Mistakes at Work posted at Add Vodka , saying, “When I first started in internship #1, I was so excited to get a little bit of real world experience in my field. ”

Invest It Wisely presents How Hard is It to Become a Freelancer? posted at Invest It Wisely , saying, “Do you find that the world is becoming a little bit more entrepreneurial, these days? Read my experiences and see if you agree! ”

A Blinkin presents Your Obsession With FREE posted at Funancials , saying, “Are you drawn to things that are BOGO buy one get one free? Im guessing you are. We all are. The sound of FREE is music to our ears. Why? Because its not only free, its RISK FREE. The majority of us are such sissies that we would rather -not lose- than -win- ”


Liana presents Does Unemployment Damage Your Credit? posted at Card Hub , saying, “Does being unemployed damage your credit score? Perhaps not in-and-of itself, but the side effects of unemployment can. It’s important to understand what can hurt your credit while you’re out of work and how to prevent any damage. ”

PITR presents Why Blogging is a Respectable Business posted at Passive Income To Retire , saying, “Find out why blogging is a respectable business model and why it aligns with the future of online usage. ”

Lance presents Passive Income: Not As Passive As You Think posted at Money Life & More , saying, “If there is one topic personal finance bloggers absolutely love it is passive income. According to wikipedia, “Passive income is an income received on a regular basis, with little effort required to maintain it.” There are two key phrases in this definition that will help you define what passive income is to you. ”

Insurance and Risk

FMF presents Shopping for Insurance posted at Free Money Finance , saying, “Since “regularly shopping for insurance was #31 on my list of the 52 best money saving tips, I thought I’d follow my own advice and compare our current insurance costs to those offered by other companies. ”

Sally presents Risk and returns posted at Do-It-Yourself Finance , saying, ” More conservative portfolio investments have yielded substantially lower investment returns than the returns that riskier investments have delivered. With either lower or higher risk-adjusted market return strategies, you simply cannot have your financial cake and you eat it too.”


Jon the Saver presents Should You Invest with Less the $5,000? posted at Free Money Wisdom , saying, “If you have a small amount of money, should I invest on a regular basis? Let’s answer this question together and start multiplying our money! ”

Kelly presents Investment risk tolerance posted at Investment Risk, saying, ” Individual investors with different levels of investment risk tolerance for financial risks tend to be more satisfied with risk management strategies, which are better aligned with their financial risk and return profile.”

J.P. presents How Often Should You Do An Investment Review? posted at Novel Investor , saying, “Tracking your investments is more than glancing at those monthly statements. A regular investment review needs to be done. ”

Willie presents Superior Fund Performance posted at NoLoad Funds , saying, ” Screen out inferior mutual fund performance — but only after using other ETF and mutual fund selection criteria. Superior or even average mutual fund performance in the past simply does not predict similar fund performance in the future.”

Dividend Growth Investor presents Casey’s (CASY) Dividend Stock Analysis posted at Dividend Growth Investor , saying, “Currently, Casey’s is attractively valued at 18.70 times earnings, and has an adequately covered dividend. I do realize that some of the great growth stories end up yielding little, but could more than compensate for that through strong total returns over time. Companies like Casey’s have the potential to be a multibagger over the next few years. ”

Managing Debt

Joe Morgan presents Is Paying Off Your Mortgage Early A Good Thing Or Bad Thing? posted at Simple Debt-Free Finance, saying, “Paying off your mortgage early is a hotly debated topic in personal finance circles. Proponents of “debt free” living say it’s a no brainer, while financial “experts” often say it’s a bad move and indicates people are thinking about money in the wrong way. So who is right? Read more to see both arguments.” 

Ben Feldman presents Can The Mortgage Forgiveness Debt Relief Act Help You? posted at ReadyForZero Blog , saying, “The Mortgage Forgiveness Debt Relief Act of 2007 is a little known law that can save you a lot of money if you’ve been involved in a foreclosure or a short sale recently (or will be soon). This post will help you understand how it works. ”

Teacher Man presents Student Lines of Credit posted at My University Money , saying, “Student lines of credit are great to have because of the insanely low interest rates. We’ll show you why these are superior to most loans. ”

Sustainable PF presents Do Parents Have To Help? posted at Sustainable Personal Finance , saying, “Just how far should parents go to ensure their children have reduced debt burden after they graduate? ”

Real Estate

Crystal presents Life is Too Short to Spend Time Ironing Sheets posted at Budgeting in the Fun Stuff , saying, “Here is the list of things that I refuse to waste time on since they do not give me enough satisfaction to justify the time spent. Life is too short. ”

Jen presents We’re Buying Our First House! posted at Master the Art of Saving , saying, “Around a month ago, my husband came to me and said that we really need to buy a house right away. Scary! I’m the one who handles the budget and all the money. ”

YFS presents How I Almost Got Cheated out of 650 bucks posted at Your Finances Simplified , saying, “So as you all may know we recently purchased our 3 rental property. I did a lot of talking about in the following posts. ”


David John Marotta presents Fund a Teenager’s Million-Dollar Retirement posted at Marotta On Money , saying, “We teach teenagers a lot more about sexuality than we do about money. This can confuse them about what they should be learning. Give this article to a teenager and encourage him or her to start a Roth IRA. ”

Brock presents Retirement Spreadsheet posted at IRA Account Investment, saying, “Whether or not to make investments into “traditional” tax-advantaged employer accounts and IRAs versus investing in “Roth” tax-advantaged employer accounts and personal IRAs is never a straightforward nor simple financial planning decision.”

Pierre presents What If…We Were Months Away From The Next Depression…. posted at Intelligent Speculator , saying, “Are we on the verge of something worse? ”

Emily presents If I Were My Financial Advisor, What Would I Tell Me? posted at Evolving Personal Finance, saying, “I ask myself: If I were my financial advisor, what would I tell me? I take a look at the uglier aspects of our financial situation to which we have become inured”


SFB presents What is Offshore Savings? posted at Simple Finance Blog , saying, “Offshore savings is an aspect of offshore banking that focuses on just savings accounts. This is a popular option for many people looking to diversify where their cash is held, but don’t necessarily need the full features of an offshore bank. Having an account offshore can offer diversity that being in a single country cannot. ”

Freedom presents Savings Rates posted at Financial Freedom Plan , saying, ” Understand how your current savings rate and retirement withdrawal rate would affect all of  your retirement assets.”


FMF presents Are Investment Management Fees Tax Deductible? posted at Free Money Finance , saying, “I often get asked, “Are investment management fees tax deductible? The answer is not a simple “yes or “no. Like many tax questions, the answer is “It depends.”

Monroe presents Roth Conversions posted at Do-It-Yourself Finance , saying, “Key to you making a better decision about your lifetime Roth account contribution and asset conversion strategy is the need for a sophisticated financial planning software tool.”

Steve presents A Look At Free 2012 Tax Filing Opportunities posted at 2012 Taxes , saying, “There is not much that people can get for free these days. Hardly anyone would think of ‘free’ and ‘taxes’ in the same sentence either. Still, it turns out there are free 2012 tax filing opportunities. ”

That concludes this edition. Submit your blog article to the next edition of Carnival of Financial Planning using our carnival submission form. Past posts and future hosts can be found on our blog carnival index page.

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LinkStuff – Good Samaritan Edition

Every once in a while I like to highlight something positive that someone has done.  Last year I wrote about the nice guy who didn’t get mad when my son ran a shopping cart into his car at Canadian Tire and now I have another story.

This week, I tried out a new pannier (bike bag) in which I can carry various things, such as lunch, to and from work.  The pannier attaches to a rack which is installed over the rear wheel of my bike.  It worked great on my commute to work, but when I got home from work, I noticed a problem – the bag was gone. 

It was on the bike when I left work, but fell off somewhere along the way home.  This was a problem – I had a brand new lock in the bag, my keys and two movies which I had gotten from the library.  The lock was about $100, the car key would have been expensive to replace and I suspect replacing two library DVDs wouldn’t be cheap either.

I rode back to work on the same route, but didn’t see the bag anywhere.  Fortunately, I checked my phone and my wife had called to say that some nice fellow cyclist had picked up the bag and dropped it off at a nearby library.  Because of the movies, the librarian was able to determine who the bag belonged to and called my house.  I picked up the bag right away, so it was only out of my possession for about 45 minutes.

So thanks a lot to the nice lady who recovered my bike bag – you saved me a lot of money and hassle.

On with the links

Americans have enjoyed depositing their checks by taking a picture with their smart phone and emailing the photo to their bank.  Now Canadians will be able to enjoy this as well.  I can’t wait.

 SheBloggs had an interesting story about how some people are snobs when it comes to starting their own business.  One thing the article doesn’t point out is that if you have a bit of cash flow, you can start a business without doing any of the grunt work yourself.

 The Oblivious Investor has the perfect investment philosophy when he says A “Good Enough” portfolio really is good enough.

Michael James nails an investment “guru” for his poor investment advice.

Boomer & Echo had an interesting comment on Home Equity Line of Credit – Friend or Foe? I call my HELOC a good friend.

Canadian Mortgage Trends highlighted the absurd scenario where the Finance Minister is telling big banks to raise their rates.