Author: Mike Holman

Categories
Announcements

Saturday Morning Update

An update on the weight situation:

  • Weight – 189 this morning which is a whopping 3 pounds less than a week ago. This seems a bit suspicious so part of the loss might just be the normal weight variations. Regardless, it’s a bit less so that’s a good thing!
  • Beer – I hardly drank any beer this week although after helping Mr. Cheap move some stuff to his new apartment on Wednesday he made me drink some beer and nachos with him at a local bar 🙂
  • Diet – not bad, I’ve been making a pretty good effort this week although Halloween didn’t help.
  • Exercise – did my usual stuff this week but I went running on Tuesday night which was an extra.

This week Millionaire Mommy Next Door hosted the Carnival of Personal Finance and included the post ETFs vs Mutual Funds. She added a cool voting feature so I suggest going and voting for my favourite post on the carnival Follow the White Rabbit to Financial Freedom by Brip Blap. If you are a Matrix fan then you will love his post.

Categories
RESP

RESP – Asset Allocations

This post is part of the Big RESP Series. See the entire series here.

See the previous post on resp withdrawals here.

When setting up a resp account it’s important to determine and monitor the asset allocation of the account. Typically the asset allocation is determined by the risk profile of the investor and the amount of time remaining until the money is required. Equities are considered risky assets but over a longer term they are fairly reliable. If you are making an investment and you need the money in two years then equities are not advisable because there is too much risk that their value will go down over those two years. Short term bonds or a high interest savings account is a better investment for money that is required in the short term. The idea is not get superior returns but to ensure that the money is there when needed.

So if equities are a good investment over the long term but not the short term, the question has to be asked – how long is the “long” term and how short is the “short” term. I would say that short term is anything less than five years and the long term is 15 years or more. Please note that this is strictly my opinion so don’t write it in stone!

Unlike retirement planning where you don’t know how long the portfolio will be in use for, RESP planning is a bit easier since you can make a pretty good estimate of the start date of withdrawals and the end date of withdrawals.

For this example I’ll assume that the student goes to school starting the year they turn 17 and finish up four years later.
I’ll go through different stages of the resp in terms of how old the student is:

Age range

Equity %

Bonds %

0-5

100

0

6-11

60

40

12-17

40

60

In school

0

100

Once they are starting school all the money will be withdrawn within five years so it should be in very safe securities such as high interest savings accounts, short term bonds or money market funds.

If you are a more conservative investor then you might want to do the following:

Age range

Equity %

Bonds %

0-5

60

40

6-11

50

50

12-17

25

75

In school

0

100

I would invest equally in Canadian, US and EAFE for the equity portion and in short term bonds ETF or a bond index fund for the bond portion. You can add other asset classes to the mix as well. This example is intended to show a simple asset allocation.

I’ve indicated the allocations at five or six year terms. If you are really keen and plan to rebalance every year then you can also adjust the allocation every year.

Obviously none of the above allocations are perfect for every investor so try to keep in mind the idea that money which is required in the short term should be invested in safe investments and try to adapt the above suggestions to your situation.

See the next post on RESP Individual and Family Plans.

Categories
Real Estate

Anecdotes and Advice from a First Time Home Buyer Part 4 – What To Buy

My friend Christine has kindly agreed to write a series of posts on her experiences with buying a home for the first time which will be posted occasionally.
See Part 3 – Choosing a realtor.

Prioritizing a wish list

Be realistic about what you want or need in a home. There are so many permutations of features in houses and condos out there that you have to think about what you absolutely cannot live without and then be clear in explaining your needs list to your realtor.

Creating a wish list is a process of evaluating what is realistic balanced against the market and is a good starting point for your realtor. A condo or a house? A fixer-upper versus a newly built home? How many bedrooms and bathrooms do you require. Do you need parking? Close to the night life or a quiet subdivision? Are you willing to commute? Do you wish to rent out part of the home? Are you a gardener or do you hate the idea of outside maintenance?

What we are looking for

My ideal home is downtown, has at least four bedrooms with as many bathrooms, and has an open, Hotel W aesthetic with immense closets. The dream is achievable, but not in Toronto and not on my budget.

With a $500-600,000 budget, the home that I am seeking is walking distance to the subway in central or north Toronto. While my budget seems generous, the buying power of our money is greatly reduced by the location. My husband and I require three bedrooms and would like to have at least two bathrooms. Within our budget, a detached home is unlikely. Our hope is to find a house that is structurally up-to-date in terms of wiring, plumbing and the roof, such that only cosmetic updating would be needed.

However, we are trying to remain open-minded and are also considering fixer-uppers which our agent feels may be available in the $400,000 range. Within our budget constraints, a fixer-upper would potentially allow us to stay downtown and may give us added space. In terms of future resale potential, it may also be wiser to fix up a solid home in a developing hot central neighbourhood than to buy a starter home in an established one. Some of the smaller renovated homes that we have seen in the Annex were not renovated to our standards or tastes and did not seem to justify the $700,000+ price tag.
Home buying is all about timing, so we shall wait and see what is available in the months ahead.

Location

By far the biggest factor in the cost of a home is location. The neighbourhood that you choose will have a great impact not only on your lifestyle, but on the cost of a home and the type of home that is available.

For my husband and I, location is our top requirement. We wish to be close to the Annex or the Yonge Street corridor, and walking distance to the subway. We are true urbanites who like to be a short walk to everything from grocery stores to restaurants and jobs.

If you are new to a city, check with friends and colleagues about different neighbourhoods. Form your own opinions by visiting open houses, talking to neighbours and looking around the area. If you have children, check into the reputation of the schools nearby.

Some good neighbourhood references are the real estate guide on the Toronto Life website, www.torontothegood.com and a book called, what else, Your Guide to Toronto Neighbourhoods by David Dunkelman. These sources each give an overview of the type of houses in different areas, and, in the case of Toronto Life, fairly recent housing prices. Keep in mind though that the descriptions do not give a complete picture in terms of area safety, noise levels and the type of current residents, factors which you should evaluate in person. Regardless of lifestyle, your real estate agent is a valuable resource for providing up-to-date advice in this regard.

If like myself, neighbourhood “walkability” and nearby amenities are important, www.walkscore.com is a wonderful tool. Just type in an address or postal code, and up pops a list of everything from coffee shops to parks and their proximity. A walk score rating out of 100 is also listed. Also helpful for pinpointing location is the mapping program on www.google.com.

Finally, on Fridays, the Globe and Mail has a real estate section with helpful profiles on recently sold homes and their asking and selling prices.

Read the next post in this series “The Search“.

Categories
Opinion

Public Declaration

Ok, I’ve been tagged by my buddy Brip Blap to publicly declare a goal and hopefully by making it public I will be able to stick to it. So even though he conveniently didn’t make a declaration himself :), here’s mine…

Lose 10 pounds!

This isn’t a difficult goal since I’ve done it before however I’d like to be able to lose the weight (and possibly more) and keep it off.

Some history

In July of last year I hit a personal best weight of 201 pounds (I’d guess my ideal weight is 165 pounds) so I started watching what I eat/drink and managed to get down to about 182 by April of this year. Unfortunately over the last six months my weight has crept back up to 192 which is not good. So the goal is to get back to 182 and stay there.

How will I do it?

If it worked once then it will work again…these are some of the things for me to focus on:

Beer – I love beer. In my perfect dream world I would spend every night on the couch watching bad movies and my favourite sports teams (Leafs & Bills) and drink beer. The problems with beer are that it’s not an overly healthy food, when I drink it I tend to stay up too late and get hungry and eat everything in sight, and lastly if I have too many then I’ll be tired/hungover the next day and will be more inclined to eat crap foods instead of healthy foods.

Action Item #1: Drink less beer.

Diet – I’m pretty partial to eating healthy foods such as salads however I do like to eat a lot of unhealthy foods in unhealthy quantities. I also eat a lot of carbs for which I’ll blame my wife who is addicted to them 🙂

Action Item #2: Concentrate on eating better – less fat, less carbs, less quantity.

Exercise – I do stay pretty active but clearly more needs to be done. For the last six months I have been riding my bike to work everyday (20 minute ride), I play hockey once a week and I usually go roller blading for about 40 minutes once or twice a week. This may sound good but in my younger days I used to be an exercise fanatic. While I don’t think I can ever get to the fitness levels I had 10 years ago, I can do a lot better. I will also have to make up for the fact that I won’t be able to ride my bike and roller blade much longer due to the weather.

I hate to blame my lack of fitness on age because at my age (39) there are guys playing pro hockey and climbing mountains so clearly I’m not “too old”. My theory as to why it is harder to exercise as we get older is because of lifestyle. When I was younger and didn’t have a family and not many obligations, I had plenty of time and opportunities to exercise. For example in a one week period I might have had 15 opportunities to exercise – so even if I only took advantage of six of those opportunities, that was still quite a bit of exercise. Now I might only have five opportunities to get exercise a week so if I only take advantage of two of those times, then that’s not very much exercise.

Action item #3 – Increase exercise by going jogging once a week. This might have to increase once my bike riding & roller blading stops.

So that’s my public declaration – I’m not going to tag anyone else since I think Brip Blap already tagged half the internet 🙂 but I’ll leave it up to anyone reading to carry it on if they wish.

Categories
Announcements

Sunday linkstuff

A quick note to say that we were in the recent #123rd Carnival of Personal Finance hosted by “The Dough Roller“.

If you have ever thought about giving a reference for someone you don’t really know that well then read this post first.

And lastly for anyone who likes to invest in Canadian junior mining stocks or anyone who thinks we actually have law and order in Canada when it comes to securities then read this bizarre and almost unbelievable tale.

Categories
Investing

Questrade Referral Promotion

Questrade discount brokerage in Canada has a new referral program where you get $50 worth of trades if you are referred by another customer. The basic program has been around for a while but they have improved the referral process.

Lowest Stock Trading Commissions!

Feel free to use this link when you fill out the application. For other bloggers feel free to sign up for the referral program and of course use “dc988dd9” as the referrer ID.

You can see what I wrote a while ago about Questrade here.

Why I like using Questrade for trading stocks and exchange traded funds

I use Questrade for my non-registered leveraged account as well my rrsp and I’m quite happy with them. My attitude about brokers is that their service is a commodity in that they all do the same thing – they convert your money into shares and vice-versa so the only variable as far as I’m concerned is the cost. As a low cost investor I want the lowest fees and for my situation, Questrade has the lowest fees.

Questrade also deals with mutual funds -they will rebate up to 1% of the management fee back to the investor.  Read more about the Questrade mutual fund rebate.

The minimum to open an account is $1000. The minimum to keep an account active is only $250.

My suggestions on which discount broker to use:

If you are looking to do a lot of rrsp “wash trades” then Questrade and TDW are your best bet. A wash trade is when you sell a US$ security in your rrsp, it gets converted to CDN$ (and you pay a currency conversion on it), and then you buy a US$ security and you pay the currency conversion again. They do not charge for the conversions in this case.

If you are looking for a discount broker that offers a lot of extras like fancy graphs and research then you should stick with the big banks. But consider that for $29/trade (if you don’t have $100k) you are paying a $24 premium per trade for that extra research, bells, whistles etc. Even if you only do 10 trades per year that’s $240 per year. There is a lot of research available for free on the internet and $240 will buy quite a bit of the paid research (or a lot of beer).

If you are looking for more information on mutual funds, index funds and ETFs then sign up for a Morningstar free account.  Morningstar is the industry leader in investment information.

Categories
RESP

RESP Withdrawal Rules and Strategies For 2020

When the RESP beneficiary (student) is ready to go to school, the subscriber (owner of RESP account) needs to start withdrawing money from the RESP account. To withdraw money you have to provide some proof to your resp provider that the resp beneficiary (child) is going to an approved post-secondary school. You don’t have to show receipts for specific purchases.

Two types of money in the RESP account

In your RESP account, there are two different types of money: contributions and accumulated income.

  • The contribution amount is the sum of all the contributions that you made to the account over the years.
  • The accumulated income is made up of grants, capital gains, interest, dividends earned in the account.Any money that is not a contribution is considered to be accumulated income.


This distinction is important because the taxation of withdrawals from the contribution portion of the account is different than withdrawals from the accumulated income portion.

  • Contribution withdrawals are not taxed.
  • EAP (educational assistance payments) which are withdrawals of accumulated income, are taxed as income at the hands of the student.

The good news is that students have the personal exemption, as well as tuition tax credits which helps lower their tax bill. Obviously income earned during summer jobs or on co-op work terms will affect their taxes as well.Another bit of good news is that you can tell your financial institution if you are with drawing contributions or EAP (or both) so you can manage the taxes to some degree.

Please note there is no withholding tax on any kinds of RESP withdrawals, so if the student ends up in a taxable situation, they will have to pay the taxes at tax filing time.

A withdrawal limitation

First – one withdrawal rule to get out of the way – you are only allowed to withdraw $5,000 of accumulated income in the first 13 weeks. After 13 weeks, you can withdraw as much accumulated income (via EAP) as you wish.  There are no limits to withdrawals from the contribution portion as long as the child is attending school.

Basic RESP withdrawal strategy

When planning the withdrawals, try to withdraw as much accumulated income money as you can tax free.For example when the student first starts school, they will have just completed a short summer (two months) so they probably won’t have much income for the year. That might be a good time to maximize payments from the accumulated income portion of the account (EAP).

On the other hand, if the student is in a co-op program and has two work terms in one year and only one school term, that might be a good year to take out contributions rather than accumulated income.

You don’t want to end up with accumulated income in the RESP account if the child is no longer going to school.

What if your child doesn’t go to school?

What happens if Junior decides that school is not for him?  You have to collapse the plan and pay a pile of tax on it.

First of all you have lots of time to collapse the plan so don’t do it right away. It’s always possible that your child will give up on their pro hockey or musician career and will need the money for schooling later on.  You can keep the account open for 35 years after the year in which the account was opened.
If you do collapse the plan, the contributions are tax free, anything else (accumulated income) is added to the subscriber’s gross income for taxation purposes.And on top of that, the accumulated income is charged a tax of 20%.
If you are retired or have any way to reduce your income in the year you collapse a resp plan, do it to save taxes.

What if the child does more than one session at school (ie multiple degrees)?

You are allowed to use the RESP for one degree and then keep some money in the account for future education.  The only limit is the 35 year limit previously mentioned.  Be warned that it’s not a bad idea to take out all the RESP money during the first degree so that there are minimal taxes and no penalties.  If you save money in the RESP account for future degrees and the child doesn’t end up using the money, there will be increased taxes and penalties.

More RESP information

8 Things you need to know about withdrawing money from your RESP account.  Lays out the details of how to actually withdraw the money.

How to withdraw excess money from your RESP account.  Some strategies for withdrawing extra RESP money without penalty.  This applies if the student started school and quit early or ended up with extra money.

How to avoid RESP withdrawal penalties if the child doesn’t go to school.  If you child ends up not using the RESP at all – here are some ideas to avoid penalties and taxes.

More RESP information – Comprehensive list of RESP articles on this site.

Categories
Real Estate

Anecdotes and Advice from a First Time Home Buyer Part 3 – Choosing a Realtor

My friend Christine has kindly agreed to write a series of posts on her experiences with buying a home for the first time which will be posted occasionally.
See Part 2 – Down Payments and Financing

Going it alone or choosing a realtor

With the availability of information online on MLS (Multiple Listing Service), how necessary is an agent? After all, agents work on commission and are paid a percentage of the value of a home. The fee is paid through the seller, but a buyer indirectly pays through the negotiated selling price.

For myself, the decision came down to the practicality of having an expert do the initial culling through the listings. Because our top priority is to stay along the subway line, my husband and I are dealing with the “hot” neighbourhoods where houses can sell within a week of being listed. As home buying novices, we wanted the advice of an expert in finding the right home and not overpaying for it. Real estate professionals have access to MLS properties before the public and can fine-tune searches. Agents are also experienced in negotiating offers, have access to a plethora of specialists such as home inspectors, lawyers, and mortgage brokers, and can lead one through the intricacies of closing costs and legal requirements.

Choosing a real estate agent

Choosing the appropriate person to work with was therefore not a decision that we made lightly. Start with the recommendations of friends and people you trust. Look at an agent’s online profile and their recent listings to evaluate if they work in the neighbourhoods you are targeting and at your budget. How long has the person been in the business? Although I was confident about a friend’s referral, I still met with the agent to interview her and to determine if she was someone with whom I would be comfortable working. I was impressed with her frank advice and that we could sign a buyers’ representation agreement for as short a term as two weeks. My husband and I decided to begin with a one-month contract instead of a longer commitment to see how it goes.

Dual Agency or Buyer’s Agency Agreements

Several of my friends were fortunate enough to find their homes without an agent and then worked with the listing agent to negotiate the buying price and finalize the offer. Such a situation, whereby the seller and buyer use the same agent, is referred to as a dual agency. The seller must also agree to this arrangement. From the agent’s perspective, dual agency is advantageous as s/he would earn a double commission. However, the worry is whether the agent has your best interests in mind, especially in terms of price.

Engaging in a buyer’s agency agreement is a contract to use the services of a particular agent or company for a specified length of time. The advantage of such a contract is that the realtor has agreed to work for you and is obliged to disclose all available information.

Realtors also have a network of other experts they can connect you with such as home inspectors, mortgage brokers and lawyers. A real estate agent’s job is to make things easier for you, so do not be afraid to make use of their network if you don’t already have access to such professionals.

Read the next post in this series “What to Buy?”.