Monthly Archives: November 2009

Terry Broaders

RESP Grants - When Is it too late to get a grant for my child?

We get this question a lot.  If you invest $2,500 in your child’s Registered Education Savings Plan (RESP) you will receive a 20% or $500 Canada Education Savings Grant (CESG) from the Canadian government.

But when is it too late to get a grant?  When is your child too old?

If your child is 18 years old then it is too late. There are simply no more grants available; end of story; forget about it.

If your child is age 16 or 17 the grant is available if and only if you had already invested $2,000 in an RESP before the child had turned age 16 or you had invested a minimum of $100 in any 4 years before the child turned 16.

In other words if your child is turning age 15 in the current year 2009 and if he or she has never had an RESP then you must invest at least $2,000 between now and December 31, 2009 to qualify for grants. By doing this the child will qualify for a grant in 2009 the year they turn age 15; in 2010 the year they turn age 16; and in 2011 the year they turn age 17 .  That’s a total of $1,500 in available grants if you invest $2,500 in each of these 3 years.

So to repeat; if your child turns 15 in 2009 and they have never had an RESP in the past then this is your last chance to make an RESP contribution for them in order to qualify for the grant now at age 15 and at age 16 and age 17.

Anthony Sabti

What are Dividend Funds?

A company’s stock return consists of two main factors: capital appreciation (company growth) and dividend contribution (the portion of company net earnings distributed back to shareholders).  In the last 50 years, dividend contribution has accounted for about 39% of investor returns (based on the Canadian Stock Index’s total return).  The 1990’s were a period of high growth and dividend contribution thus made up a smaller portion of returns (26%).  The post-2000 investing period has however been a low-growth period and dividends have made up 74% of returns. 

A dividend fund is a fund that holds primarily dividend-paying shares of a company.  These funds will invest in top dividend paying companies that have shown steady profits and dividend increases.  These will usually be large, established, high quality companies such as the Canadian big banks (ex. TD Bank) or oil companies (ex. Petro-Canada)

Dividend funds offer three main advantages:

1.  Young investors will benefit from years of compounding dividend growth.  For older investors, the dividends can be turned into a stable income stream.

2. Dividend funds tend to have less volatility than an equity funds because of their focus on large, stable companies.

3.  For open (non-registered) accounts, dividend funds are taxed at advantageous rates (19.91% based on combined BC/Federal dividend tax rate), thus investors can keep more of their money.

This type of funds is well-suited for investors looking for conservative or moderate returns.  They can also be used to compliment a more aggressive small-cap (smaller companies that offer higher growth potential) fund.

Odette Morin

What we learn from the recovery could help the next time we’re in a bear market.

Great article for you to read.  We could not have said it better.

By Manuel Schiffres, Executive Editor, Kiplinger’s Personal Finance

October 4, 2009

Lesson 1. The stock market turns up when pessimism is rampant.

Lesson 2. A bear market associated with a recession almost always ends in the middle of the economic downturn.

Lesson 3. Don’t obsess over earnings; they always lag the stock market.

Lesson 4. Don’t underestimate the power of government intervention

Lesson 5. The worst are often first—at least at the outset.

Lesson 6. Once you decide to get in, don’t wait for a correction—there’s no telling when it will come

Lesson 7. Pay attention when bears who had it right turn bullish.

Click here for the full story

Odette Morin

Even millionaires can deplete too fast

If you’ve made it to retirement, congratulations! You’ve accumulated enough money to create your own portfolio-generated paycheck. Excellent work.

But you can’t take it too easy, because you’ll receive a severe pay cut if you deplete your portfolio too fast. How much can you take out each year and be almost certain that you won’t outlive your savings? Sherry Cooper BMO Chief Investment Officer states in her book, the New Retirement, no more than 5% a year. Other studies says 4%. That’s the withdrawal rate that would have sustained a balanced portfolio over most 30-year historical periods. Sure, if you retire on the eve of the next bull market, you can take out more. However, if you quit working right before the next bear market, then taking out more than 4% or 5% a year could send you starving and back to work in old age.

In my practice, retired clients tend to be very responsible and follow the plan we have worked out for them.  But some new clients that come our way show that even millionaires can deplete too fast.  A million dollar may seem like a lot of money but by the 5% withdrawal rate measure, it is only about $4000 per month. 

When we do cash flow analysis, we go beyond the simple 4 or 5% rule. We actually evaluate your personal tax rate, type of assets your hold and need for more or less cash flow now and later.  Our planning is personalize and quite in-depth. 

If you think that you can effectively wing it on your own simply because you have a large enough nest egg.  Think again.  Professional Planning is imperative to stay on track and keep your lifestyle alive as long as you will!