As everyone knows, an RRSP account is where retirement savings goes. But less people know how to structure the account to make sure there’s something left at retirement. It comes down to one thing, says Gardner; holding long-term assets. Whether it’s a fund, ETF or stock, the investment needs to last for years, if not decades.

That means owning large-cap investments. Typically, larger companies with a market capitalization of at least $10 billion are safer than smaller ones. A mutual fund that holds Canadian bank stocks won’t rise in value as quickly as one that holds junior mining firms, but it won’t fall nearly as quickly either. Not only do large caps decrease volatility, but these companies, especially multinationals, aren’t nearly as likely to go bankrupt. A fund that holds decades old brands such McDonalds and Coca-Cola, for instance, will likely be around for the long-term.

AJ Sull, president and chief investment officer with Vancouver’s Pacifica Partners Capital Management, says dividend-paying companies should also be an integral part of an RRSP portfolio. There’re good for two reasons, he says. The first is that people don’t have to worry too much about whether their investments are increasing in value; regular dividend payments will keep money flowing into account. “You’re getting paid something while you wait for the stock price to rise,” adds Gardner.

The second is that dividend payments allow Canadians to buy more fund units or ETFs without adding to the principal. Ultimately, the more assets you own the more you’ll have when it’s time to retire. Imagine how much larger your portfolio will be after reinvesting dividends for 30 years.

Not only do Canadians have to buy long lasting investments, but a good RRSP also has the right asset allocation. Steven Belchetz, president and chief investment officer with Toronto’s T.E. Wealth, says that retirement portfolios need to be diversified globally. Canada’s market is concentrated in just three sectors, financials, materials and energy, so having too much domestic exposure could be risky.

For the equity part of an RRSP, Belchetz recommends having 50% of assets in Canadian securities, 25% in the U.S. and 25% in international markets. You still want to be more heavily weighted towards domestic securities because of the currency risks around non-Canadian investments.

When it comes to bonds or bond funds, what to buy depends on risk tolerance. Government bonds yield around 2%, but they’re extremely safe. Corporates have a better yield, but they’re riskier. Either way, the basic rules around age and asset allocation remain; own less bonds when you’re younger and more when you’re older. Sull says investors should have, at minimum, 20% of their RRSP assets in fixed income.

By sticking to large-cap, dividend-paying securities your retirement should be secure. Save your risky buying and selling for another account, says Gardner. “No matter if it’s an ETF or mutual fund, RRSPs should hold the core long life assets,” he says. “It’s not for the newest and craziest trading strategy.”

The Vancouver-based writer talks excitedly about opening her RRSP account at 22, long before most of her peers. But, she hesitates a bit when describing how she used to contribute back then.

“I was haphazardly putting in a lump sum,” she says. “I just put in whatever was left over.”

That changed about two years ago, when she started using index funds. Instead of depositing some money into her account at the end of the year, she began transferring a specific amount each month from her savings account into her RRSP.

While her $200 a month payments make up about 75% of her annual contributions, she can’t completely get away from the lump sum approach. At the end of the year she’ll add whatever cash she has left over into her RRSP.

Alison Griffiths, author of the recently released Count On Yourself: Take Charge of Your Money, says both options can work, but regular deposits are better. It forces people to save, she says. Simply set up an automatic withdrawal and leave it at that.

“The money goes out and you don’t have to worry about it,” says Griffiths.

Another reason to use the monthly withdrawal method, which is often referred to as dollar cost averaging, is because it can make investing less volatile. Since you’re investing the same amount each month, you’re not trying to time the market. If the market is down one day you end up buying more mutual fund or ETF units; if it’s up you buy less. In the end it should even itself out.

“Dollar cost averaging smoothes those bumps,” Griffiths explains.

But don’t count out the lump sum payments. Do-it-yourself investors who buy online usually have to pay commission fees on their transactions. If you’re spending $200 a month, and paying $29 each time you buy an ETF—the fee you’re typically charged if you don’t have over $50,000 of assets at the bank—you’ll end up giving your financial institution 14% of your intended RRSP payments each month.

In that case, Griffiths suggests setting money aside in a savings account and then depositing the cash into the RRSP once or twice a year.

But when’s the best time to contribute that lump sum? The earlier the better, says Griffiths. “If you’re getting a 3% dividend and can start that on January 1 instead of December 31, the extra year can really make a difference,” she explains. In other words, don’t wait until you have some leftover cash to make a contribution.

Clare isn’t investing through an online brokerage so she doesn’t have to worry about the transaction fees. And because she’s set up automatic withdrawal each month, she really doesn’t have much to worry about at all.

“I feel so much better,” she says about changing her RRSP contribution method. “I pay myself first now. And I like not seeing all that money sitting in my savings account—I don’t have the temptation to spend it.”

As American newspaper columnist Bill Vaughan once said, “A college education adds many thousands of dollars to a man’s lifetime income — which he then spends sending his son to college.” This sentiment is as true today as it was when Vaughn was writing in the ’50 and ’60s, only these days, it’s often two working parents who, combined, can’t afford their kids’ tuition. But don’t panic — you probably have more options than you think, even if your son is only a few years from high-school graduation.

Without question, the best way to save for a child’s university education is through a Registered Education Savings Plan. It works like any other investment account — your money buys stocks, mutual funds and bonds — but as a bonus, the government will chip in 20% of any contribution up to a maximum of $2,500 per year. It’s a good idea to open one soon after a child is born, but don’t worry if you haven’t — every year, you are eligible for a retroactive government top-up on one year that you missed. Your child is 14 now: plunk $5,000 into an RESP account before your son’s next birthday and you’ll get an extra $1,000 from the feds — $500 for this year and another $500 for the year before. Do this every year until your child is 18 and it’ll be as though you started saving four years ago.

In addition to the government’s contribution, you’ll also get a return on your total investment. But don’t try to catch up by looking for “hot tips” in the stock market. “If the kid is less than seven years away from university, the money has to be in something rock solid,” says Alison Griffiths, former host of the W Network’s Dollars and Sense. Keep the cash in low-risk products. The return won’t be astronomical, but at least it will be safe.

Of course, not everyone has five grand lying around to deposit into an RESP, especially if you’re already contributing to a Registered Retirement Savings Plan. But with some careful planning and saving, says Mathieu Paradis, a CFP with Wealth Strategies based in Orleans, Ont., you can contribute to both. Try putting $1,000 into your RRSP every month and use your year-end tax refund for education savings. Someone in a 42% marginal tax bracket and earning about $90,000 would, on $12,000 in RRSP contributions, receive a refund of approximately $5,000 to invest in education.“You’re killing two birds,” he says.

The feds aren’t your only option for financial help, either. Hundreds of scholarships are offered to students every year. If your kid happens to be among the brightest in his school, this certainly helps. But there are scads of lucrative grants and scholarships forkids of all stripes: athletes, mature students, science buffs, and kids of various cultural, ethnic and socio-economic backgrounds. Every year, many of them go unsought and unclaimed. For a detailed list of what’s out there, check out Scholarshipscanada.com.

Another frequently overlooked option: character building! Get your child investing in his own future. At 14, your son is old enough to be mowing lawns, babysitting, and doing all sorts of odd jobs at home and in the neighbourhood for cash. “They should know they’re not just getting a free lunch,” says Sarah Kinnear, a senior tax and estate planning specialist at Investor’s Group. At 16, teens are eligible to start working a part-time job. Maybe he won’t be able to contribute thousands, says Eric Tyson, co-author of Personal Finance for Canadians for Dummies, but even just 5% or 10% is better than nothing. Also, ask the child’s grandparents to contribute to his RESP on birthdays and holidays instead of buying pricey gifts. Your son may not be thrilled about the idea right now, but he’ll thank you later.

Other means of securing funds for tuition exist, Tyson says, but they should be used only as a last resort. For example, a home equity line or second mortgage can offer families a quick cash infusion, especially if their mortgage is almost paid off. But it will also plunge parents further into the red, often at a time when they can least afford it. “The parents might be a few years from retirement,” he says. “Do they [really] want to take out more debt?”

As you start saving, remember to maintain an open dialogue with your child about his career ambitions. After all, university isn’t for everyone. Make sure you’re not projecting your goals for your son onto him. Maybe he doesn’t even want to be a neurologist like you’d hoped. Maybe he’s passionate about being a graphic designer, a police officer or an electrician. If that’s the case, count yourself lucky. Community college bills are a whole lot smaller.

Story originally posted on Canadian Business Online

In fact, buying a repo can save you big bucks—between 25% and 40% off the cost of a similar used car. But keep in mind that you could find yourself with a big fat lemon on your hands. You might not even be able to drive it off the lot. The key is to keep in mind that when you’re buying a repo, it’s buyer beware.

The biggest problem with buying a repo is getting a handle on what shape the car is really in. When you buy a used car, you can always get a mechanic to check the car out for you, but not with repos. This is disconcerting, because the type of person who defaults on his or her car payments is not necessarily the type who makes sure that all the scheduled car maintenance is done on time.

Of course, the unknown condition of the cars is one reason why they’re so cheap. For instance a British Columbia repo bailiff (who didn’t want to be named), says he sold a motorcycle that was worth $6,000 for just $1,500 because it had a blown engine. But the buyer only had to pay another $1,000 to fix it. “Those are the sweet deals,” he says.

The other reason the cars are so cheap is because the banks and lenders just want to recover their money—they’re not looking to make a big profit. “In their mind they’re not really selling a car,” says London, Ont., bailiff Scott Ewart. “They’re selling an asset that belongs to the bank.”

There are several websites that specialize in selling repossessed cars, such as Repo.com and RepoDepo.ca. Marvin Bowman of Burnaby, B.C.-based Repo.com says his company gets about 200 repo cars a month. Many such online dealers offer reports and warranties to help defray some of the risk. For instance, Repo.com provides an 88-point report outlining the vehicles deficiencies, and offers a 30-day warranty on components like the engine and transmission. You can extend that warranty up to two years for an additional $670 fee.

Another way to buy repo vehicles is through auctions. Ewart, the bailiff, bought a Ford Explorer this way himself. While you can’t get the cars checked out by a mechanic before the sale, you can kick the tires yourself. Before his auction took place Ewart wandered over to the Explorer he was interested in and started it to hear the engine sound. He also checked the oil, the transmission, the tire rod and looked under the hood. He liked what he saw, so when the SUV came on the block he started bidding. He got it for a couple of thousand dollars less than he would have paid to buy a similar SUV used.

When buying a repo, George Iny, president of the Automobile Protection Agency, suggests sticking to vehicles that are less than 18 months old. The newer the car, the fewer problems it will have. As well, there is a large supply of lease returns for three- to four-year-old vehicles that people can buy on the cheap. “Repossession is an advantage when there isn’t a large supply of similar cars on the market,” he explains.

While the deals are still out there, the repo business is getting smaller. An increasing number of car dealers are buying up repo cars, and the auction sites are starting to host dealer-only auctions. Thus, many of the best cars are snapped up by the dealers, leaving the leftovers for the general public.

You definitely can find a great deal on a repo if you know your way around a car, and you’re willing to take a chance. But you’ll probably only save a few thousand dollars. If the prospect of coming home with a lemon is enough to keep you up at night, you might want to just stick to the used car lot.

A 2007 study by Northwestern University’s Igal Hendel, Aviv Nevo and François Ortalo-Magne found that there was no difference in sale price between houses sold without an agent and agent-sold homes, though sellers did save between 3% and 6% on commission. Another paper, published in 2008 by Stanford University’s Douglas Bernheim and Texas A&M University’s Jonathan Meer, says that houses at Stanford University actually sold for 7% more when no agent was involved.

Meer says that could be because  houses sold by realtors sell faster. “Agents are acting in regard to their own interest—to sell the house quickly—even at a lower price,” he says, adding that waiting another month to sell a house for an extra $10,000 will only net the agent about $150 after expenses.

There are some drawbacks to selling on your own. Having your house on the market longer can mean more mortgage payments. People selling on their own also have to factor in advertising and legal costs, and “inconvenience costs,” like having to show the house yourself. Plus one-third eventually give up and switch to a realtor anyway.

But despite the downside, Hendel says selling without a realtor is an attractive option that could put pressure on realtor fees. “There’s such an easy alterative platform,” he says. “It’s surprising that agents keep charging their 5%.”
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Yours truly,
Bryan

I don’t know about you, but it’s hard to wake up every morning and hear about another country needing a bailout and then seeing the markets nosedive. This time it’s Hungary. On Friday the country’s recently elected government warned that, if they can’t get their growing debt under control, the country could be headed for a Greece-style meltdown. Needless to say, indices around the world plummeted — the Dow fell 324 points, the S&P/TSX dropped by 235 points — and once again investors panicked.

I’m not sure how many times this will happen until people take a deep breath before exiting markets, but it’s probably a good idea to remain calm the next time a European country is in trouble. According to UBS Wealth Management Research Hungary is not the new Greece. While it has a debt-to-GDP ratio of 80%, one of the highest debt levels in the region, the financial firm says that’s much lower than Greece. It’s also lower then Japan, the UK and the U.S.

UBS says the government’s warning has more to do with politics than a crumbling economy, though Hungary did need a 20 billion Euro bailout package in 2008 to avoid a default.

“It appears that the Fidesz party, elected in April 2010, is doing what most newly elected governments do: trying to get as much room for fiscal maneuvering as possible by raising the outgoing government’s deficit projections,” writes UBS analysts Kilian Reber and Michael Bolliger in a report. “Fidesz was partly elected on promises to lower taxes and stimulate growth, which means that the budget deficit would have to raised and the IMF/EU financial support package renegotiated.”

This, says UBS, is not new news. Hungary has been in talks with the IMF to raise deficit targets for some time. The analysts say Hungary’s current officials were trying to “gauge the fiscal maneuvering potential, but may have gone a bit too far in their rhetoric.”

If you still think Hungary is Greece, Danske Bank released a report titled “Hungary is Hungary” — so keep Greece out of it. Their paper points out that Hungary’s budget deficit is much lower than Greece’s, the country does need any extra funding and Hungary is in a current account surplus while Greece faces a current account deficit.

Some people have said the government’s recent economic statements have more to do with them wanting to back away from their election promise to lower taxes than anything else. The authors of Danske Bank’s report take a different view, saying bluntly that it was “not part of a well thought-out political strategy for domestic political consumption. Neither were similarly ill-advised comments from government spokesman Peter Szijjarto. Rather we see these statements as the natural continuation of a very hostile election campaign.”

What does this all mean? Before investors panic, and potentially lose money, they should do their research and find out what’s really going on. And, while Europe’s got problems, it is not disintegrating before our eyes. Finally, for investors who haven’t been turned off yet, it may be time to buy.
Follow Bryan on Twitter @bborzyko

Most financial planners will tell you that over the long run, leasing costs more than buying. But Goldstein’s doesn’t pay full price. He uses leasebusters.com—a website that connects people who need to break a lease with people who want a new car. Goldstein says that by doing so, he can get some serious deals. For instance, the first owner of his Mercedes put $17,000 down, which reduced his monthly lease payments to $695—about $500 lower than they would be if he drove the car off the lot.

But is taking over someone else’s lease always the best way to go? And is it cheaper than buying used? We talked to George Iny, director of the Automobile Protection Association, to find out.

Iny told us that assuming leases can indeed save you big money over leasing direct from the dealer. To get the best bang for your buck, he says you should make sure that the original lessee made a substantial down payment of at least $3,000. You should also look for distressed sellers who offer cash incentives to take the car off their hands. Having the seller cover two to four months of payments is typical agreement if he needs to get out of his lease fast.
The other advantage of taking over a lease is that up-front costs, such as the GST and PST, have already been covered by the original lessee.

But even so, there are some cases where it may actually be cheaper to lease directly from the dealer, Iny cautions. Toyota, for example, now offers cheaper lease rates than it did four
years ago. So a new lease from them could have lower monthly payments than an assumed one.

And when you compare lease busting to buying used,Iny says leases usually lose over the long run. “A vehicle loses its largest percentage of value in first three years,” he says. Sometimes, the price can even drop by half. Most assumed leases can’t compete, especially if you plan on driving the car for at least five years.

The only instance where assumed leases might come out ahead is when you must have a new car on a regular basis. That’s the case with Goldstein: He loves driving a different car every couple of years, so his love affair with leasing will continue, he says—whether it makes financial sense or not.

I for one would love to see the penny disappear. While prices may be rounded up, I’ll pay the extra cent or two to not have my pockets weighed down by change. Plus, it’ll save taxpayers money. According to the American budget, the U.S. spends 1.8 cents on each penny; they’ve spent about $100 million more than the currency is really worth.

In a story I wrote for Canadian Business a while ago I talked to Scott Travers, author of the Insiders Guide to U.S. Coin Values 2010. He suggested a number of ways you can keep the penny (and nickel, which costs the U.S. government 9 cents per coin to produce) and make it cheaper to create — make it smaller, fashion it out of aluminum — but getting rid of the currency all together may make the most sense. “With the possibility of monetary inflation, pennies and nickels soon won’t mean very much anyway,” he told me.

Anyway, this is probably just another case of the senate trying to fill time. Those pennies are going to with us for a long time whether we like it or not.