2008 February | WhereDoesAllMyMoneyGo.com

Convert your RRSP to a Defined Benefit Pension when you retire (?)

Posted by Preet on Feb 29, 2008 | 0 comments

I think that in the DIY investor world, the propensity to convert an RRSP to a RRIF is strong. The same is probably true for those who use an advisor as well. In fact, approximately 75% of RRSPs are eventually converted to RRIF (Registered Retirement Income Fund) accounts. The title of this post isn’t entirely accurate (you can’t actually convert your RRSP to a defined benefit pension plan per se), but you can convert your RRSP into a structure that mimics a Defined Benefit Pension Plan through the use of a life annuity. Defined Benefit pensions are envied by some since you eliminate a lot of unknowns for your retirement income planning such as the risk of...

TFSA Tax Free Savings Account Strategies

Posted by Preet on Feb 28, 2008 | 24 comments

I’m trying to think of some various strategies for using the TFSA: 1. If you have a non-registered account with corporate class mutual funds and they have a t-class available for ROC distributions, you could elect to start the ROC withdrawals and slowly convert the portfolio into the TFSA account. Eventually your ACB will be ground down to zero in the non-registered account, but you will also be transferring to a tax-sheltered environment without having to pay the higher fee associated with corporate class funds. 2. There is a huge opportunity for estate planning as you can pass TFSA assets tax-free to your spouse, and then to your children. Assuming the...

TFSA – Tax-Free Savings Account Announced in 2008 Canadian Budget

Posted by Preet on Feb 26, 2008 | 18 comments

Starting in 2009, Canadian residents who are over 18 years of age will be eligible to contribute $5,000 per year to a TFSA (Tax Free Savings Account). Unused contribution room will be carried forward. Any investments inside this account (which is registered) will be tax-exempt and allowed to grow on a tax free basis. In fact, to understand this account, think of it as like an RRSP except your contributions are not deductible. Conversely, the withdrawals are completely free of tax as well. The other major difference is that when you do make a withdrawal – you are credited with an equal amount of new contribution room being generated! Other notes: Income earned...

James Simons made $1.7 Billion in 2006 as a Money Manager

Posted by Preet on Feb 26, 2008 | 0 comments

James Simons is not that well known considering he: A) Earned $1.7 Billion in 2006 B) Guided his hedge fund to an annualized net rate of return of 36% for the 19 years ending 2006 First let’s explain how his 2006 pay packet was derived. His hedge fund charges a management fee of 5% plus a performance fee of 44%. That’s pretty steep. What’s even more astonishing is that the fund earned a gross return of 79% in 2006. The fund, the Renaissance Technology Corp. Medallion fund, is closed to new investors and was managing roughly $6 billion in 2006. Some other information that is worth noting: Simons earned a bachelor’s degree in math from M.I.T. and...

RRSPs Don't Always Make Sense

Posted by Preet on Feb 25, 2008 | 3 comments

I realized there have been a few posts within the blogosphere this past week about when using an RRSP might not be a good idea. I’ll weigh in on this in a separate post, but in the meantime you can read the following posts from other bloggers who have hit on the main points: Larry MacDonald’s Investment Ideas blog The Canadian Capitalist blog Also, for anyone who is interested in putting a face to a name, I’ll be appearing on MoneyLine with Linda Leatherdale this Wednesday, February 27th at 7pm EST on Rogers Cable 15 (it might be a different channel in your neighbourhood). It’s an hour long call-in show. The topic for the show? RRSPs naturally!...

Was selling Manhattan for $24 such a bad idea?

Posted by Preet on Feb 22, 2008 | 6 comments

The sale of Manhattan by the natives to Peter Minuit in 1626 often includes a mention of the estimated sale price. The actual exchange was apparently for some trade goods which is estimated to have been worth $24. Often the view that the natives were short-changed is expressed in the same breath. I don’t know what the value of Manhattan would be today, but if we assume that $24 grew at a real rate of return of 5 – 6% (extrapolating the long term rate of return for real estate as sourced from Dr. James DeLisle’s paper: ‘Real Estate: A Distinct Asset Class or an Industry Sector?’, 1995), we might have a better idea… $24 x 5% real rate...

Dow Jones rejects Google

Posted by Preet on Feb 21, 2008 | 1 comment

My brother sent me a link (which you can read here) that mentioned that Google was not included in the Dow Jones Industrialized Average (DJIA) during recent changes to the index. The link gives the story and also posits that the real reason for the omission was not the official reason given, but rather that the Dow is actually a price-weighted index as opposed to being a market-cap weighted index like virtually all other indices. A price-weighted index means that the index constituents are assigned a more significant weight in the index if the stock’s price is high. Originally there were only 11 constituents but now there are 30. It used to be you would just take...