Your Interview

I am retired and 67yrs. old, I have stocks and Income tRUsts, I would like to cash out, is that a wise desion?

Judith Cane: Joyce and JoAnne, I understand your nervousness during these turbulent times; however you haven’t actually lost any money until you cash them out. I have no idea what your health or financial situation is but if you don’t need ALL of your money tomorrow or even in a year, then you should not cash out. Things will improve, although we don’t know if it will be 6 months or 16 months, but history has shown that market declines have typically been followed by even greater gains in the long run.

We have a defined pension income, and about $5o,ooo in RRSP's we use for trips etc. Most of it is in commodities [ oil] so we are losing like crazy. Should we bite the bullet and draw it out, pay a whack of taxes, and put it in GIC's or hang in there and stay the course and hope things improve sooner rather than later???

I have no investments at the moment. Is now a good time to get into the market?

Judith Cane: Ben and John, now is a great time to get into the market. Great companies running successful long-term businesses now cost less to buy than they did 6 months ago. You didn’t mention your age, but if you are young and just starting out ensure you have a diversified portfolio of equities. Let me give you an example of why you should buy. If the housing market dropped 30%, that would be an excellent time to buy a house.

I am, through unfortunate circumstances, in the fortunate financial position of recently coming into some money. I have two relatively new vehicles, a fairly new house that suits my needs, and my only debt is a 30,000 dollar mortagage on a 300,000 house. I have a modest RRSP investment of about 100,000 dollars between my wife and I my kids are set up with RESP'S and both of us have secure pensions. We will be ready to retire in about ten years. I am looking at receiving about 100,000 dollars(that is after taxes) from an estate. Do I look at property (rental?), blue chip stocks, penny stocks with a broker or on my own or do I just buy GIC's, or a combination of each? How do I best make this money work for me in these unsure times?

Judith Cane: My first recommendation is to talk to a financial planner. You now have assets of over $500,000 and they will be able to look at your total situation, your goals for now and the future and determine what you should do with your inheritance. When they look at your investments they will look at your RRSP and your inheritance to create a diversified portfolio that may include a rental property. A rental property could create an additional source of income during retirement.

I "want out"!
I'm approaching retirement and want to get "real value" for my $. I'll willing to leave my current 'conservative' RRSP but I don't want to invest new $. But where to put those $ with fears of inflation?
Thank you.

Judith Cane: Diane, you don’t mention where your RRSPs are invested, or how long you have had them, or what the growth has been over the years. I do not recommend getting out for the reasons mentioned in the answer above, if you do, you will be locking into your losses. You may be close to retirement, but women are living on average to age 83, so you have time for your RRSPs to recover. If you are uncomfortable with putting any new money into equities, you may want to consider a Money Market account, a high yield bank account or GICs, however if you move everything into this kind of account you’re right, you will not keep up with inflation.

In March I put $130k into a BMONesbittBurns equity fund account...in the summer it was up to 142k and now it's down to $103k...It was a planned mortgage down payment, right now I have no immediate plans to buy a house...but, I don't know if that could change within the next 6months. I am wondering if I should take that money out now, put it into a high interest savings account at my bank or leave it with them and wait for things to improve again. It's all I have and it worries me that it'll drop even more. What would you suggest.

Judith Cane: Deb, if you are going to need this money within the next 3 years, you may want to consider moving it out of equities and park it in a fixed income product like a GIC or a high yield bank account. I’m not sure what your situation was when you invested the money, but if you are saving money for short term financial goals such as a down payment for a house or a car, that will be used within 3-5 years, I recommend my clients stay out of equities.

My retirement investments are made up of approximately 50% income trusts. In this current economic downturn, can I expect the payout to remain the same, even if the trusts themselves have diminished in value?

Judith Cane: Joe, each income trust operates differently and if you are invested in larger, high-quality trusts that are reasonably valued in terms of their yields you will likely see no difference in distributions.

I was thinking (before the slump hit) of stopping my contributions to RRSPs and paying off my credit line. While I know it`s important not to sell what I have accumulated as to not crystallize my losses, do you think I should continue my contributions as to buy more units at a lower price?

What do you generally recommend? I have about 31 000$ on a credit line at 5.75%. I contribute 150$ biweekly to my RRSPs. I automatically pay the interest and 50$ of the principle a month. I am a teacher and plan to have a decent pension (60-70% of my five best years). Thanks!

Judith Cane: Yan, I recommend to my clients that they work hard at paying down any debt they have as fast as they can. I don’t know the rest of your financial situation, however if you are working towards a pension, you won’t be depending on your RRSPs as your sole source of retirement income. In that case, I would continue contributing $150/month towards your RRSP, use the other $150/month towards the principle of your debt and also when you get your tax refund, because of your RRSP contribution, I would put that towards the principle of your debt. Once your debt has been paid off you can increase your RRSP contributions again.

Hi,

I am 30 years old 1 year out of school. I have student debt of ~70K at 6.5%. I've already established an emergency fund. I'd like to invest in mutual funds. Is now an okay time? or should I wait 'til markets settle? Should I be aggressive in paying down the debt, or make my monthly payments on those and in the meantime contribute to RRSP/invest with 10% of my monthly income?

Thanks for your advice!

Judith Cane: Virginia, since you have already created an emergency fund (good for you), I suggest aggressive paydown of your student loan. You don’t mention what your income is, if you are contributing to a pension or what your monthly expenses are. I would pay as much per month as possible on your student loan and at least try to contribute $50/month towards your RRSP and when you get your tax refund (don’t forget to include the interest on your student loan on your tax return) use it towards your student loan.

I am retired and living off RIF and Lif incomes. These funds have a mix of equities and fixed income and are manaaged by RBC Dominiion Securities. I am carrying about $12,000.00 on a home equity line of credit at 4.00% and have been paying that off at $500.00 to $550.00 per month. I am thinking of reducing some the of income generated by the sale of equities and only paying the interest on the line of credit. What are your thoughts on this?

Judith Cane: Bill, I’m assuming you have a choice as to which investments your RRIF and LIF withdrawals come from and you are considering changing the mix to less equities and more fixed income to allow your equities to recover from this turbulence. This is a good strategy. If there is a cash flow issue when you do this, you may want to consider reducing what you are paying on your line of credit, especially with such a low interest rate. I wouldn’t want to see you hang on to that debt much more than 3 years though, so this should be a short term strategy for you.

I recently bought a home in Regina, Saskatchewan. I have a very secure job that pays me about $65,000 a year. My home costs me $15,000 a year in mortgage and an additional $2400 in taxes. The mortgage is amortized over 30 years and I own 18% of the home.

I am worried about the economic crisis and things going down hill to possible depression levels and my home being worth half or less of what I purchased it for.

I have no other debt and am very disciplined with my money.

Do I fall within acceptable levels of debt? Should I be very worried?

Thanks for your time.

Judith Cane: Mithan, housing costs should generally be 25 – 30% of your income and your costs seem to fall within those parameters. Without knowing the rest of your living expenses, I would recommend you put money towards an emergency fund and avoid accruing any further debt until you have at least 25% equity in your house. As for the value of your house if it goes down you only need to be concerned if you decide to sell your house. Absolutely don’t sell if you don’t need to.

Being 24 is now a good time to be involved in RRSPs with the current economic situation?

In early November 2008 my RRIF's have to be renewed after a five-year term at 4.65%

How will the present economical situation affect the rates of return for my RRIf's, which I depend on during my retirement.

Thanks.

Kate

Judith Cane: Kate, since I don’t know what your income level is, I can’t calculate your tax rate. However, if all of your RRIFs are in GICs you will see a reduction in the 5 year rate. You may want to consider government bonds or including a small portion of dividend paying stocks or mutual funds to offset the effects of our inflation rate which has risen slightly.

My husband and i just bought a house, some say it was the perfect time but i feel otherwise what with the rise in interest rates and such. Our mortgage rate for a 5 yr fixed term is approx. 5.40% and just a few short weeks ago the bank was giving us a rate of 4.75% so as you can see i don't agree with those saying that this is a "buyers market;" however, my question to you is, do you think it is wise to go with a variable interest rate considering the current economic crisis?

Truly,

Shantel

Judith Cane: Shantel, I always advise my clients that it is better to own than to rent IF they are buying the house to live in, not just as an investment. In addition, in order to know as many fixed costs as possible, I usually encourage them to lock in to a fixed rate.

I have a 14 month old son. Am I better off to invest on his behalf in a quote/unquote stable stock, a mutual fund or something like a Canada Savings Bond?

thanks
Gene

Judith Cane: Gene, the first thing I would do is start and RESP for your son. The government will match your contribution with a 20 per cent grant to a maximum each year. That is a 20 Per cent return on investment, which as everyone knows right now, is the best thing going. Because your son won’t be using the money for another 16 years, you have time to invest in equities. Speculative stocks are probably not the best solution, but that really depends on your risk tolerance. Canada Savings Bonds have low interest rates but given the 20% grant, if you are very nervous, that is a conservative strategy.

My boyfriend and I are just beginning promising careers in the biotech and service industries here in Halifax. We are renting an expensive apartment and starting to tuck away cash for a down payment in the form of RRSPs because our employers offer matching benefits. Should we hold off on buying the RRSPs because of market conditions/ inflation/ job security/ home market?

Judith Cane: Alecia, it’s a great idea to be putting money away for a house down payment and using your RRSPs is a good strategy. You need to be careful of the restrictions on timing, but all of that information is available at this link: http://www.cra-arc.gc.ca/E/pub/tg/rc4135/rc4135-e.html

If you are going to buy a home within the next 3-5 years, I would not recommend equity funds, but perhaps GICs, a high yield savings account or a fixed income account.

I am 50 (single) this year and plan to retire early (53) with 30 years service from federal job, defer my pension to 55 using my RRSP savings(~100K locked in a 3yr GIC-RSP) to carry me till I start drawing my federal pension at age 55. I have no debts, mortgages etc and a sizeable rainy day fund. Do I need to worry about other unknowns?
Debbie

Judith Cane: Debbie, this is a great strategy and a good way to ensure you aren’t bringing additional RRIF income at age 71, when you are already living on an indexed income. It will just increase the amount of income tax you will pay. You may want to ensure you have calculated what your retirement expenses will be including buying a new car every 10 years, travel and potential long term care.

I'm a single 62 year-old and have been retired for 2 years. I converted all my RRSPs into RRIFs this spring and draw a modest income each month. My RRIF is with a major Canadian bank and I opted for a medium-risk portfolio (half mutual funds, half bonds). My only other income comes from CPP payments. To date I’ve lost close to 25% of my investment (as of August 2008). I chose not to change my risk factor when the markets started to fall as I felt I would not be able to gain back any losses. Have I done the right thing? If the markets improve over the next year, how long would it take to regain my losses, if at all?

Judith Cane: Lauraine, I wish I could tell you how long this turbulence will last. What I can tell you is that women are living on average to 83 and you will need your money to last as long as you. Throughout history, we have seen declines such as the one we are going through right now, only to see greater gains. You have a better chance of gaining your losses by staying where you are.