Monthly Archives: April 2010

No Market-Linked GICs in Self-Directed Plans

Recently I’ve been trying to consolidate RRSPs.

I set up my self-directed RRSP with RBC mainly to hold my U.S. stocks so I wouldn’t be slapped with the 15% withholding tax on dividends. What I didn’t realize is that if your plan is less than $25,000, there is a $75 annual charge.

Let me take a pause and say that due to my specific situation I enjoy tax treaties and low taxes in my country of physical residence. For this reason, I have absolutely no incentive to contribute to my RRSP. The TFSA is leagues beyond the RRSP in my situation. In fact, due to my specific circumstances, even a non-registered account is better than an RRSP at this point in my life.  But because I wasn’t careful enough, I am now scrambling.

So I’ve been moving assets from my other RRSP as well as taking the opportunity to add some more U.S. investments to my portfolio. Everything seemed to move over fine, except for a market-linked GIC that I have within my bank RRSP.

Last night I was on the phone with Direct Investing to transfer some U.S. shares in kind, and asked if it was normal for the GIC to take longer to transfer. The agent said if it is maturing soon, they won’t transfer it. That isn’t the case, as I bought it in 2009, and it is a 3 year GIC.

After telling him it is market-linked, he said that’s the problem, as the market-linked GICs can only be held in a regular bank RRSP, not in self-directed plans.

At first, it seemed to defy logic. I could see no reason for this kind of limitation to exist. I have since come up with a theory, but have absolutely no proof.

As it stands, I will continue to have 2 RRSPs for at least the next 2 years, as I don’t want to liquidate the GIC. I bought it when the TSX 60 was still quite low, so I think I should keep it. It is also the only fixed income product (aside from high-interest savings accounts) that I have in my portfolio.

All-in-all, it seems to me that it is just another obstacle for the small funds investor. Another way to garnish our accounts, and make a buck off our hopes.


Maple/Greenback Conversions within RRSPs

With the exchange rate between the American and Canadian dollars at a hair’s breadth from par, it has given me a good opportunity to see what my brokerage is charging me to receive U.S. dividends.

If you are unaware (as I was when I created my RBC Direct Investing RRSP) many self-directed RRSPs don’t allow you to keep U.S. assets within your plan in U.S. dollars. I found this out after setting mine up. This slightly deflated my plans of continuing to collect U.S. dividends in U.S. dollars (while avoiding the 15% withholding tax) to eventually be used toward further purchases of U.S. securities.

As it stands, everything must be converted to Canadian dollars. So I’ve avoided the withholding tax, but am forced to convert to Canadian at that day’s rate and pay the spread. Since I didn’t transfer my U.S. assets to this account until December, and didn’t think to check the numbers on my first dividends in January,  I was unsure what the bank was taxing me.

On Monday I received a dividend that gave me the information I needed.

That day, the listed exchange rate was $1USD to $1.003CAD. Calculating the percent change between the dividend I should have received at that rate and the cash I actually received, I found that RBC took a 1% cut.

Of course the withholding tax avoidance is the better deal, but I’d like to be able to do what I like with my money, whether that be using my U.S. dollars to buy more U.S. assets, or converting to Canadian when it is beneficial to me. In today’s par environment, I’d rather keep my Greenbacks and convert if/when the Canadian dollar weakens in comparison.

The good thing is that this system looks to be coming to an end. Recently the Canadian Capitalist reported that RBC will be allowing U.S. assets to be held in U.S. dollars in the coming months. Once that happens, all things will be back to plan…or that’s the plan, at least.

Japan’s Debt Problem

Before Bloomberg started charging for content, I listened to their podcasts everyday.

One guest that I enjoyed was Carl Weinberg.  Not because I found much of what he said terribly useful, but rather that it was always interesting to see how much further he could go in his adamant loathing of Japan’s debt issues. He was always ranting that ratings agencies should lower the status of Japanese bonds to slightly better than “junk”.

Mr. Weinberg was mentioned in a recent article I read about Japan’s debt issues, and he was at it again, saying “the debt situation is irrecoverable.”

Please, Mr. Weinberg.  If there is a debt situation that is irrecoverable, it is surely that of the U.S. who have absolutely no way to pay back the monstrous amounts of money they have borrowed from the world.

To be sure, Japan has a lot of debt outstanding. But what I think analysts like Carl Weinberg forget, is that Japan mostly owes money to… the Japanese. More than I thought, actually, as the above-mentioned article states 95% of Japanese debt is domestic.

With that fact, the situation doesn’t seem as dire as it does on paper. First, the interest on Japanese bonds are ridiculously low, and as soon as it is paid to a Japanese resident, it is automatically taxed at 20%, meaning the government will get back almost 20% of the interest it pays in the form of taxes. The money is still in the economy, as well. So people and pension funds will either roll over the cash into a new bond, or will spend it in the economy.

Of course, the Japanese will still have an issue to deal with on the payment of principal, but that is where the easy difficult question lies. Easy because it is so simple, but difficult because of red-tape and political backlash.

Yes, taxes. Raising taxes will almost certainly alleviate this situation, and considering Japan’s foolishly low tax rates, will not terribly burden the consumer.

Last year I paid a dazzling 6.89% of my income to the government in the form of income tax.  Add my National health insurance premiums (no OHIP here) and it still came to a breath-taking 10.83% of my 2009 salary.

Ok, maybe not the best pill to swallow, but rasing taxes in this under-taxed country is the simple solution to it all.

The Bluefin Battle

I got into an, ironically, heated argument with my sushi chef on Sunday.

Ironic for the following reasons: we usually get along smashingly (he came to my wedding, even), we weren’t even eating sushi or at his restaurant (we were having a BBQ in a park),  sushi is never heated (lame joke, I know).

Allow me to backtrack and say that I have relatively avoided Bluefin Tune (maguro or toro, for the sushi inclined) for about one and a half years. Meaning, I haven’t willingly ordered it, but have eaten it when it is part of a set, or if it has been gifted to me.

For the past three months, however, I have made a more conscious effort to avoid its consumption: if it is in a sushi set, I give it to my wife; if it is given to me as a present, I let my wife go to town on it.

The reason being that I can no longer accept myself as a willing participant of the bluefin’s demise. That being said, I believe that everyone must make up their own mind about this kind of issue.

The battle began at the above mentioned BBQ when I asked him if fish slices could be substituted in his sushi set. He said no problem, and asked why. I told him how I want to avoid maguro, and would like to substitute salmon instead. Here is where the battle began, and he started in on me about why I would want to give up bluefin tuna.

Because research states that bluefin numbers are dwindling quickly; because the fish will be effectively extinct in 25 to 50 years if things don’t change; because about 80% of the catch is consumed in Japan. Whatever I can do to help is what I want to do to help, regardless if I am alone or not.  Therefore, I’ll take salmon, please.

Well here he lost it. “And if everyone ate salmon the salmon would be extinct!!” he said.

I understand his statement, but disagree with the result. First off, everyone is not going to eat salmon. Secondly, salmon is easily farmed, and most salmon we eat is from these farms; bluefin tuna cannot be farmed. Thirdly, but not lastly, IF salmon were to be the fish of sushi choice, and its existence were to  be in question, than surely bluefin tuna would in abundance, and I would switch back.

There was more to the debate but, suffice it to say, I chalk his resistance up to a couple of factors. First, maguro has become such a part of the Japanese mainstream diet that it is shocking to think that someone would willingly give it up (an offside: I was watching a news program on this issue and a few randomly interviewed Japanese people said something to the effect of… “It is part of the Japanese diet. The low numbers can’t be helped. If it becomes extinct than we will have to find something else, but until then I will eat it.”)

The second factor is the most important, I think. The mere fact that bluefin tuna can’t be farmed, is difficult to catch, and is nearing extinction, is the exact reason that its price is so high. This basic incentive (ie. the highest priced fish on the menu)  is the reason that he would, as a business owner, be abject to someone avoiding its consumption.

For him, the short-term economics are simple: the more people who order highly priced fish, the better. In the long-term, however, if the bluefin tuna is no longer around, there will be nothing to sell at such a high price.

Maybe the sushi industry needs a lobbyist… one that argues for sanctions, allowing high prices, for a longer time.

An Update… and Announcement

As I’ve been swamped with a new job and responsibilities, I’ve slacked on keeping up-to-date. For that I am sorry.

I expect my schedule to remain quite busy for the next couple weeks.

As such, I am not certain that I will be able to post as often as I have… for the time being.

However, I have added a “subscription” option (found in the sidebar to the right) which allows you to receive an email from me when I add a post. I recommend this option.

The above being said, I hope that I will be able to avoid another post-less week.

Not Just for Kids

Wanna save money?

Get a piggy bank or two…    I’m serious.

Back in 2008 I decided to set up a two piggy bank system, and in the course of 6 months, saved about $1000.

They were cans, to be precise, but it’s all semantics, really.

The cans were each bought at what would be my equivalent of the dollar store, and had no easy access. Meaning… if you wanted to get the money out, you needed a can-opener. I had one bank for 100 yen coins, and one bank for 500 yen coins.

For those 6 months I went all out. Whenever I came home, I took my change out of my pocket, and dropped any coins into their respective piggy bank. Smaller denominations stayed in my change purse for the next day.

Some may argue that I wasn’t really saving, as any money put into the cans would cause a loss in my money on hand, and would require a trip to the ABM more sooner than later. To those people I say that it is no different from any other automatic saving plan:

  • When you set up an automatic RRSP contribution plan you are taking money out of your pocket now for later.
  • When you pay your pension premiums you are taking money out of your pocket now for later.
  • When you set money aside for you next vacation you are taking money out of your pocket now for later.

All of the above have the same result: you sacrifice a certain amount of cash now, for a future benefit.

The money I saved in 2008 remains in the same savings account, untouched, gaining interest. And now that I am married and settled, the system has begun again, though now I allocate 50% of said coins (i.e. if I have two 100 yen coins, one goes in the piggy bank)

You can do the same thing in Canada with one and two dollar coins. You can set whatever rules you like. Your could put all coins in the banks, for example, or you could set up a 3 coins to 1 deposit ratio. The important thing is to stick to the system. You will be smiling when the piggy bank is full and you roll up the coins.

As this is the one month anniversary of this blog, I am offering a contest. The first person to reply to this post will receive a free Japanese only-open-with-a-can-opener can bank. Simply comment on this post, and I will then contact you to ask you for you mailing address. It’s that simple.