Monthly Archives: May 2010

RBC Direct Investing RRSP Update

As promised, RBC Direct Investing began offering the option to hold U.S. cash and securities within an RRSP as of May 14th. I called early the next week to have my U.S. securities transferred back into U.S. dollars.

The process was smooth once I got to speak with a trader. I just told him what I wanted to do, he repeated, I confirmed, and it was done. Two days later the securities were sitting in the U.S. side of my account.

While the securities were moved over smoothly, and they correctly tracked the market value in U.S. dollars, there was no book value attached to them. I left it for a while, but since there was still nothing in the book value column this week, I sent an email and, subsequently, made a phone call.

If you have the same situation (no book value or percent change), there are two possible remedies:

  1. If you originally moved your securities from a non-registered RBC Direct Investing account to your RRSP, you simple have to call (1-800-769-2560), explain the situation, and ask to have the book value calculated. They will put you on hold while they search your account and crunch the numbers.
  2. If you originally moved your securities from another institution to the Direct Investing RRSP, you will have to submit documents from the delivering institution (ie. an old monthly statement that shows the book value) as well as a “Book Value” form, which is available here.

I originally moved my securities from my non-registered account to my RRSP within Direct Investing, so it was a very simple phone call that took all of about 15 minutes, half of which was on hold while the rep searched my account history and calculated the book values of my securities. She came back and said the book values would appear on my account page in 2 or 3 business days.

All-in-all I’m quite happy with the situation, though am at a loss as to why they couldn’t have dealt with the book values automatically, given that it was all with the same brokerage. Perhaps it’s only growing pains. A 15 minute phone call is well worth the savings on future dividends.

If you’d like to see the back story to this, please see the following posts:

  1. Dividend Conversions within an RRSP
  2. Withholding Tax/GICs and an RRSP
  3. The First Update

Use Sink Funds for Bills

Recently I’ve been thinking about using something akin to a sink fund within our budget.

A sink fund is a business term used by some companies that issue bonds. They may set up a sink fund that, basically, saves money to use toward paying back the principal on their debt. That is to say, the money is still in their possession, but it is earmarked for paying back debt and can’t be used for anything else.

The idea goes as follows: set up a separate high interest savings account and label it, say, credit sink fund. Use your card as usual, but when you get home after any purchase, jump online and transfer the corresponding amount from your main saving/checking account to the credit sink fund.

Do that for the month until your payment date comes, and then pay off your credit card balance using your sink fund.

What advantage does this have?

In real terms, absolutely none. Psychologically, however, I think it has a few benefits. First and foremost, there is absolutely no surprise when your bill comes. Since you have been adding to your sink fund throughout the month, you would be constantly aware of how much you have owing. Linked to this, you would never have to think about what is in your checking account. Anything in the account is yours to do as you wish, because you have already taken care of your credit through the sink fund.

To a lesser degree, you would also be gaining interest in your sink fund that allows you to see the financial benefit of your interest free loan from the credit card company. (Let’s be clear, you are no better off, as the interest would have been gained in your main account. This just shows you exactly how much is a result of your using credit.)

The above mentioned DOES have a benefit over using a debit card, however, as debits are removed from your account right away, meaning you are giving up interest for the rest of the month, and any points or other rewards that are associated with your credit card.

You just need to be responsible, and pay off in full every month.

Weekend Reading

It was a very rainy weekend here, so I was able to get in a bit of web-surfing as well as a lot of studying. Here’s a list of some of the more interesting things I found in the world of finance.

1. Paddy Hirsch at Marketplace explains, in his usual brilliant and easy-to-understand-whiteboard-way, why Goldman is in trouble with the SEC, and what exactly they did.

2. Norb Vonnegut at Acrimoney questions what financial reforms are out to accomplish.

3. The Canadian Capitalist shows an intriguing way to save on currency conversion using a form of arbitrage.

4. Michael James writes about Periodic vs. Threshold rebalancing, and illustrates with an example.

5. BankNerd reports about an interesting BMO package for new comers to Canada.

6. Preet Banerjee at Where Does All My Money Go? is giving away an iPad to a lucky reader.

Speaking of giveaway contests, I remind readers that there is still an unclaimed prize somewhere on this blog. You’ll have to read through some old posts to find it, though.

Other than that, I envy you all for having the day off today…

Raising the Age of Insured Drivers

As I mentioned in an earlier post, I switched car insurance providers back in October, and was able to get more coverage for a considerably less amount of money. I’ve done something similar – getting more bang for my buck – but only because I updated my policy.

Up until now I’ve had to insure my car for drivers over 26 years of age because my wife was still under 30. She turned the big three-oh this week (don’t tell her I told you) so I called to change my coverage to drivers over 30, the next level for Japanese insurance providers.

I was expecting to get a decent amount of money back, but it actually only worked out to 590 yen, or about $6.50 Canadian – an amount that seemed somewhat pointless to receive a check for.

Since the insurance is already budgeted, and in fact, paid for (I paid for the entire year in advance to take advantage of a 12% discount) I asked if it could be used toward additional coverage.

The call rep gave me a few options of how the $6.50 could be used, but what seemed best was to add about $225,000 to my personal liability coverage (there is no no-fault insurance here, so you are on the hook for any injuries, medical bills etc. if you are deemed to have been at fault).

Were I back in Canada I probably would have taken the $6.50, but being that insurance is cheap here, and being at fault is expensive, increasing my coverage seemed like a better use of funds.

And that’s the point that applies no matter where you live. Looking at your insurance policy to see if you are paying for something you don’t need can reduce your premiums, or can be used for something more effective.

Mortgage Lenders Not Renewing

A guest writer over on the Million Dollar Journey blog reported that some mortgage lenders are either leaving the Canadian market (hence not renewing mortgages) or are only renewing if certain conditions can be met (based a lot on credit score, it seems).

Worst of all, it seems that borrowers are not being informed until 90 days before renewal.

If you have your mortgage at any of the following, you may want to first read the original post linked above (though it’s a bit of a roller coaster), and then call to see if you will be able to renew:

  • Xceed Mortgage Corporation
  • Accredited Home Lenders
  • HSBC Finance
  • GMAC
  • GE Money or
  • ResMor

No matter what, if you have good credit you won’t have a problem: you just may have to do some running around to have it renewed at a different place.

Gender Imbalance and Chinese Savings Rate

In my quest to fill the void left by Tom Keene and Bloomberg on the Economy, I’ve been listening to a variety of other podcasts.  The majority of them are bland, boring, and lack the wit and one-liners of Keene.

One good show (though hard to find on podcast) is the Hays Advantage, anchored by Bloomberg’s Kathleen Hays.

On her February 18th show, she interviewed Shang-Jin Wei, a researcher at Columbia University, who has looked at the savings rate in China.

On average the Chinese savings rate is quite high. Many economists point to the fact that China is an export nation, and blame government and businesses for not spending enough in the global economy. Wei, however, points to a more basic human desire as the reason for personal high savings: marriage and gender imbalance. 

In his research (synopsis available here) he found that 30 years ago the gender difference was quite natural – about 105 boys born to every 100 girls. After China implemented the “one child policy” in about 1980, however, things began to change: the gender imbalance widened and savings shot up.

In China, boys are traditionally more valued than girls. Being limited to only one child, many parents will do what they can to ensure that their one child is a boy, whether that be the abortion of girls (technological improvements in ultrasound over the corresponding timeframe have helped this) or infanticide after birth.

After 30 years the results are startling. On average, there are currently 122 boys born for every 100 girls. Mathematically speaking, this means that about 1 in 5 men will be unable to marry in the future.

How does this affect savings?

Wei theorizes, and shows evidence, that parents are trying to make their sons more attractive to female prospects by giving them wealth – essentially building a dowry for them. To do this, parents forego spending on themselves, which drives savings up.

On the flip-side, it seems families with girls can spend on themselves, and those girls will have a lot of choice in the future.

His evidence is compelling. He compares the savings rate of not only parents with girls compared to parents with boys, but also the rates of similar families in different imbalance densities. (ie. a family with a son that lives in an area of 110 boys to 100 girls compared to a family with a son that lives in an area of 130 boys to 100 girls).

If this is the case, no amount of belly aching from governments will change Chinese savings.

Beware of Falling Lemmings

TSX Index, May 6th
The Day in Trading: Flash Crash of Thurs May 6th.

I found this graph over on the Toronto Stock Exchange blog (link in sidebar) and I couldn’t help but laugh. What a spectacular visualization of the sheer drop in valuation.

Of course, all fingers are pointed to some anonymous trader… some human error and computer glitch that allowed the free-fall to happen; the “flash-crash” of twenty-ten.

Regardless of glitches (computer or otherwise) there were a lot of people who lost their heads and followed suit by selling…. I guess people are just jittery these days.

This is the advantage of living in a completely different time-zone: it is impossible for me to be affected by up-to-the-minute equity prices.  By the time I read about North American markets, they are closed.

Not that I need the protection, but it’s a little more insulation to have.

I can’t imagine having been in front of a TV while this was happening. For 30 minutes, it seems like there was just confusion and mayhem.

I would LOVE to hear from any readers that happened to have been reading a financial site, or watching the news during those spectacular 30 minutes.

I await your synopsis.