BetCrooks | Financial Crooks

Well it’s January and “RRSP Season” is officially open. Banks will be angling for your business and offering all sorts of promises of high returns and low risks as tantalizing bait. You may be afraid they may hook and land you like a spring migration Sucker. If you’re not sure what to do with your RRSP money but you want to get it in by the end of February, what should you do?

Keep Your RRSP Funds Flexible and Accessible

Check Transfer Fees for RRSP Funds

What you don’t want to do is get rushed into a bad decision by an arbitrary deadline set by the government’s tax department.

Before investing anywhere, ask

can you can move your money in the future and
how much would a transfer cost

Many banks charge $25-150 to move your RRSP money to another financial institution. A very select few charge nothing.

UPDATE: Please be aware that as of January 2015, Tangerine has started charging a fee if you transfer your RRSP or TFSA from Tangerine to another bank, credit union, brokerage or financial institution.

Choose RRSP Investments That Don’t Lock in Your Money for the Long Term

Until you have time to make a strategy and plan your investment, you shouldn’t sign or buy anything that locks you in for a long term.

Beware of

regular GICs
Most Guaranteed Investment Certificates can NOT be cashed before they mature. Only buy redeemable GICs or short-term GICS (6 months to 1 year) if you are still researching your long-term RRSP investment plan.
back-end-load mutual funds
Some mutual funds charge a large fee if you sell them or transfer out of them within the first 5-10 years that you own units in the fund. These fees may be called Deferred Service Charges, DSC fees, or Deferred Sales Charges, etc. Only buy no-load funds while you are researching your plan.
cyclical stocks
Some types of businesses are prone to boom–and-bust cycles. For example, the Canadian petroleum-producing companies often see their stock prices vary in a wavy pattern depending on the swings of the world price for oil. Be very wary investing in any shares or stocks if you are planning to only stay invested for a short time but be especially cautious with cyclical industries.

What Investments Are Good for a RRSP for a Very Short Term Investment?

If you’re committed to doing some research and making a plan for investing your RRSP money, you may need to park your contribution temporarily until you’re ready to start implementing your plan.

What can you invest in for a very short term?

A high interest RRSP savings account
A short-term GIC
A short-term redeemable GIC
A money market mutual fund
A money market ETF

None of these investments will give you a great rate of return. You are sacrificing yield to increase the safety and accessibility of your principal.

It’s important to remember that you can lose money in a money market fund. Personally, I would recommend the savings accounts or cashable GICs but not the money markets.

Don’t leave your money parked for too long! None of these investments will pay enough interest right now to keep up with the cost of inflation. They make reasonable spots to shelter your investment in the short term but they are not meant for long term use.

The Drawbacks of Transferring a RRSP Contribution to Another Financial Institution

You may have to pay a fee to transfer out your contribution.

It may take 4-8 weeks to move your money from one institution to another. And during that transit time, your money may be earning no interest, distributions, dividends or capital gains whatsoever.

Where’s the Best Place to Invest my RRSP Money in the Short Term?

I don’t know because I’m not you.

Here are some places to consider, though:

Tangerine, formerly called ING Direct
One place to consider is Tangerine.ca ~~ING Direct~~.

UPDATE: Please be aware that as of January 2015, Tangerine plans to start charging a fee if you transfer your RRSP or TFSA from Tangerine to another bank, credit union, brokerage or financial institution.

From June 1 till July 31, 2014, you can earn 2.50% (That’s the annual rate!) on cash deposited in a RRSP Investment Savings Account at Tangerine ~~ING Direct~~ that increases your total in all savings type accounts at Tangerine above your balance on April 7, 2014. It has to be “new” RRSP money, not just a transfer from another Tangerine ~~ING Direct~~ RRSP product.

It’s important to understand that you are NOT earning 2.5% on your investment for only investing for 3 months. For example, if you contribute $1 000 to your RRSP on January 1, you will not get paid $25 on May 1; You would get a bit less than 1 /4 of that amount, or about $6.

After July 31, the rate will drop down like a rock, probably to the previous rate of 1.35% or less per year. So you will want to keep working on your investment plan and shift the money once you know where you want to keep it for the long term.

There are no fees or service charges nor is there any fee to transfer your RRSP money out of your Tangerine ING Direct ISA to another financial institution at the time this article was written in January 2014. (Always phone and check for changes to fees and transfer fees BEFORE making an investment! Things can change for the worse.)

I will no longer recommend Tangerine because it will charge a transfer fee.

Peoples Trust
Peoples Trust does have free transfers of RRSP funds to other institutions. (Although you should confirm this again before investing.) It only offers GICs, however. There is a 1-year-term non-redeemable GIC available with a minimum investment of $1 000. If you know you won’t be ready to invest the money elsewhere for a year, it is a possible choice to consider.

Home Trust
Home Trust also appears to have free transfers of RRSP funds. (Again, confirm before investing in case this has changed.) It offers 1-year-term non-redeemable GICs and also 90-364 day short-term investments. The minimum investment is $1 000 for a GIC and $2 500 for a shorter term investment.

PC Financial
PC Financial does not offer free transfers of your RRSP funds to other financial institutions. I won’t recommend them for that reason.

Other Institutions
I’m sure there are other places, especially credit unions or trust companies, that can offer similar benefits. If you use one, please share some information about it with a comment.

Where Do I Park My RRSP Contribution?

UPDATE: I no longer will use Tangerine as previously described because they now charge a transfer fee. I usually do drop our RRSP investment in to Tangerine ING Direct in January, and then move it by transferring it to one of our other planned investment choices. It’s worked very well for me in the past, especially since we can make the contribution online with a couple of mouse clicks, and can print off our official RRSP contribution tax receipts very easily. (No waiting for the mail!)

Related Reading

Join In
Do you already have a RRSP investment strategy or are you still researching your options? Do you ever park your new RRSP money temporarily until you can use it effectively? If so, where? Please share your views with a comment.

image of thin green double line

There’s been a steady stream of 2-for-1 stock splits in 2013 and upcoming in 2014. For instance, Canadian Utilities and CN split in 2013 and both the National and TD banks have announced a split coming up in early 2014. In each of these cases the stock’s price had risen either close to or over $100. It made me wonder why do companies split stocks and is there something magic about the $100 price mark that triggers a split?

Trading Shares in the Days Before Electronic Stock Exchanges

As I explained in Can I Buy or Sell a Small Number of Shares of a Stock, Say 18? you can buy or sell any number of shares at most online discount brokerages without paying any extra fees or penalties. You do have to pay the full trading commission even if you only buy or sell 1 share, though, which deters most people from flipping very small numbers of shares.

In the olden days, however, you almost always had to buy or sell shares in groups of 100. The package of 100 shares was called a “board lot.” It made person-to-person trading simpler. Selling a non-board-lot, called on “odd lot,” often cost more if it was even permitted. Not long ago, the trading commission on any lot used to be hundreds of dollars; most investors with enough money to justify the trading commissions also had enough money to afford to buy shares in multiples of 100.

(Stocks valued under $1 used to be packaged in lots of 1000 shares or more.)

Keeping the Value of a Board Lot Under $10 000

You can calculate that if a share of a company cost $100 and you had to buy a board lot of 100 shares, you would need to have $10 000 plus the trading fees handy.

This may be where the magic price of “$100 per share” came into the decision-making about splitting a stock. As the price rises above $100 per share, the cost of a board lot increases above $10 000. That may start to price the lot out of reach for some smaller investors.

If the company offers a 2-for-1 share split, each person owning 1 share is granted 1 additional share. For a routine split, the price of the shares and the dividend per share is then also split in half.

A 2-for-1 split would reduce the price of a board lot for a stock with an initial price of $100 per share or $10 000 per lot to $50 per share or $5 000 per lot.

That may increase the attractiveness of the stock to small investors, which in turn may encourage a further increase in the price of the shares.

Why Does It Matter What the Price is Per Share If Investors Do Not Have to Purchase Board Lots?

Now that small investors can purchase shares without buying them in board lots, it’s not clear to me why stock splits are still so common.

They obviously are not mandatory. Here are some examples of companies that haven’t bothered to split their stock to keep share prices low. Today, a share is trading at

$ 535.39 for Apple
$ 1 108.53 for Google
$ 176 300 000 for Berkshire Hathaway A

What Do Companies Say About Splits in Their News Releases?

So what reasons did TD offer in their recent news release about their 2014 2-for-1 share split? From what I can read, they didn’t offer any justification!

CN didn’t offer any justification either.

Apparently it’s supposed to be “intuitively obvious” why the split is needed, to quote my first-year math professor who often used the phrase when describing saddle functions.

The National Bank did offer this explanation: “The Bank is undertaking the share dividend to ensure that its common shares remain accessible to individual shareholders and to improve market liquidity for the common shares.”

Canadian Utilities, which split its shares in 2013, said: “Canadian Utilities is undertaking the share splits to ensure that the Class A shares and Class B shares remain accessible to individual share owners, to increase and broaden Canadian Utilities’ share owner base and to improve market liquidity for the shares.”

Is a Stock Split Just a Mirage to Boost Prices?

When a stock splits by offering more shares at no cost to a person holding existing shares, the value of the corporation does not change. The total dividend does not change either. There is no tangible benefit to the investor because of the split.

So why does the price of a stock often increase after a split?

Logically, it should either go up or down just as it would have prior to the split based on the usual factors to determine the worth of a company.

Illogically, sometimes the price goes up not because of any real change in the value of the company but simply because of a change in perception of the same facts.

Sometimes new investors purchase shares in the company after a split because they seem “more affordable” The fact they could have purchased, say, 50 shares at the pre-split price or 100 shares at the post-split price and obtained the same ownership in the company’s future doesn’t seem to matter.

Also, sometimes investors see the split as a signal that the company expects further growth quickly in its share price. Again, that can result in new investment even though the split itself did nothing to change the company’s outlook.

Yahoo Finance does suggest that a split may make it easier to sell shares by reducing the price a buyer needs to offer. I guess it’s possible that it’s easier to find two buyers with $5 000 each than 1 buyer with $10 000 but I wouldn’t think that was a huge factor for most companies that split stocks.

I have yet to find any evidence to suggest there is a genuine improvement in a company’s performance because of a split. Have you?

Should I Buy TD Before Its 2-for-1 Stock Split?

The answer to this is simple: Would you buy it if it wasn’t splitting?