Tag Archives: stocks

My Child Is Now 15 (Or 16) What Should I Do with My Self-Directed Brokerage RESP?

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Managing an RESP is easy for the first dozen years. You have to make some decisions at the beginning. (Family plan? Individual plan? Bank? Brokerage? 100% safe savings accounts and GICs only? Some risk with equity investing in stocks through ETFs or mutual funds or individual blue chip investments?) After a while, though, you fall into an investment pattern and just stick with it. But as your child (or eldest child) nears the age of starting post-secondary school education, you need to make some decisions again.

First: Move the Money for First Year Into Risk-Free Investments

If your child is going to attend a university and live in residence for their first year after high school, you can estimate that they will need at least $20 000. Programs like Engineering will cost more. Living at home might cost less. But $20 000 is a good starting estimate and it’s likely they will actually need more than that for a university program, unless you live in and they want to attend university in Quebec.

You may have that $20 000 invested in equities. It may be in a mirror-the-stock-market ETF, a mutual fund, or shares in specific companies. If, the week before you need to take it out in cash to pay for residence or fees, the stock market has a sharp pull-back you could be in trouble. A 10% drop in the equity market might drop your $20 000 to $18 000.

Many people who have RESPs with over $20 000 in them could probably delay liquidating the equities in the RESP for a while. They could find the money to pay for residence and tuition in other places, like their emergency fund. But that might not be a great idea: it can take a year or more for the market to rebound. And, of course, there is no “stop limit” that guarantees it will only decline 10%. It could crash like it did in 2008-2009 and take years to claw its way back up.

So if you’re risk averse like I am, you will probably want to get that $20 000 for first year into something risk free before it’s needed. When your child reaches the age of 15 or 16, you may want to put that $20 000 into a cash account or a GIC or term deposit of some kind. I’ll be checking the rates offered by various investments at BMO InvestorLine soon.

Next: Consider WHERE You Want to House Your RESP While Your Child Is Making Withdrawals

According to the CRA information for RESP providers (like banks and brokerages) once your child starts making withdrawals from the RESP, you cannot move the RESP to another institution!

So in the year or so before your child graduates from high school, you should evaluate your RESP provider. Are there fees to make withdrawals from the RESP? What type of paperwork will the provider require to make the withdrawals? Would it be easier to move the entire RESP to another provider with lower fees or less paperwork?

Reading about some of the strange requirements for RESP withdrawals that others have experienced in the past makes me nervous. Soon, I will start looking at the rules at BMO InvestorLine and deciding if they are acceptable. If not, I will need a few months to get the investments transferred elsewhere. So I’ll want to make the decision long before my child is in final year at high school.

Finally: Develop a Strategy for the Next Few Years for the RESP

If you have more than one child, you also may need to plan a strategy for the RESP. When will you liquidate any equity holdings? Will you sell them when a certain profit is achieved? Or will you sell them based purely on the time at which the money may be needed? Will you buy a series of GICs with 5, 4 and 3 year terms, or only use 1-year terms?

How will you make the division of the loot equitable? What if you liquidate the equities for your eldest child when the market is high but when you go to do the same for your youngest child the market has been down for years? Do you “owe” each child the same number of dollars for their education? Will you “hold back” some of the money from the eldest child in case you need it to keep things even for the youngest of several children?

It’s better to develop a strategy before the first child starts using the money. Which means my husband and I have some thinking to do!

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How much money do you expect your child to need for their first year of post-secondary school education? Will you try to set that amount aside in cash or fixed income investments a year or two before they finish high school? Please share your views with a comment.

What Happens If a Company I Own Shares In Makes a Share Buy Back Offer For Shares Held at BMO InvestorLine?

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Sometimes a company’s stock value decreases enough, or a company’s cash reserves increase so much, that the company decides it will re-purchase or buy back its own shares from its shareholders; this happened recently with a company whose stock I own in one of my BMO InvestorLine accounts: Here’s what I did.

How Did BMO InvestorLine Advise Me That a Company I Held Ownership In Had Offered to Buy Back its Own Common Shares?

I first heard about this share buyback program when I received a package in the mail from BMO InvestorLine. I owned shares in this company in my self-directed RRSP. BMO InvestorLine is my agent and holds the actual shares in its name on my behalf. So they sent me the information and asked for my instructions.

I next heard about the program via an email note sent to the email address I provided for correspondence about my BMO InvestorLine account. That email message directed me to look for details in my secure MyLink email at InvestorLine.

When I signed in to my InvestorLine account, I checked the secure email service MyLInk and there were details provided there about how to reply to this offer to purchase my shares and what my choices were.

How Did I Advise BMO InvestorLine Of My Decision Regarding the Share Buy Back Program?

The MyLink and regular mail information provided about the share re-purchase plan made it clear that I could not advise BMO InvestorLine on how to act on my behalf by providing instructions by email or fax. I had to telephone InvestorLine with my orders.

  1. So, I called the InvestorLine 1- 888 number.
  2. I typed in my ID password and account number on my phone.
  3. I selected 0 to speak to a representative.
  4. I confirmed the account and my name to the representative.
  5. I advised the representative of which of the Options I wished to select.
  6. The representative repeated my instructions for the recording and to ensure they were correct. The rep also confirmed that I only held the shares in that one account. (The rep would have asked for instructions for other holdings in other accounts if applicable.)
  7. We agreed on the instructions and ended the call. It took 15 seconds on a Tuesday morning at 9:30 a.m. ET.

Done!

What Types of Choices Were On my Share Buy Back Offer?

The company made me a variety of offers for their common share purchase program.

No fees would be charged to me for any sale.

I could offer to sell the entire amount of my holdings or only a portion.

I could offer to sell them for a fixed price between the two limits of the offer made by the company. (For example, they were offering to buy the common shares back at a price between $17 and $20.) I could choose that fixed price in 10 cent increments. (For example, I could choose to offer my shares for sale at $17.20.)

I could offer to sell them for a price to be set by the company when it bought the shares, which could be any price between $17 and $20.

I could choose not to offer any of my shares. I this case I would just continue to hold them as usual.

Why Would I Let the Company Choose the Price at Which to Buy My Shares?

It seemed odd at first to think someone would choose to let the company set the price at which they would buy the shares. Wouldn’t that mean I’d only get the lowest value for the shares?

Not necessarily. To get the lowest possible price, then enough Sellers would have to offer their shares for sale at the floating price. The Company was bound to set the purchase price as “the lowest price that enables it to purchase the maximum number of Shares properly tendered and not withdrawn pursuant to the Offer having an aggregate Purchase Price not exceeding $250 million.”

Still, you’d be taking a risk of getting the lowest price or close to it.

Did I Offer to Sell My Shares?

Nope. I have no reason to think this Company won’t continue to perform very well. I don’t need the cash. My commission at BMO is so low it would not be a factor in deciding to make a commission-free sale. So I’m holding onto my shares.

It’s probably a good decision, since the stock is already trading higher than the upper price limit. I suspect the entire buy back offer may expire unused!

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Did you ever participate in a share buy back program? Did it all proceed smoothly? Please share your experiences with a comment.