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Your questions keep coming, so let’s go through the inbox and deal with some today.
Q – If you had a six-year-old grandchild, and wanted to set up a RESP with maximum yearly contributions, what would you put in the account? If you had already set up such an RESP, which is now worth $28,000, what investments would you choose? – Glenys P.
A – My reply is the same in both cases: high-quality, dividend-paying stocks. The reason is that during the early years of a RESP, the emphasis should be on growth. A six-year-old is at least 12 years away from starting college, so there’s a long time frame with which to work. As the child starts approaching college age, the plan should become more conservative to preserve assets and ensure that a sudden market crash doesn’t wipe away years of gains.
At six years old, stocks like CN Rail, Royal Bank, Fortis, Enbridge, Brookfield, and Telus would all be suitable. You could also use equity mutual funds or ETFs, but I prefer direct stock ownership.
As the time to enter school approaches, start selling the stocks and put the profits into GICs or a high-interest savings account to ensure the money is not at risk. – G.P.
Q – Can you explain the difference between GAAP and non-GAAP? I keep seeing those terms in financial reports, but I don’t know what they mean. – Arnold M.
A – GAAP is the acronym for Generally Accepted Accounting Principles. These are standards that publicly traded companies must follow when preparing their financial statements. GAAP ensures the statements are accurate and comparable between different companies.
Non-GAAP refers to financial measures that are not prepared in accordance with GAAP. These are often used by companies to supplement their GAAP financial statements to provide additional information to investors and analysts. Non-GAAP measures can include metrics such as adjusted earnings, EBITDA (earnings before interest, taxes, depreciation, and amortization), and free cash flow. Non-GAAP measures can exclude certain expenses or revenues that a company deems to be non-recurring or not representative of its ongoing operations.
The use of non-GAAP measures can make it difficult for investors to compare financial statements between companies, as company A may use different measures and calculations than company B for specific entries. Payout ratios are a classic example. – G.P.
Q – My husband and I both have investment accounts in RRIFs and LIFs. We are wondering what happens when one of us dies. Do the accounts just get transferred to the living person? Or are they collapsed, with the proceeds taxed as income and then transferred to the surviving spouse? – Kathie S.
A – It depends on whether the surviving spouse is named as the successor annuitant or the beneficiary of the deceased’s plan. If the surviving spouse is the successor annuitant, the RRIF/LIF continues on with the survivor as the new annuitant. The minimum payments stay the same. No taxes apply on this transfer.
If the surviving spouse is the designated beneficiary, the RRIF/LIF is collapsed at death and converted to cash. This money can then be transferred on a rollover basis to the survivor’s registered plan. Minimum payments will be based on the survivor’s age. There is no tax on the rollover. That comes when the last survivor passes.
Avoid naming the estate as the beneficiary. That would trigger a collapse of the RRIF at death and the assets would be taxable. – G.P.
If you have a money question, send it to gordonpape@hotmail.com and write Fund Library Question in the subject line. Sorry, I can’t guarantee a personal response, but I’ll answer as many questions as possible here.
Gordon Pape is one of Canada’s best-known personal finance commentators and investment experts. He is the publisher of The Internet Wealth Builder and The Income Investor newsletters, which are available through the Building Wealth website. To take advantage of a 50% saving on a trial subscription and receive the special report “The Tumultuous Twenties,” go to https://bit.ly/bwGP20s.
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Notes and Disclaimer
Content © 2023 by Gordon Pape Enterprises. All rights reserved. Reprinted with permission. The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned carry risk of loss, and no guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting, or tax advice. Always seek advice from your own financial advisor before making investment decisions.
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