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Here are few more recent questions from readers.
Q – I have three kids who are four years apart from each other. My eldest one just turned 18. My plan is to open a trading account for each of them when they turn 18 and lend them $200,000 each (from my company) and invest in the VFV ETF for the next 25 years. Is this a good investment plan or would there be something better that you would recommend? – Trishan R.
A –You plan to invest in VFV, which is the trading symbol for the Vanguard S&P 500 Index ETF. That’s a decent choice. The fund has a 10-year average annual compound rate of return of 14.34% and a very low MER of 0.9%.
But, good as this fund is, are you comfortable putting all the eggs in one basket for years to come? Market conditions can, and undoubtedly will, change dramatically over that time. And the tax position of your children may be such that at some point they would like to own more tax-effective securities.
The all-in-one approach leaves no room for diversification, either by security type or geographically. An alternative that would be easy to manage is to divide the money between four ETFs based on the S&P 500, TSX, EAFE, and bonds. The asset allocation can be adjusted depending on market conditions.
The bottom line is to retain flexibility. The financial markets are volatile and unpredictable. Manage your money accordingly.
Q – My son will be turning 18 soon, and he is eager to begin investing in equities with money saved from his part-time job. Assuming that his total annual income (including RESP withdrawals) remains below the personal exemption income tax threshold, are there any advantages to him by investing within a registered account rather than a non-registered account? I presume that a non-registered account would be faster and easier to open up.
Thank you in advance for your consideration and advice. – Richard M.
A – I suggest he consider a Tax-Free Savings Account. Since he is interested in equities, it means he is hoping to generate capital gains. Why not protect those hoped-for profits from tax? He is eligible to open an account when he turns 18 and can contribute up to $7,000 this year. He can use a discount broker to set up the plan. I suggest he start with a one or two equity ETFs, since the amount of cash he’ll have to start with is minimal. As the value of the plan increases over the years, he can move to individual stocks.
Q – I understand that if you are above the top income limit of Old Age Security (OAS), it will all be clawed back. I am 65 and have not started OAS payments. Can I decline them if I don’t get the income? – Pamela Z.
A – There as an OAS “clawback” that kicks in if your net income is over $90,997 for the 2024 tax year. But you don’t have to repay all the money. The “pension recovery tax,” as it’s called, is 15% of every dollar you receive above the income threshold. According to the Canada Revenue Agency website, your income would have to exceed $148,065 for the total payment to be taxed away in 2024.
You must apply to start payments. You can delay until age 70 if you wish. Your benefit will increase by 0.6% for each month you delay. If your income is high, delay applying but do so when you reach 70. No one knows what the future may bring, and you might need the money at some point.
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.
Follow Gordon Pape on X at X.com/GPUpdates and on Facebook at www.facebook.com/GordonPapeMoney.
Notes and Disclaimer
Content © 2024 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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