RRSP to RRIF - Questions

Preparing for life after work. RRSPs, RRIFs, TFSAs, annuities and meeting future financial and psychological needs.

Postby Shakespeare » 19 Jun 2005 20:43

Which part of "a diversified O&G trust" is contradictory?

The missing parts other than "O&G trust".

It's a bet on the price of oil - nothing less.

Added:

Check the price history in about 1997 of an O&G trust.
Last edited by Shakespeare on 19 Jun 2005 20:51, edited 2 times in total.
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Postby like_to_retire » 19 Jun 2005 20:50

but do you consider a diversified O&G trust like ogf.un a High Risk investment?


Yep, I think they're one of the more volatile types of trust and I wouldn't think it a good idea for someone who requires retirement income to borrow money for that type of investment. The interest deductability on the LOC helps, but you're still reducing your overall return as a result. If oil takes a nose dive and share price and distributions are compromised, you still have a loan to pay.

There has to be better solutions. Surely, all the smart cookies on this site can come up with something :roll:

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Postby Shakespeare » 19 Jun 2005 21:04

Here's the trading history of Freehold royalty trust from here:

Code: Select all
Annual Trading History 1
Year Ended December 31 2004 2003 2002 2001 2000 1999 1998 1997 1996
High ($/unit) 18.42 17.19 11.35 10.10  9.50  6.90  9.80 11.85 12.70
Low ($/unit)  14.02 10.50  9.00  8.00  5.60  4.13  4.15  8.40 11.15
Close ($/unit)17.45 16.35 10.88  9.20  8.70  5.95  4.43  9.10 11.20


Note that leetle dip in 1998.
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Postby like_to_retire » 19 Jun 2005 22:00

Maybe the price of oil will go up or maybe it will go down.......who knows.......
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Postby Springbok » 19 Jun 2005 22:08

Shakespeare wrote:Here's the trading history of Freehold royalty trust from .


Go back to 1994 and look at one of the first O&G trusts - Enerplus ERF.UN and see what $10,000 invested then would be worth today, especially if distributions were re-invested. I have not done this recently, but recall that such an investment would have weathered ups and downs in the price of oil quite well.

We can't be 100% in RRB's! - Need to take some risks to make any money! Have you seen this link - See Item 1 - On Risk ?

http://are.berkeley.edu/~atanu/Articles/ZAXIOMS.htm

BTW - This thread has got off track - Partly my fault!
My idea of using our LOC to buy an income producing investment was just an idea for discussion - No point in doing this, unless the investment produced significantly more income than the interest cost - Therefore used OGF.UN as an example of a high yielding investment - Could have used GM bonds instead!
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Postby Shakespeare » 19 Jun 2005 22:18

The time to invest in a cyclical commodity is when the price is low, not high.
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Postby Springbok » 19 Jun 2005 22:18

Found the Enerplus data:

http://www.enerplus.com/performance/returns_cdn.shtml

Unit holders may have been a bit nervous in some periods, but those who stayed the course, have done quite well.
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Postby Springbok » 20 Jun 2005 09:03

Shakespeare wrote:The time to invest in a cyclical commodity is when the price is low, not high.


True if you are primarily looking for Capital Gains
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Postby like_to_retire » 20 Jun 2005 10:15

True if you are primarily looking for Capital Gains


To me that makes no sense. What you're saying, is that you're willing to accept buying on a peak and take a loss in value to get that (somewhat risky) cash flow of 12% (less interest on the loan). What if the loss in value is 12%, you may as well have taken a loan and put it in a pot and paid yourself from that. :roll:

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Postby Springbok » 20 Jun 2005 10:56

like_to_retire wrote:
True if you are primarily looking for Capital Gains


To me that makes no sense. What you're saying, is that you're willing to accept buying on a peak and take a loss in value to get that (somewhat risky) cash flow of 12% (less interest on the loan). What if the loss in value is 12%, you may as well have taken a loan and put it in a pot and paid yourself from that. :roll:

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My response was a general one based on Shakespeares statement. Forget OGF and the LOC loan.

If a commodity stock has little or no dividend, and you KNOW that the commodity is cyclical, then buying near the end of a bottom in the cycle would make a lot of sense.

In the case of O&G - It would appear that unlike commodities such as gold/silver/aluminum etc, the supply is limited. Price of oil may fluctuate based on politics, weather, etc but is likely to maintain an upward march. If buying at a low makes sense for these, what price would indicate that oil is at a low?

When buying O&G trust that distribute a good portion of their income, it IS a good idea to buy in a dip in the upward march, but if you wait for a LOW, you may wait forever (especially if you don't know what represents a low).

If the market is reasonably efficient, it should not matter too much when you buy - the distributions are a large part of why you are buying. Have a look at the Enerplus charts that I posted earlier. Investors have done quite well regardless of if they bought at highs or lows in the unit price (or oil price).
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Postby Shakespeare » 20 Jun 2005 11:15

the distributions are a large part of why you are buying.

Distributions from reserves in the Western Canadian basin have a finite lifetime. You are, in effect, prebuying your oil. Do you want to buy it when prices are low or when they are high?
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Postby Springbok » 20 Jun 2005 12:28

Shakespeare wrote:
the distributions are a large part of why you are buying.

Distributions from reserves in the Western Canadian basin have a finite lifetime. You are, in effect, prebuying your oil. Do you want to buy it when prices are low or when they are high?


OK - But let me know when oil is next at a low. 8)
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Postby iluvnascar » 20 Jun 2005 13:44

Shakespeare wrote:Under what laws - federal or provincial - is the RRIF governed? IIRC she probably can't withdraw any earlier than the originating plan will allow retirement, usually 55.



Thanks Shakes.....yes, I had a hunch that was the situation. But I intend to request a withdrawal to see what happens....perhaps it's too small for them to read the fine print. We'll see.
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Postby CdnTrader » 20 Jun 2005 17:24

When Oil was going through $30.00... ney sayers were saying ...You're buying at the top!When Oil was going through $40.00... ney sayers were saying ...You're buying at the top!
When Oil was going through $50.00... ney sayers were saying.... You're buying at the top!

Maybe it is the top.. but, I don't see much reason for the price to settle back very much... It's cheap... I'm looking for $75.00 oil and $8.00 Nat gas.

But, what do I know.
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Postby Springbok » 21 Jun 2005 11:13

CdnTrader wrote:When Oil was going through $30.00... ney sayers were saying ...You're buying at the top!When Oil was going through $40.00... ney sayers were saying ...You're buying at the top!
When Oil was going through $50.00... ney sayers were saying.... You're buying at the top!

Maybe it is the top.. but, I don't see much reason for the price to settle back very much... It's cheap... I'm looking for $75.00 oil and $8.00 Nat gas.

But, what do I know.


I am sure your prediction will prove correct - Question is when? :? (NG could be at $8.00 this year!)

I think we may see $45 oil before we see $75. But even at that, most trusts will be able to maintain distributions - especially the larger ones that make up a trust of trusts like OGF.UN. If this happens, regardless of what the unit price does and disregarding taxes, you get your money back in 6 years. Alberta won't run out of oil in that time frame will it?
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Postby Bylo Selhi » 12 Nov 2005 11:53

eezee wrote:You don't want to have to redeem at a loss, just because the risky fund you invested in tanked at the wrong tome.

And if you're nearing RRIF conversion age you need to buy segregated funds with extreme caution. Some funds risky in RRIFs
Segregated funds are dangerous in RRIFs because of the mandatory withdrawal rules. You may have to cash in early — and lose the guarantee... Haynes is now over 69. His wife, Jean, is 68. Both have to cash in some of their segregated funds before the 10-year maturity date. They will lose money when cashing in their segregated funds, which are down in value since their peak in March 2000. And since segregated funds have higher management fees than mutual funds, which have no guarantee, they will have paid too much for their investments...

Cashing in segregated funds before maturity will make your guarantee null and void. If you are more than 60 and facing a deadline to convert your RRSP within 10 years, beware of the RRIF withdrawal rules — and plan your finances accordingly.
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Transfer of a RRIF

Postby Otto » 22 Aug 2006 11:46

I have a problem and I need your advice. I am 69 and retired. I have two RRSP accounts, one at Bank A and the other at Bank B. I must roll them over to RRIF's this year. Both RRSP accounts contain long term GICs.

My question is, can I wait till Sep 2009 to transfer the account from Bank B to Bank A? My reason for keeping two accounts is to be able to negotiate a higher rate of interest by playing one bank against the other. However eventually I want to simplify my portfolio to save time managing it. Is it possible to transfer a RRIF from one financial institution to another? Will that complicate the calculation of the minimum mandatory amount to be withdrawn in 2009?
Your opinion would be appreciated.
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Postby brucecohen » 22 Aug 2006 12:09

You said you are now 69. If you turned 69 this year, you must convert both RRSPs to income vehicles -- most likely RRIFs -- by the end of this year and make the first mandatory withdrawal from each RRIF by the end of 2007. I don't understand how 2009 got into this.

You can roll a RRIF from one institution to another. Each year's mandatory withdrawal is based on the RRIF's value at Jan. 1. The originating institution is supposed to provide the receiving one with that number. So, there shouldn't be a screw up in your withdrawal calculation but don't be surprised if there is due to processing slip-ups.

To be safe, determine your own mandatory withdrawal amount for the year the plans are consolidated:

1. Add the two Jan. 1 values
2. Multiply by the statutory withdrawal rate for the age you were at Jan 1.

You might be wondering if Bank A or Bank B will let you break a GIC before maturity to accommodate the RRIF withdrawal. Some do and some don't. You have to ask. There's also a chance, albeit remote, that one bank might redeem one or more GICs early to facilitate the transfer. Again, you'd have to ask.

BTW, if you want to maximize your GIC rates, move your money to a deposit broker, not to one or the other bank. A deposit broker can get GICs from a range of issuers, especially small ones that pay more than the big banks yet are still CDIC-insured. The bank-owned investment dealers -- both full-service and discount -- function as deposit brokers. Plus there are many independent ones. There's more info at http://www.fcidb.com/
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Postby IdOp » 22 Aug 2006 12:26

I oversaw a RIF transfer within my family a few years ago, and if I recall correctly, the situation regarding the required payout was that it had to be taken out completely before doing the transfer. [ADDED: I'm not 100% certain if this was a requirement or a choice.] This, by itself, would argue for doing the transfer later in the year rather than earlier.

With some planning, perhaps you can avoid having to break a GIC.

The bank you're leaving may charge a fee for transferring the RIF. You can try to negotiate with the bank you're moving it to, to see if they will pick up the tab.
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Postby sydney2 » 22 Aug 2006 15:40

Regarding RIF transfer, if you transfer from one institution to another the one you are transferring from, must pay out the balance of the yearly payment before transfer can take place.

I did this for my Mother last November, switched from RBC to TD and RBC had to make sure, under law that the payments for 2006 was paid before the funds left their brokerage firm. So Mom received a large cheque in January and she has chosen to take funds monthly in 2007. As there wasn't enough cash in the account at that time, we had to sell an equity in order to make this work. :lol:
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Postby Otto » 22 Aug 2006 17:23

Thank you Bruce, IdOp and SYDNEY 2 for your suggestions.

Bruce, - At Bank B I have 6 GIC's maturing on Sep 22, 2009 and two more maturing on Nov 10, 2006. So my plan is to wait till Sep 2009 and transfer the account to Bank A.

My other option is to do the transfer of the RRSP now and make things simpler. Then I will have only one RRIF and withdrawals from one account only. But this might be only possible if they were rolled over into RRIF's, because the GICs will be redeemable. Non-redeemable GIC's in a RRIF are redeemable.

Regarding the calculation of the minimum amount, I will use my wife's age, who is 5 years younger. Thus I will be able to withdraw only 4.00% per year instead of 4.76%.
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Postby twa2w » 22 Aug 2006 20:08

Non-redeemable GIC's in a RRIF are redeemable
.
At most banks this is only the case for the purpose of making payments/withdrawals - it's a different story if you want to cash them in to transfer elsewhere or to cash them to do another investment - in that case you willfind they are still locked in.
And to confirm the previous post, the institution holding the RIF on Jan 1 is responsible for ensuring the minimum pymt is made for the year.
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The benefit of changing an RRSP to a RRIF

Postby dakota » 18 Oct 2007 13:58

I have been taking 10,000 dollars a year out of my RRSP and today I heard on BNN Talking Tax that if I withdrew it from RRIF a instead of an RRSP I woul get a $2000.00. tax credit I made an appointment to change it today. :)
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Postby arthur » 18 Oct 2007 14:05

Hmm, I have been doing a similar strategy, I will check on that?
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Postby dakota » 18 Oct 2007 14:09

arthur wrote:Hmm, I have been doing a similar strategy, I will check on that?


I checked with TDW and they agreed with the accountant and said that all other aspects of the RRSP remains the same other than having to withdraw 5% a year. It'll be nice to save 2k a yr. especially from the tax man :twisted:
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