Smart Choices for Back-to-School Season

Interviewer:
And joining us now to talk about the month of September and markets is Kim Inglis with Raymond James. Well, Kim September is often talked about in terms of market seasonality. What does September usually look like for investors?

Kim Inglis:
Yeah, so unfortunately September is historically the weakest month of the year. So for the S&P 500 as an example, since 1928, the average decline in September has been about 1.2%. And it's only been positive 44% of the time. Canada, pretty similar, TSX since 1970 has averaged a decline of about 1.4%. So not phenomenal numbers. It's something that's typically referred to as the September effect. And there's a lot of different theories as to why that happens. But I'd say, you know, kind of the more popular reasons would be the fact that often institutional portfolio managers are doing a lot of rebalancing in September. And then of course we have a lot of, you know, governments are coming back from some of our holidays and you end up with a lot of policy uncertainty and then there's central bank announcements and different economic data points that can come out and cause volatility. So September is not often a good month. 

Interviewer:
And what about the rest of the year, Kim? How do things typically shape up in Q4?

Kim Inglis:
Yeah, so I guess there's a bright side to September not being great. It was the fact that then the last quarter of the year tends to be actually one of the strongest. So for the S&P 500 as an example, its average over that last quarter is about 4.2%. And markets finish higher, about 80% of the time. You know, of course that doesn't happen all of the time but those are still pretty compelling statistics for the final quarter of the year. 

Interviewer:
Of course, September also means back to school season, lots of family asked about RESPs. What are they, how do they work? What are some of the benefits? 

Kim Inglis:
Yeah, so back to school always means RESP questions for sure. RESPs are basically a special type of account that can help you save for your child's education. And the basic premise behind them is essentially that you contribute money into them and the money then grows on a tax deferred basis. And eventually when withdrawals are done, they are taxable in the hands of the then student. And you know, the idea is that most students aren't making much or any money. And so therefore it's taxed very little or even potentially not at all. There is a lifetime contribution limit for RESPs of $50,000, but they're great tools 'cause they can even be used from an income splitting perspective on a family level. You know, a lot of times people wonder, well, what happens if my kid doesn't go to school? There's still a lot of flexibility there. So if you have another child, you can potentially transfer it to another beneficiary. You could transfer your contributions to the RESP to your RRSP. So that's fantastic. And also, you know, you could just withdraw the funds, which of course would be taxable and you pay back the grants. But there are options and they're very, very good accounts. 

Interviewer:
How did those government grants work, Kim?

Kim Inglis:
Yeah, so the government grants are fantastic and definitely everyone should take advantage of them. So the federal governments will match 20% of contributions up to $500 a year. And there's a lifetime maximum of $7,200. So, you know, that's a good chunk of change. And the good thing about them is that, you know, there's no income requirements in order to get access to those grants, so they're available for everyone. And if you're a resident of BC, a British Columbia, there is also a provincial grant that is available to kids that were born in 2006 and onwards of $1,200. And there's no contribution or requirement in order to get that. So some fabulous options there. And in terms of, you know, often I'm asked, how do I maximize the RESP, you know, the minute that your child has a sin number, open an RESP and start contributing. If you're wanting to maximize the grant, contribute $2,500 a year to max that $500 a year grant out, of course, up to your lifetime contribution limit. 

Interviewer:
What are some things that parents don't often know about RESPs? Any surprises out there?

Kim Inglis:
Yeah, so misconceptions, I guess, with RESPs. Oftentimes, people think that withdrawals are limited to just tuition and books. But they can also be used towards things like, as an example, if your child needs a laptop in order to do their schooling. So there's flexibility there with that. Another misconception I would say is that oftentimes, people think that RESPs are only for kids that are eventually gonna go off to university. But that's not the case. You know, there's options to use it if your child does apprenticeship or goes off to trade school as an example. And also the program doesn't need to be all that long. It just needs to last at least three weeks and 10 hours a week in order to qualify. And then I guess finally, a lot of times, people think that RESPs need to be wound up pretty soon as soon after the child reaches post-graduate age. But they can actually stay open to 31, which is great because obviously there's a lot of kids that finish high school and they're not quite ready for post-graduate education. Maybe they need to work a bit or they want to do something else for a bit. So it gives that flexibility there. 

Kim Inglis:
Well, Kim, thank you so much for joining us today. 

Kim Inglis:
Thanks for having me. 

Kim Inglis:
And thanks to everyone watching. Once again, that was Kim Inglis with Raymond James, that of your host Jenna Dagenhart with Asset TV.