Raising a family can prove to be more expensive than you realized. What's the best way to balance spending and saving?
Warren MacKenzie, founder of Weigh House Services, a Toronto firm that provides financial advice without selling investment products, joined us to answer readers' questions.
The following is a transcript of the hour-long discussion, or you can read the Q&A as it originally appeared in the window below.
CanucksAbroad: I would like to ask where financial planners get their long-term returns from stocks and bonds from? It seems given recent stock market performance that buy and hold investors have not done nearly as well as those expected returns despite 20-years of fiscal stimulus and loose monetary policy. While bonds have outperformed stocks over the same period, which is not supposed to happen.
Warren Mackenzie: Re the question that came in last evening:I believe most financial planners make their estimates based on long term average rates of return. During the past 50 years the average return on the TSX has been about 8%. To get to an average rate of return you have years that are above average and years that are below average. Given the uncertainty in the world today we believe we may be in for a period of below average rates of return. Some of the most experienced forecasters are projecting that developed market equities will be about 7% over the next 10 to 30 years. (If you pay 2% management fees that would yield a net return of about 5%). The average return on bonds over the past 30 years has been about 6% part of that return is based on the fact that interest rates have fallen from 18% to 2% during this period). A sensible estimate for the rate of return of bonds is to look at what the 10 year Canada bond is currently paying – about 2%. Many experts believe we are now in a secular bear market and buy and hold investors will never do well in a secular bear market.
Andrew: Is it worthwhile trying to save money when you have kids if you're barely keeping up with costs? Or is it better to just avoid going into debt?
Warren Mackenzie: It is difficult to save money when you have a young family - but you absolutely need to avoid going into debt. If you can't make ends meet you have to reduce your lifestyle.
Bill: Is there a general figure (per year cost) that is generally accepted as a baseline cost for raising a child in Canada to say age 18 or post University?
Warren Mackenzie: There is a huge range of costs - some would say about $10,000 per year, (Money Sense estimates it at $10,000 per year) and those who want to send their children to private schools could be looking at an additional $25,000 per year.
John: Hi, my partner and I are just starting a family and are trying to get on a good financial footing...what is the best thing for us to do - pay down our debt or invest in RRSP/RESPs?
Warren Mackenzie: It makes a difference whether or not the interest is tax deductible - but generally - since you can accumulate your RRSP room - I would pay down debt first.
LakeDweller: My wife and I are in our early 30s and raising 3 young children. We have about $100,000 in equity investments and $300,000 in home equity. With interest rates so low, why should I pay down my mortgages (primary and rental) when I have them both 50% off and I feel I can get better return with other investments.
