ING $25 referral bonus

A while ago I wrote about the ING $25 referral bonus code a while back and wanted to mention it again.  Each customer only gets 50 referrals and they are going fast.  Last time I checked there were only…ummm…50 referrals left on my account.  So act quickly because they are going fast!    The code is 33089336S1.

Some Canadian links

Kathryn had a great story about how she almost lost a loved one.    The comments were quite interesting even if some of them were written by complete idiots.

Squawkfox is a crack pot crock pot connoisseur – go find out what to look for if you want to buy one. AnySquawkPot.

Ending the Rat Race thinks he’s getting a raw deal from Chapters.

Canadian Tax Guy has some resources if you are thinking of starting a business.

West Coast Woolies had some stats about H1N1/Swine Flu which should make you want to get the vaccine.

Blessed by the Potato who has the greatest header (image at top of site) in all of blogland – also explains why the H1N1 vaccine is pretty safe.

Investing Intelligently (who updates once a year) announced that he got laid off yesterday.  He also had a baby recently (congrats) so at least he won’t be bored.

Ray from Financial Highway thinks that financial literacy in schools is a good idea.

Get Money Energy has some information about income trusts and what to do about them before 2011 (when they turn into dust).

Brip Blap wrote a pretty neat post about how working overseas helped his career.  Steve isn’t Canadian but he would fit in well here so he makes the roundup.

The Wealthy Boomer relays a great story about a 17 year old who had a financial turnaround.  Very entertaining.

Michael James on Money did a book review on “Super Trader” and he said it sucks.

The Money Gardener says that Walgreen is recovering nicely from the flu.

Thicken My Wallet asks what does it mean when Buffett (yes, it has 2 “t”s) buys railways and India buys gold.  It probably means that TMW asks too many questions.    Wasn’t Buffett the guy who got a “great insider deal” on GM bonds a while back?

Shevy is thinking about Hanukkah.  Already?

Canadian Capitalist reports on the Globe and Mail top brokerage rankings.

Canadian Dream wonders if we still have a housing bubble.

Preet explains what sovereign wealth funds are and why you should be terrified of them.  Ok, maybe just he explains what they are.

Congrats to the Canadian Finance blog who had a little baby boy in October.

The Financial Bloggers wrote about Primerica IPO.  Mike has written a lot of stuff about Primerica – none of it positive!!  And Mike is a pretty positive guy…

Intelligent Speculator wants to know if hedged ETFs are good or bad?

Carnivals

Carnival of Money Hackers

Hi Mr. Cheap, I just wanted to get your opinion on this theory and if you think its wortwhile in the long run. The theory goes like this; for every dollar you have in a trading in account, you can borrown a dollar on top of that. In some accounts, even more than that. Now, I’m a young guy(21) and plan on investing in dividend stock that offer me a decent yield(over 5%). I have an account with scottrade and the most they will charge you on inteest in a given year is 7.5%.

My question is, if I started off with $2,000 in account and therefore have buying power of $4,000(due to the 1 for every 1 rule), would it be better to buy $2,000 worth of  shares as I can of a stock like MO(altria) using only my cash which gives me a 7.5% dividend or $4,000 worth of shares? The idea behind this question is that in the first year, the money I make on the extra shares earned on the first year would be canceled out with the interest paid to scottrade for the borrowed money but every year after that, my extra shares earned off the borrowed money would be able to compound interest free. Another note is that as time goes along after my initial deposit of $2,000 into my account, I would coninue to put in about $200/month and hopefully more as I earn more. This would allow me to buy more shares and therefore earn more more interest on the shares as time went along. Does this make sense? After the first year, am I right that I would be making pure profit off the extra shares that I earned from the bowwored money?

To start with, I’m not 100% sure what changes after the first year.  If you borrowed $2000 and bought stock with them, and if the dividend payments EXACTLY matched the interest payments, you’d keep paying on the debt forever (not just 1 year).  If you mean that you’d be paying off the margin debt with $200 added to the account each month, yes you’re right (I guess you’d pay it off in about 10 months ignoring dividends from the stock you bought that wasn’t on margin and decreased interest payments as you paid down the debt each month).  I wrote a post about doing something similar to this.

I always enjoy question / discussion about buying on margin (or with other borrowed funds). I share you sense of excitement when considering constructing such financial vehicles, as it almost has the feeling of playing alchemist, creating wealth out of nothing. Please be aware that this feeling is *FALSE*, and there’s nothing magical about buying on margin. Basically you’re exchanging increased risk for increased reward (as they say, there’s no free lunch).

To begin with, Altria is a great company and a great dividend payer. At it’s current dividend yield of 7.36% you’re right that its dividends almost match the interest you’d be paying, and it *looks* like you’d be owning the stock for free. That’s how I felt when I bought Bank of America (BAC) on Feb 4th, 2008 for $44.46. At that point it had a dividend yield of 5.8% and had been increasing its dividend for 30 consecutive years (read over the analysis and look some more at the company’s recent history since this was posted if you want to be impressed by Dividend Growth Investor and his analysis).

To make the analogy perfectly clear, Altria may be a great company but you never know what the future holds. I was shocked that BAC cut their dividend. I was floored when Washington Mutual went bankrupt. The future isn’t certain, and nothing makes it impossible for Altria to cut its dividend or go bankrupt (perhaps Obama might decide everyone in America has to stop smoking since Michelle made him quit).

If Altria cut its dividend a number of things would happen:

• Your dividend payments would no long cover your interest payments and you’d have to make up the difference yourself
• The value of the stock you own would probably plummet, meaning that you’d owe more money than the stock you used it to purchase is worth
• If the stock price dropped enough, you’d get hit with a margin call, which would force you to repay a portion of the money you owe, otherwise they’d sell stock (at a loss) from your portfolio to cover it.  We regularly get people complaining on our brokerage posts about having been forced to sell at a loss due to a margin call.

One of the other considerations is that borrowing to invest is great from a tax perspective, but as a young guy, your income probably isn’t in the highest bracket, so you won’t be able to benefit from this (as much as a 50 year old medical doctor might for example).  I’ve been backing off on my margin debt for partially this reason:  I’m a poor grad student, so the tax deductions don’t help me.

I know I shouldn’t make investment recommendations, but I can’t help myself.  Personally (and remember, I’m just some guy who likes to blog) I’d suggest you save up cash in a high-interest savings account (and keep adding the $200 / month to it).  As a 21 year old, who knows what the future holds and you may find capital preservation most valuable at this stage in your life (you could use that money to start a business, deal with a financial emergency, as a down payment on a condo or house, to pursue further eduction, to get married without going into debt, etc, etc, etc).

If you *insist* on getting the cash into the stock market, I’d follow Canadian Capitalist’s sleepy-mini portfolio (or one of the other easy, passive investment vehicles).

If you *insist* on buying an individual company, and understand that you’re massively increasing your risk & volatility by doing so, I’d buy MO (or whatever company you decide on) in a low fee brokerage account (Scottrade is pretty good at $7 / trade) WITHOUT using margin.

If you *insist* on buying on margin, I’d suggest you consider a strategy I mentioned at the start on using margin to lower trading costs and keep the margin debt below 10% of your portfolio value.  When I was 58% on margin, the Canadian Capitalist wisely assessed this feelings on this as “Ouch. What are you thinking Mr. C?” (read over the comments on that post, a lot of smart people there recommend approaching investing on margin VERY cautiously).

Do any commenters have additional / alternative suggestions for a 21 year old thinking about getting into margin investing?

H1N1 (Swine flu) vaccine hysteria has hit my city in a big way – last week there were people lining up for 6 hours to get shots for their kids and presumably themselves as well.  Since the initial clinics the vaccine has only been allowed for high risk groups:

• Pregnant women.
• Children aged 6 months to 5 years.
• People under 65  with chronic conditions.
• People who live with infants under 6 months and/or with immunocompromised people.
• Healthcare workers.

I personally haven’t been that worried about Swine flu so far this year but once the vaccine became available it seemed that the public awareness and concern went up a notch or two.  I know lots of my friends who have kids are worried about the flu and naturally are also worried about the vaccine.  Is it safe?  Will there be side effects?  Will the needle hurt?  (ok, that was my concern).  Here are some vaccine myths.

I think we are going to get the vaccine for our kids – as I read recently, while there might be some risk from the vaccine, it is dwarfed by the risk from the flu itself.  The analogy they used was seatbelts – in some cases seatbelts (and airbags) do more damage than good but overall your odds of survival in a car crash are far better if you are wearing a seatbelt.

What do you think?  Should everyone line up for 6 hours to get a shot?  Are you going to wait a few weeks to let things settle down?  Are you going to avoid the shot altogether?

I’ve also been amazed at the crazy reaction people have been having, trying to avoid contact with other people and lining up for hours to try to get vaccinated (and coming close to rioting when they’ve run out of vaccine).  Pandemic is a scary word, but I’m going to go on record saying that we’ll look back at H1N1 and say (much like Y2K or SARS) “what did we get so worked up about?”

As of Oct 26th, 86 Canadians have died.  This is sad.  Since the flu debuted in April, let’s call this 13 people / month or 0.41 Canadians a day.  The average Canadian has a (0.41 / 33,212,696 [Canadian population]) = 0.00000123%) chance of dying from the pig flu.  Another way of expressing this is you have a 1 in 81,006,575 chance of dying from the pig flu EVERY DAY!!!

Given that Americans have a 1 : 280,000 ANNUAL chance of being struck by lightening (for the sake of simplicity, let’s assume comparable odds for Canucks),this would give us a 1 : 102,270,000 (280,000 * 365.25) daily chance of being struck by lightening (slightly less likely than dying from catching the pig flu).  How many precautions are you taking to avoid that?

In 2005, 2,860 “road users” died.  At 7.83 / day, this gives us 19.1 TIMES the chance of dying on a road (in a car, as a pedestrian or as a cyclist) than from H1N1.  This actually UNDERSTATES the comparison, because we considered all Canadians with the flu, but only “road users” are at risk of dying on the road.  Remember also, this is just fatalities, we’re ignoring non-fatal injuries.

To switch it around and consider a happier thought, the chance of winning the Lotto 649 is 1/13,983,816 = 0.000007151%, or more than double your daily chance of dying from the swing flu, EVERY TIME YOU PLAY!!!  Should we all run out and buy tickets?

Of the hordes stampeding to get vaccinated, how many are avoiding roads?  If we consider the risk of death associated with road use to be reasonable (which, clearly, most of us do), how can we be panicking over something that is far less likely to affect us?

Some may say “well, yes, but there’s a CHANCE it’ll kill me, so isn’t it worth taking some small precautions to avoid it?”.  Yes, sure, but remember there are INFINITE ways to die.  Some of the actions you’d take to avoid some, will INCREASE your chance of others (say you become a shut-in to avoid the dangers outside your home, you’ve now increased your exposure to all the ways you can die at home).  If you can easily get vaccinated and it’ll reduce your stress level, knock yourself out.  Just to pump up the stress back up a little, think about all the things that are more likely to kill you that you haven’t even thought of!

What does this mean for a personal finance blog?

First of all, behaving rationally is worthwhile in life, but it’s VITAL in investing.  Getting caught up in the madness of crowds is what leads to dot-com (or tulip) bubbles.  Just by identifying the craziness as craziness (and getting off of the ride), you can improve your returns MASSIVELY.

Secondly, I’m not sure what they are but I think there must be some killer deals to be had based on the public’s over-reaction to this.  Perhaps now is the time to book a flight and travel on the cheap?  Maybe some stocks are beaten down with investors expecting the next black plague.

How worried are you about H1N1?  Can you think of any investments that would pay off if H1N1 turns out not to be a big deal?

This is a fantastic book to give as a stocking stuffer idea for that friend or relative who needs some investment guidance but you don’t feel comfortable broaching the subject or maybe you don’t know quite enough yourself to try to teach someone else. It might even be a good book for you if you lack confidence in the investment area.

To order this book:

Here are the chapters titles with some notes

Chapter 1 – Building blocks of investing.

Explanation of various investment products such as mutual funds, stocks, exchange traded funds and bonds.

Chapter 2 – Types of investment accounts

The basic concepts behind common investment accounts such as  Traditional and IRA Roths, 401ks – please note that this is the only chapter that doesn’t apply to Canadians.

Chapter 3 – Risk and Return

This chapter explores the idea about taking on higher risk for potentially higher return. Over the long term it can be worthwhile to take on some extra risk with equities.

Chapter 4 – How much money do you need to retire?

Mike goes over a very simple formula to do a rough estimate of how much money you will need to save up in order to retire.

Chapter 5 – Don’t bother picking individual stocks

He explains quite clearly why it is a waste of time to try and pick your own stocks and suggests low-cost mutual funds instead.

Chapter 6 – Index funds win.

Brief explanation of low-cost index funds and why they should be the cornerstone of your portfolio.  The perils of picking ‘hot’ funds.  A warning that not all index funds are low cost and he also discusses a strategy to lower the costs if you are mainly invested in a limited-option 401k plan.

Chapter 7 – Asset allocation

This chapter starts off talking about the tradeoffs between bonds/stocks. Buying home country stocks vs international – currency risks.  He concludes that it’s better to have an asset allocation that is too conservative than too aggressive.  I agree!

Rebalancing is also covered as well as target date retirement funds.  It is mentioned that while the concept is great -the execution can be weak with managers using expensive funds. Check to make sure the asset allocation is in line with your desired allocation

Chapter 8 – Putting it all together

Mike goes over how to implement your asset allocation plan – which indexes are good ones to follow. Also includes a very simple sample portfolio. Watch your expenses!

Talks about some more differences between index funds and etfs. One thing that might have been mentioned here is that index funds transactions  can be easily automated whereas ETFs trades can’t be.  You can construct an extremely well diversified, low-cost portfolio using just a few index funds.

Chapter 9 – Think long term

He covers the importance of not being spooked by drops in the market or the financial media (ignore them).  Don’t look at your portfolio too often and don’t panic.  Conversely – if the markets are doing well – don’t be tempted to buy more stocks – stick to your plan.

Chapter 10 – How to find a good advisor

He says that most investors don’t need an investment advisor but there are situations where one might be required. Various types of advisor compensation are discussed. He makes a good point that the dreaded “commission” based advisor can be the cheapest option for a lot of people with smaller portfolios.

Chapter 11 – Automate your investing

If possible then set up automatic contributions via payroll options at work or with your investment company. Pay yourself first.

Chapter 12 – Beware the hot fund

Not unlike the hot stove – hot funds are just as dangerous. Keep in mind that hot funds (and stocks) are not likely to stay hot and there’s a good chance that it took on extra risk to get the eye-popping return.

Chapter 13 – Turn off the tv

Good advice in general – this basically says don’t watch the daily market performance.

Chapter 14 – Steer clear of stock-picking newsletters

Don’t buy stock pick suggestions from anyone.

Chapter 15 – Conclusion

Keep it simple.

Top referrers for October

Occasionally I like to recognize the top referrers to Four Pillars – here they are for the month of October:

1. Million Dollar Journey
2. Canadian Capitalist
3. The Globe and Mail
4. Moolanomy
5. Bible Money Matters
6. Frugal Dad
7. My Money Blog
8. Canadian Mortgage Trends
9. Wisebread
10. Dividend Growth Investor

Thanks to those 10 sites and others that send traffic my way.

Visitors by country

I thought it would be interesting to show the percentage of visitors by country.

1. United States 73%
2. Canada 21%
3. unknown 4%
4. UK 0.3%
5. Australia 0.3%
6. India 0.14%
7. Costa Rica 0.14%
8. Germany 0.08%
9. Phillipines 0.07%
10. Ireland 0.07%

A couple of special links

Len Penzo is one of my favourite reads recently – he’s a great writer and quite funny.  Check out this family-oriented taste test to determine how store brands compare to brand name goods.

Thicken My Wallet had an interesting 2 part post on an issue that Mom2KG had when buying a house. Turns out there was an oil tank buried in the backyard – who knew? I find it interesting that she thought the real estate agent really stepped up to help. The fact is that the agent doesn’t get paid until the house deal closes so if something happens to put the deal in jeopardy – you can bet they will do everything they can to make it happen. Part 1 and Part 2.

The rest of the links

Million Dollar Journey aka Kathryn has some tips for using Kijiji or Craigslist.

Canadian Capitalist covers the cost of a future university degree.  This tied in well with my post this week on RESP – withdrawal of contributions.

The Intelligent Speculator looks at the charts for ValueClick (VCLK).

ABCs of Investing explains how to calculate capital gains and losses.

ABCs of Investing outlines the “bottoms up” investment method.

Carnivals

Carnival of 20 something finances

Carnival of Financial Planning

Carnival of Personal Finance 228

To get the discount just go to the You Need a Budget website and enter the coupon code:

fourpillars

That’s it!  Also, YNAB informed me that if you download the free trial you can get another coupon code for 10% (if you purchase with 48 hours) thereby saving a total of 20%.  The price of YNAB is $49.95 so after the 20% discount the cost will be $39.96.

If you do try the software – either from the free download or from a purchase then please let me know what you think of it.

I do all my budgets and financial “stuff” on Excel spreadsheets but I’ve been thinking of getting some proper financial software.  I have regular bank accounts, a multitude of investment accounts and a small business.  I’m doing ok with Excel, I’m thinking that maybe I should upgrade.  I’ll be taking a look at various financial software starting with this one.

What is YNAB?

YNAB is a financial budgeting tool.  On the simplest level you enter your various transactions into the software and it helps you determine how much money you can allocate to various goals.  It also comes with a set of financial rules which are worth reading by themselves if you are learning the basics of financial management.  It works on the principal of “zero balance” so that all your income and expenses plus savings have to be reconciled each month.

Here are the 4 “YNAB” rules:

1. Stop living paycheck to paycheck.  If you are currently living paycheck to paycheck then the software is designed to help you get ahead of your payments so that you have a bit of financial breathing room each month.
2. Give every dollar a job.   This isn’t an election campaign slogan – the idea is that if you don’t have a clear goal for each dollar then it will disappear (ie get spent on crap).  By assigning ALL your money to one function or the other, there should be less leakage of moola.
3. Save for a rainy day.  This is basically spreading out a future fixed cost over time so that you don’t get nailed with a large cost one month (ie annual insurance payment) that you might have forgotten about (or ignored).
4. Roll with the punches.  There is some important flexibilities build into the software so if you do have trouble in a particular month YNAB will make up for it the following month by reducing the budget.

You can import data from the YNAB spreadsheet version (not supported anymore) or just start fresh.  It also accepts financial feeds from any bank.  I tried importing some data from my bank (CIBC) and it worked great.

Who is it for?

I think this tool is mainly for people who are working to get control of their finances and need a bit of help to get organized.  If you want to improve your finances and aren’t sure where to start, living paycheck to paycheck and/or trying to get out of major debt then you might want to consider this program.  It’s not just a budgeting tool…it’s a way of life.    Ok, that’s an exaggeration.  It really is more than just a financial tool though- it’s almost like a financial tool with an “improve your finances” philosophy built into it.

If you are someone who is at the point in life where you don’t need to track every expense in order to meet your financial goals then this software might not be as useful to you.  If your investments are the only thing you want to track then Quicken is probably a better bet.  Keep in mind however that even if you don’t “need” to budget – it can help you achieve your goals quicker even if you are not in debt.  One of our goals is to pay off the mortgage and there is no doubt in my mind that we could achieve it faster with a stricter budget.

I won’t be buying this software because it doesn’t meet my current needs – there was a time when I was paying off debts when this software probably would have helped a lot but since it doesn’t track investments then it’s not for me.

I was impressed by the software itself – the original version of YNAB was Excel-based and I didn’t know what to expect with the new software but it is quite good.  The creators of this software are very passionate about debt reduction and financial management and it shows on the YNAB site.

More reviews

If you need some more proof that this is good software then check out the YNAB review page – there are plenty of comments from big media sites and well-known bloggers talking about YNAB.

YNAB U

One of the more interesting parts of the You Need a Budget website is the free financial educational programs that have been set up.  Check out YNAB U for a detailed look at how to get started with a budget.

How much does it cost?

The sticker price is $49.95 but I’ll be posting an offer later on today which will provide a big discount on this price.  Check out the “fourpillars” coupon code for big savings.

What doesn’t it do?

It won’t track investments so someone who is more asset-rich might not have as much use for this software.

Guarantee

Along with the 7 day free trial there is a 60 day guarantee on this software so you are pretty safe if you decide you don’t like it.

YNAB 3.0

In November there will be a major upgrade of this software, but don’t worry – if you end up purchasing the existing version (2.0) then you get a free upgrade to 3.0.

Free trial

You can do a 7 day trial if you are interested in checking out the software before buying.  Or if (like me) you just want to see what it looks like.  Basically you do the normal download and then at the end just click on the “7 day trial”.  There is no obligation and you don’t have to give any kind of information to do the trial run.

Here are the 4 different sections of the YNAB system and some screen prints so you can see what it looks like:

Register

Start by setting up your register – this is a list of all your transactions.  First step is to select a bank account or credit card/loan.  Then you enter the expenses/income etc within that account.  The register is set up like a spreadsheet where the different bank accounts are tabs along the top and you select each account/tab to see the details.

The register screen looks as follows – you can see I’ve set up two accounts by looking at the tabs at the top (checking and savings):  Click on the image to see the full-sized image.

You can import data from your bank account quite easily.  Just export the database from the online bank account interface and then import using YNAB.  I used the “Intuit Quicken” export option since that uses the same default file format as YNAB.  If you have set YNAB as the default application for financial downloads (it will ask you on installation) then YNAB will open up automatically with the new data.

Budget

Scheduler

Reports

In “The Four Hour Work Week” Tim Ferriss discusses how he finds it hard to market with a “money-back guarantee” (saying that customers have become too used to it) and instead offers a “Lose-Win Guarantee” which is that not only will he refund money, but he’ll give a 10% bonus if someone requests a refund.  He explains the money-back guarantee being dead as people don’t want to have to spend an afternoon at the post office and that risk elimination isn’t enough.

I don’t think this is the reason money back guarantees don’t work.

It seems like EVERY infomercial offered on television, EVERY over-priced seminar or “boot camp” and EVERY scam posted in the classifieds, on a lamp post or bulletin boards offers a money back guarantee.  They can easily offer this guarantee:  if they’re prepared to lie about their product, why not lie about a fake guarantee?  Ripoff Report has 8,430 hits (as of writing) on the term “money back guarantee“.  I feel for some of the posts, where they say “they have a money back guarantee, I asked for my money back, and they WOULDN’T GIVE IT TO ME!!!”  Sadly, for people willing to mislead consumers about their products or services, lying about a guarantee is pretty easy.  They’re also experts at making sure you can’t cancel credit card transactions (one trick is to get you to sign a contract, even for a product, then the credit card company can’t do a chargeback).  A guarantee is only as good as the person or company offering it.

This wacky business idea is fairly straightforward, you set up a business that sells its reputation to honest small vendors who actually want to offer a money-back guarantee (or any variant on it).  For a flat-rate (or portion of the transaction), you provide the ordering services (phone, website or whatever) for the vendor, collect the money and hold it for a set “money back guarantee” period.  At the end of that period, if the customer hasn’t complained, you pass the funds on to the merchant.  If the customer complains during that period, you give the money back to them.  It’s like a very easy to use escrow service.

In order to gain (and build) consumer confidence, the company would require vendors to conform to set structures.  For example, the vendor couldn’t create complex return procedures to prevent return of goods, or very short return periods so customers would be out of the return period before the received the goods.  If the company found a vendor was getting an unusual number of complaints or returns, they would suspend selling for them until the problems were investigated and remedied.

Customers would use a single point of contact (one website and one phone number) so they’d always know they were dealing with the real escrow company.  Orders would always be recorded (including audio recording of all calls), and this transaction history could be made available, with the consent of the customer, in cases of dispute.  If someone was complaining about the escrow company mishandling things, they could say “do we have your permission to post details of the transaction and show that you were told about limitations or time limits?”.

Vendors would have their “terms of sale” vetted, and made to conform to a standard, straightforward agreement (that would always be presented to the customer at time of purchase).  Any terms that tended to be confusing to large numbers of customers would be removed from current agreements and not used in future agreements.  For example, if customers would be required to package and ship items back to the company for a refund, the escrow company would tell them this (and provide an estimate on shipping costs) at time of purchase

The escrow company could also be hired by the customer, so they could go to a company and say “I want to order your goods and pay through this escrow company, I’ll pay the extra fee”.  If the vendor consented, the buyer would then get the standard protections (and the vendor would be paid after the set period).  Vendors could also offer goods with and without the escrow protection (with different prices).

I’m aware of E*Bay’s trusted partner Escrow.com, and this would be something along the same lines, but not just for online purchases.  You could use it for mail order, for phone orders, or for face-to-face transactions (like hiring a contractor to redo your kitchen).  Amazon does something half-way along these lines where they force customers to directly deal with vendors who sell through Amazon, rather than with Amazon themselves.  However, they say “You should be able to reach an amicable agreement with one another“, which I HOPE implies they’ve evaluated all vendors.

Obviously, once you’d done a few transactions with a company / person you could drop the escrow intermediary and deal directly.  The escrow company would just be there for transactions that you don’t know person or company (and would let customers deal with the escrow company, a company they WOULD know well, instead).

The trickiest part of this would be growing to be a well-known standard that people have heard of and trust (this would be very challenging at the beginning).  The company is selling its reputation, so building this would be the core of what they do.  Partnering with (or growing out of) established large companies like E*Bay, Amazon or Paypal would probably be a worthwhile way to “jump start” such an enterprise.

But what if you save all this money and they decide to live at home?  In that case the total cost gets cut about 40-50% since they don’t have to pay for accomodation and food.  You can’t really plan for this since most students don’t know where they will be going to school for sure until less than a year before graduating high school.

I’ve always thought that you would just have to get the child to spend more money (drive a new car?) while in school to use up the funds.  Alternatively, you could save some money in an RESP and some in an open account which would cover both situations. In fact, the answer is to just withdraw any contributions that you made to the RESP.  They can be withdrawn by the account owner (ie Mom & Dad) once the child starts school with no penalty of any kind.  You wouldn’t have to withdraw all the contributions – just whatever you feel is the right amount. If the kid is starting her 4th year and there is still $50k in the RESP then that would be a good time to figure out how much the contributions were.

Make sure the student is getting non-contributions

If you run into a similar situation then make sure the financial institution you are dealing with is withdrawing non-contribution money when sending money to the student.  Similarily if you withdraw contributions for yourself – clarify with the financial institution that this is indeed happening.  You can just call the company that holds your RESP to find out what the total contributions are.