It’s more than important to know how to make the best use of that RESP. Of course the RESP or Registered Education Savings Plan is a no-brainer for saving for your child’s education thanks to those free monies known as the education grant.
One of the basic rules of personal finance is accept all free monies.
Your RESP can go ROBO.
An RESP investment can be difficult to manage as the risks increase the closer we get to the date when the student needs the monies for College or University. A self-directed investor may find the required strategy a challenge. And certainly from my experience and that of many of my readers, the big bank mutual fund advisors appear to not be trained on how to use the RESP.
One solution is to go ROBO . Justwealth is one of the leading Canadian Robo Advisors. They offer Canada’s most comprehensive online portfolio management platform.
In fact, Justwealth is the only Canadian ‘Robo’ Advisor to offer portfolio solutions tailored to the RESP. They offer what is called target-date funds. And as a backgrounder please have a read of my review of Justwealth, the Canadian Robo Advisor that knows when to get personal. While they are digital wealth managers, there’s plenty of human advice and human contact available. Your file will land on the desk of the Chief Investment Officer. Try getting that level of attention at TD or Investor’s Group.
Everything you ever wanted to know about the RESP.
Justwealth has made the RESP education process a snap, er, make that a click. You can download their RESP Guide.
At the core is the ability to grab $7200 of the Canada Education Savings Grant monies per child. You may be able to grab additional grant monies as well depending on income level. There may be Provincial grants available to you as well. Read the guide. Education is key. It’s a simple plan, but it can be more than advantageous to know the ins and outs when accumulating in the RESP. There are many advantageous strategies as well on how to best put those monies to work when it’s time to pay the tuition and living costs.
Be smart, use the stock markets.
You’ll need some growth for your RESP monies. And because you likely have a considerable time horizon you might have the ability to invest in a nice mix of stocks and bonds. Inflation is a silent killer of wealth. Inflation runs rampant in the halls of higher education. Tuition fees and other costs have skyrocketed over the last few decades.
Currently, a 4-year program with residence could run up a bill in the area of $85,000. And that’s not counting Junior’s Beer Store tab. On that here’s a sober post courtesy of Erica Alini of Global News. It’s a commentary on runaway education costs, not Junior’s taste for expensive IPAs. From the 1990’s education costs have tripled, even when taking inflation into account. Erica tells us that the federal government has slashed its funding to post secondary education.
Get some stocks, those inflation fighters.
While there’s no guarantee of generous returns the stock markets will at least give you a fighting chance so that you and your daughter don’t have to go running off to The Bank of Grandma.
But you will have to know how to navigate the stock market waters. We will take on more risk early in the RESP building process, and then we will need to ‘de-risk’ along the way. We will need to protect your (hopefully generous) stock market gains.
Equity Glide Path.
At Justwealth, here’s what that stock to bond progression looks like.
We see that the process begins in the sweet spot with that Balanced Growth Model. As we approach the education start date we add more bonds. We essentially move to a different, less risky, portfolio each year. Halfway through the process we are 50% stocks and 50% bonds. With 3 years to go, we’re at 80% bonds and 20% stocks.
The year the student needs those funds the monies are sitting in the Capital Preservation Portfolio. That portfolio is mostly bonds with a shorter duration intended to minimize interest rate risks. And of course even on Day 1 of the education start date the time horizon for the funds approaches 4 years for a traditional undergrad degree. The idea is to also eke out some modest portfolio growth during those 4 years.
When accumulating RESP funds strategy is key. This from Justwealth Chief Investment Officer James Gauthier …
Upon opening, we provide guidance on how to maximize grant money through a contribution strategy that each client can afford – not every client starts an RESP for newborns, so we sometimes have to figure out how to capture “missed” grants. Things can also get more complicated with a family plan where contribution for multiple beneficiaries might require some strategic planning to fund over time.
It’s Canada, there’s tax considerations.
When removing the funds the grant monies are taxable in the hands of the student. You will need a plan to get those monies out of there in the most tax efficient manner.
James adds …
When it comes time to withdraw assets, we go over the tax impacts that withdrawals will have and suggest strategies to minimize any taxes payable. EAPs are taxable to the beneficiary, so to the extent that a student might have no income in a given year, one should emphasize the bulk of the withdrawal as an EAP – vice versa when a student has a high income year (if that’s possible….) refund of contributions should be emphasized.
And of course your education funding plan may also include TFSA monies or funds from taxable accounts. There can be several moving parts. You can study up, but it likely makes more sense to obtain qualified advice.
How do you start that RESP?
If you’re already a Justwealth client contact your Personal Portfolio Manager.
Signing up as a new client is easy and can be done online. For that RESP program sign up you can even scan and email the proof of enrollment document from the College or University. And of course before your investments are set up you’ll discuss strategy with your Justwealth Portfolio Manager. This is one of those times when they know to get personal.
Related post: Justwealth hits the spot with customer satisfaction.
Justwealth gets top marks for their RESP offering. And when it comes to the Robo space, they’re in a class of their own.
If you feel that Justwealth is for you, you can receive a cash bonus between $50 and $500 when you open an account through this link.
- $50 for assets between $5,000 and $24,999
- $100 for asset between $25,000 and $49,999
- $225 for assets between $50,000 and $99,999
- $500 for assets above $100,000
While I do not accept monies for feature blogs please click here for more about Dale and ‘how I might get paid’ disclosures.
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Thanks for reading,