One of the things I pride myself on is being a lifelong learner. This applies to work and pleasure and especially to how I manage our finances. When it comes to investing for our kids in their RESP our strategy has also evolved over time as we learn more.
This post is not about everything you need to know about RESPs, if you have questions, chances are I answered them in this post – RESPs in Canada – All Your Questions Answered.
But knowing the information is different from applying it, and application is higher-order thinking according to Bloom’s taxonomy of learning.
So, here is how we’re currently applying what we know about RESPs and investing to maximize this account for our children.
Table of Contents
Family or Individual?
There are 3 types of RESPs: individual plans, family plans, and scholarship or group plans. Frankly, I don’t believe anyone should invest in scholarship or group plans. So that leaves individual or family plans.
When our daughter was born we knew that we wanted to have another child so we opened a family plan. Although in hindsight, had our children been born many, many years apart, multiple individual plans may have been a better decision.
But our children are only 3 years apart so we are happy with our family plan decision.
Why Did We Pick a Family Plan?
There were 2 main reasons we decided to open a family plan instead of multiple individual plans
- Only 1 account to manage
- Funds can be unequally distributed among beneficiaries
Does Age Matter?
As alluded to above, age does matter when opening and managing your RESP. If your children are very far apart in age, they will have different needs at very different times, so multiple individual plans may be best.
The age of your children will also impact how you choose to invest within their RESPs. As children approach the age of needing to access the money within the account it’s prudent to work to preserve capital by decreasing risk.
So, while you may be invested fairly aggressively when your children are very young, as they age you may opt to invest in more fixed-income funds.
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Our RESP Investing Strategy
With all of that being said, here is what we are doing.
First, we prioritize investing $2500 for each child in January to maximize the $500 matching Canada Education Savings Grant. Although to be honest, sometimes their contributions don’t occur until February or March. We can invest for them because we have also implemented plans to meet our personal investing and financial independence goals.
Remember, your children can always get student loans to go to school. There are no student loans for your retirement so it’s okay to prioritize that.
We have a family RESP with Questrade that we self-manage.
As our children are both very young, we are currently invested primarily in equities, although that’s not 100% accurate.
We currently own 4 funds within our family RESP
- VEQT
- XAW
- XGRO
- XIC
VEQT
VEQT is Vanguard’s All-Equity ETF Portfolio fund.
This fund has been what we have invested our son’s contributions in. It is 100% equities, which we feel is appropriate considering our son is currently 2 years old.
VEQT is a simple strategy for us. We make our $2500 contribution and buy as many units of VEQT as we can at the time using a limit order.
Then 2 months later, we check back and invest the CESG funds if they’ve been deposited.
In total, we spend less than an hour a year on our son’s family RESP portion.
XAW/XGRO/XIC
These 3 funds are dedicated to our daughter’s contributions.
When we first opened the family RESP, we thought we needed a 2 fund strategy.
- XAW for international market exposure
- XIC for Canadian market exposure
Eventually, we learned about 1 fund investing solutions and so then started buying XGRO.
XGRO is iShares’ Core Growth ETF and is a mix of 80% equities and 20% bonds.
Frankly, our daughter’s part of the account is a bit of a mess.
Our daughter is currently 5 and, in our opinion (in what we know now), doesn’t need to be invested in bonds.
Because of the multiple funds and dividends they receive, it takes us probably closer to 2-3 hours per year to manage our daughter’s portion of the family RESP.
Our RESP Strategy
Before diving into our long-term strategy, a few thoughts on our current strategy and future short-term strategy.
Currently, our son’s contributions and grants have a 2.4% return, and our daughter’s are sitting around 12.7%. Just looking at the returns, maybe we should keep things as they are or convert my son’s side to mirror my daughter’s.
But just looking at those numbers neglects the timing of the investments. Had my son’s been invested at the same time as my daughter’s, I’m assuming the returns would be different than they currently are.
And it’s also important to consider psychology and complexity. With the RESP, we are already ahead with the 20% matching grant from the government. So, if the rest of the strategy keeps things simple for our goals, that’s worth it.
I don’t want to lose sleep or get caught in analysis paralysis trying to over-optimize an already good option.
Short-Term RESP Strategy
Next year, I hope to clean up the account a bit by streamlining our investments. Ideally, I would like my son’s contributions to stay the same and then my daughter’s to migrate to 100% XEQT (the iShares All Equity ETF).
This will keep things very clean, separate, and much easier to manage. Robb from Boomer and Echo has shared how he has a similar strategy with his RESP, and I really appreciate the simplicity.
Long-Term RESP Strategy
Then, in the long term, we can slowly migrate the account to hold more bonds. One strategy we are thinking about is converting 10% to bonds each year after the age of 10. So, at 10, it would be 90% equities, 10% bonds, at 11, 80% equities, 20% bonds, and so forth. That way, by the time our children are close to 18 and possibly want to withdraw funds, said funds are somewhat protected from sharp market downturns.
We are 5 years away from that, so still have time to hammer that out. But right now, I’m thinking at the age of 10, the contribution will go 100% to bonds to “even out” the 90:10 split.
And to further keep things simple, clean, and separate. My sons will be invested in a Vanguard bond fund, and my daughters will be in an iShares bond fund. As this is still years away, I have yet to research what exact bond funds those will be.
Final Thoughts
In reality, there may not be a need to keep everything so separate between our children’s investments as a benefit of a family RESP is the ability to unequally distribute funds. But it helps me keep a sense of things in my head.
The above strategy won’t work for everyone, and it isn’t intended to. This isn’t investment advice but rather a peek behind the curtain as to what we are doing.
I’ve learned a ton from fellow personal finance creators who share the behind-the-scenes of their investments. My goal is to not follow them blindly but learn from what they are doing and apply parts of it to my own strategy.
Hopefully, by sharing what we are doing, you can learn something to apply to your investing strategy and personal investment policy statement.
Remember that the best plan is the one that meets your goals and is one that you can stick to.