Whenever you save and invest money, there may be some risk that you'll lose money. Registered Education Savings Plans (RESPs) also have certain risks, but the kinds of risk differ from plan to plan. The three most common risks of RESPs are:
- Investment risk. There is the risk that you may not make as much as you hoped to from the investments in your RESP. For example, you may get poor returns, or lose money as a result of bad investment decisions. In most cases, to get a higher return, you have to accept a higher level of risk.
- Future risk. There is the risk that circumstances may not work out the way you hoped. Most people invest in their RESPs over many years. Over that time, life can change. Your child's plans may change, or you may have to drop out of or cancel your plan. You may lose money through penalties or other fees.
- Cost risk. There is the risk that your investment costs could reduce your returns more than you expected.
These risks vary from RESP to RESP. In some cases, you can reduce the risk simply by choosing a different type of plan.
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Content in this section is provided in partnership with the Investor Education Fund, a non-profit organization promoting financial literacy to Canadians. To find out more go to GetSmarterAboutMoney.ca.