Alex Slobodkin/Getty Images/iStockphoto
Entrust the money for your child's university education to the ever-unpredictable stock market?
Hell, yeah. If you've done the right thing and set up a registered education savings plan for a recently born child, then 90 or 100 per cent exposure to the stock market is not out of the question. Here's an RESP investing plan based on the milestones of childhood:
Birth:
It'll be hectic when you bring a newborn home, but try to find time in the months afterward to get your child a social insurance number and then set up an RESP. Your RESP portfolio should be at least mostly built on exposure to the stock market and its demonstrated ability to deliver high single-digit returns on average over periods of 10 years or more.
Starting school:
At this point, you probably have 12-plus years until your child goes to college or university. Keep up the aggressive investing approach.
Reaching the teen years:
Your child will have five years to go until his or her RESP is needed. This suggests a more conservative mix of investments that will sacrifice return potential for stability. A mix to consider is 30 per cent stocks, 60 per cent guaranteed investment certificates or bonds and 10 per cent cash.
Starting Grade 10:
Time to further address the risk of losing money in a bear market for stocks. Consider limiting exposure to stocks to 10 per cent, with GICs or bonds and cash making up the rest.
Starting Grade 12:
Have enough money to pay for your child's first two years of school in cash or one- and two-year term deposits. The rest can be in longer-term GICs or bonds, with maybe a token 5 per cent in stocks. Do not use bond funds as they can be down in value when it comes time to sell them. Blue-chip bonds or GICs can be depended on to mature and repay the capital you invested.
Starting college or university:
Your goal now is to preserve what you've saved and the grant money contributed to your RESP by the federal government. Zero risk is the rule.
Rob Carrick