If you really want to squeeze the maximum juice from a registered education savings plan, start just after a child is born.
Starting young helps ensure the RESP draws the maximum amount of grant money available to encourage contributions. The government adds 20 cents to every dollar you contribute, up to $500 in grant money yearly and $7,200 lifetime (contributing $2,500 a year gets you the maximum grant). Starting young also helps you benefit from long-term compounding, and it enables you to invest aggressively because the money won’t be needed for well more than a decade.
This brings us to a recent reader question: “What would be a good way to invest $5,000 today to start an RESP for a toddler?”
Toddlers are considered to be 12 months to 36 months old, which means the beneficiary of this reader’s RESP has at least 15 years until high-school graduation. That’s enough time to use what I think is an ideal investment – both simple and cheap – for parents and grandparents setting up RESPs.
Balanced exchange-traded funds (ETFs) are a diversified portfolio in a single package and available from firms that include BlackRock Inc., through its iShares lineup; Bank of Montreal (BMO ETFs); Horizons ETFs Management (Canada) Inc. and Vanguard Investments Canada Inc. There are versions for conservative, balanced and aggressive investors. In this case, let’s go with aggressive.
The growth version of the balanced ETF typically has an 80 per cent-20 per cent split between stocks and bonds, which is aggressive but not foolishly so. Expect a fee of about 0.25 of a percentage point, and be prepared for brokerage commissions of no more than $10 to buy and sell. Typically included in these funds is exposure to Canadian, U.S. and international stocks in both developed and emerging markets.
A perk with balanced funds for RESPs (and retirement, for that matter) is that you can lower the risk level as you get close to the date when the money in the plan will be needed. For example, you could switch from a growth-oriented balanced ETF to plain-vanilla balanced (60-40 stocks/bonds) or conservative balanced (40/60) ETFs when the beneficiary is within five years of graduation.
A year or two before graduation, consider putting all or most of the plan’s contents into a mix of cash and guaranteed investment certificates. This will protect against a market crash just ahead of graduation.
The choice of investment for an RESP is important, but not the top priority. First, start young. Second, contribute as close to $2,500 a year as you can to capture that federal grant money. Next, worry about a good way to invest.
-- Rob Carrick, Globe and Mail personal finance columnist
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Stocks to ponder
Boyd Group Income Fund (BYD-UN-T). Auto repair franchise operator Boyd Group Income Fund has been on a tear, climbing 31.2 per cent year to date. But it’s an overbought, technically vulnerable company by Relative Strength Index (RSI). Investors thinking about buying Boyd Group might want to hold on and wait for some of the frothiness burns off, but it doesn’t look like existing holders need to worry about the current RSI sell signal too much. Even the cases where the price declined after sell signals in the past three years – August 2016 and June 2017 – the short term losses were not sizeable. Sell signals in December 2017 , June 2018, and more recently on March 21 of this year, were followed only by pauses in the rally and not drops. Scott Barlow explains (for subscribers).
Aecon Group Inc. (ARE-T). This stock that appeared on the negative breakouts list (stocks with negative price momentum) earlier in the week. The stock has been a laggard, underperforming the market despite reporting solid fourth quarter financial results and announcing a dividend increase. Year-to-date, the share price is relatively flat, down 1 per cent. For patient investors, this stock may see its share price climb higher once management can show a sustainable improvement in its margins. On a valuation basis, the stock is trading at a discount to its historical average. The stock has 10 buy recommendations with an anticipated one-year price return of 32 per cent. Calgary-based Aecon is a construction and infrastructure development company serving both the private and public sectors. There is seasonality in the company’s operations with the first quarter the weakest. Jennifer Dowty reports (for subscribers).
Fiera Capital’s top investor thinks utilities and telecoms are overpriced – but not these other sectors
François Bourdon is taking some flak right now for his contrarian view on the economy. While some market watchers predict a recession will hit this year or next, the global chief investment officer of Fiera Capital Corp. believes the markets have more room to run. Despite the criticism, Mr. Bourdon isn’t wavering from his view. "We think we’re later in the economic cycle. We are in the eighth inning, which means there’s still some game to be played. We don’t see a recession in 2019 or 2020, it’s probably coming in 2021 or later,” says Mr. Bourdon, whose team manages $14-billion in assets. Brenda Bouw reports (for subscribers).
Why it’s time for dividend investors to use caution
A swift rebound in high-dividend stocks helped fuel the best first quarter for Canadian equities in nearly 20 years, raising concerns that those pockets of the domestic stock market have become overheated. Since the sell-off that enveloped markets globally ended in late December, there has been a renewed appetite for stocks paying generous dividends. Canadian real estate and utilities sectors are up by around 20 per cent since the rally began, while most domestic pipeline names have gained even more. After packing in a solid year’s worth of returns in just a few months, it may be wise to treat some of the market’s hottest names with caution, said Robert Sneddon, president and chief portfolio manager of CastleMoore Inc. Tim Shufelt reports (for subscribers).
The days of safe income are over. Here’s a portfolio strategy to deal with it
Safe income is once again increasingly in short supply, and this ‘scarcity value’ means that the asset mix and portfolio construction should be aimed at deriving a reliable cash-flow, says economic David Rosenberg. In turn, this means a barbell of non-cyclical dividend-paying stocks and high quality long duration bonds will make perfect sense even if the economy underperforms expectations through the spring. He explains further (for subscribers).
‘They really slowed us down,' Trump says as he presses Fed to lower interest rates
President Donald Trump said on Friday the U.S. Federal Reserve should lower interest rates and take other unconventional measures to ease pressure on an economy that he said they slowed down. “I think they should drop rates,” Mr. Trump told reporters. “I think they really slowed us down. There’s no inflation.” Reuters reports (for subscribers).
Others (for subscribers)
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Compiled by Gillian Livingston