The high cost of living for families means it’s often falling to grandparents to contribute to registered education savings plans.
Many of the RESP enquiries I get are from grandparents who want to help their grandkids afford the cost of a post-secondary education. The latest query comes from a grandfather who has already made an important decision about RESP investing -- he wants to use exchange-traded funds. “What is the best ETF for an RESP,” he asked.
Helpfully, he provided the ages of his four grandchildren. They range in age from one to seven years old. That’s key information for using balanced ETFs, which are a universal investing tool that happen to work extremely well for RESPs. A balanced ETF, also known as an asset allocation ETF, is a fully diversified portfolios available in a single fund.
There are basically five flavours of balanced ETF - conservative, income-focused, balanced, growth and all-stocks (the balancing comes in the form of exposure to Canada and global markets). Look to Vanguard, BMO and Blackrock’s iShares series of ETFs for a good, basic selection of these funds.
Let’s figure on an RESP beneficiary starting college or university at age 18. By age 15 or 16, you’d want to make capital preservation a priority and use guaranteed investment certificates for all or most of an RESP. Prior to that, your choice of balanced ETF should be guided by the age of the beneficiary and your feelings about stock market risk. Here are some rough guidelines:
- Growth-oriented funds: With roughly 80 per cent of their holdings in stocks and 20 per cent in bonds, they make sense the RESPs of children up to 13 years of age or thereabouts. After that, you’ll want to think about dialling down the risk level in anticipation of the student reaching graduation.
- Balanced funds: The more modest tilt to stocks over bonds (figure on 60 per cent stocks, 40 per cent bonds) makes sense for parents and grandparents who take a somewhat more cautious approach to investing; also a candidate for RESPs for early teens.
- Conservative funds: An alternative to the balanced fund for people who want a less volatile investing experience that limits downside risk and upside gains through a higher weighting to bonds over stocks (something like 60 per cent bonds, 40 per cent stocks). Well-suited as a bridge between the aggressive investing years of an RESP and the capital preservation years when a student is approaching graduation and then moving on to college or university.
-- Rob Carrick
This is the Globe Investor newsletter, published three times each week. If someone has forwarded this e-mail newsletter to you or you’re reading this on the web, you can sign up for the newsletter and others on our newsletter signup page.
Stocks to ponder
Ballard Power Systems Inc. Over the past 12 months, Ballard’s share price has more than tripled, making it the single best performer in the S&P/TSX Composite Index and bestowing on the company a $3.2-billion valuation. Problem is, it’s not profitable. But the absence of profit is proving to be little deterrent for the company’s supporters – another callback to Ballard’s previous incarnation. Tim Shufelt reports.
David Rosenberg’s nine ways to make money in markets this year
After more than 30 years in the investment business, David Rosenberg can tell you two things that are certain even in this highly uncertain environment, where market pricing, in the vast majority of cases, are misaligned with the underlying fundamentals: 1. There is no such thing as a sure thing. 2. Never put all your eggs in one basket. He outlines these nine strategies for successful investing in 2020.
Why you shouldn’t fear an inevitable market downturn
The imagination of investors is occupied by a small minority of severe crashes and depressions. But Norman Rothery shows us how most downturns were brief and many go unnoticed by investors who aren’t glued to the market’s every move.
Others (for subscribers)
Friday’s Insider Report: Executive invests over $6-million in this stock
Thursday’s Insider Report: CEO accumulates shares in this plunging stock
Number Cruncher: Fifteen TSX dividend stocks for the value-oriented investor
Others (for everyone)
Are you a financial advisor? Register for Globe Advisor (www.globeadvisor.com) for free daily and weekly newsletters, in-depth industry coverage and analysis, and access to ProStation - a powerful tool to help you manage your clients’’ portfolios.
What’s up in the days ahead
Telsa shares seem to be going to the moon, burning up short sellers in the process. Can the journey continue? Ian McGugan will take a close look this weekend.
More Globe Investor coverage
For more Globe Investor stories, follow us on Twitter @globeinvestor
Click here share your view of our newsletter and give us your suggestions.
You may also be interested in our Market Update or Carrick on Money newsletters. Explore them on our newsletter signup page.
Compiled by Globe Investor Staff