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If you’re the nervous type as a parent, take a look at how you’re investing your child’s registered education savings plan.

Just as they nurture their children, there’s an impulse among some parents to coddle their kids’ RESPs by investing conservatively. And so you have inquiries like this one from a reader. “I have an RESP at my Canadian major bank and after $7,500 personally contributed, plus $1,500 in government contributions, it only stands at $9,640 after three years. Any thoughts on how to get a safe and higher return?”

You can have safe returns and you can have higher returns. But you can’t have both in an RESP, or anywhere else. Suggestion: Go for higher returns up until your child is 13, and then gradually go for safer returns as your child approaches the age of 18.

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Contribute up to $2,500 per year to an RESP and you get a 20-per-cent matching federal grant that tops out at $500 a year and $7,200 lifetime for each beneficiary. Assets in an RESP compound tax-free over the years, then get taxed in the recipient student’s hands after withdrawal. Overall, RESPs are an excellent way to help a child graduate with little or no student debt, a financial burden that can delay milestones like buying a home and starting a family.

Investing RESPs sensibly is a challenge in an emotional sense because you’re building a financial foundation for your kids as they make the transition into adulthood. Practically speaking, RESPs are hard to handle because you’ve got a much more compressed time frame than you do with a registered retirement savings plan.

If you’re setting up an RESP for a baby or toddler, consider an aggressive portfolio mix of 70-per-cent to 90-per-cent stocks, with the rest in bonds. When your child is 13, start replacing the stock market exposure with bonds or guaranteed investment certificates. By 18, a safety-minded parent would want 100 per cent of the RESP either in a high-rate savings account or a GIC ladder that has money coming due in August to pay tuition and living expenses.

The reader asking about RESPs isn’t doing all that badly, return-wise. He or she has taken $7,500 in contributions and turned it into $9,640 in three years via market returns and government grant money.

RESP grant money represents a risk-free and guaranteed return. No matter how protective you are as a parent, this demands your attention.

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