Weekend Reading: RESP Portfolio Reboot Edition

Weekend Reading: RESP Portfolio Reboot Edition

Happy Father’s Day! Today seems like a good day to talk about the changes I plan on making to reboot our kids’ RESP portfolio.

For years, I’ve invested our RESP contributions into TD’s e-Series funds – contributing $416.66 per month and then buying one of four e-Series funds (Canadian, US, or International equities, plus Canadian bonds). Rather than rebalancing, I’d simply buy the fund that was lagging my target asset mix. This kept the portfolio in balance and relatively easy to manage.

I’ve often considered RESPs to be like a practice run for managing your retirement accounts. You’ve got a condensed timeline to contribute (17 years or so). You need to consider de-risking the portfolio as you get closer to accessing the funds. And, you need to manage withdrawals over a period of, say, four to 10 years. 

That means making difficult decisions around market timing, changing asset mixes, and tax efficient withdrawals. It’s not easy.

Further complicating things is that we have one family RESP portfolio with two beneficiaries of different ages. Our oldest daughter’s share of the pot should be a bit more conservative than my youngest daughter’s, but all of the funds are lumped together.

A lightbulb went off when PWL Capital’s Justin Bender released a video on how to invest your RESP. Justin brilliantly explained how to set up your family RESP in such a way that you can separate out each child’s share of the funds while still keeping costs low and the portfolio easy to manage. 

The TL;DW version is that you’d use an all-equity ETF, a short-term bond ETF, and eventually a high interest savings ETF from different ETF providers (say, Vanguard and iShares) for each child to separate their share of the portfolio. In fact, it’s very similar to the two-fund solution for investing in retirement that I wrote about recently.

So, I’ll just change my oldest daughter’s name to Vanguard, and my youngest daughter’s name to iShares as I attempt to reboot their RESP portfolio.

Rebooting the RESP Portfolio

It’ll take a few steps to make the appropriate changes in their RESP.

First, I need to determine the proportion of contributions, CESG, and investment growth assigned to each child. To do this, you can call the Canada Education Savings Plan hotline at 1-888-276-3624 and get a Statement of Account for each beneficiary. Have their Social Insurance Numbers handy.

RESP statement of account

Second, I’ll need to sell off the TD e-Series funds and then purchase the new ETF portfolio for each child.

Finally, I’ll need to stop contributing $416.66 monthly and instead contribute one lump sum of $5,000 in January. That limits my rebalancing efforts to once per year and also keeps transactions costs low since I’m switching from no-commission e-Series funds to potentially $9.99 per trade ETFs (if I keep this account at TD Direct). 

For all of these reasons it makes sense to start this portfolio reboot in January, 2024.

The Current TD e-Series RESP

Here’s what the current RESP portfolio of ~$92,000 looks like:

  • TDB900 – Canadian Equity – $26,530
  • TDB902 – US Equity – $28,815
  • TDB911 – International Equity – $29,720
  • TDB909 – Canadian Bonds – $6,935

As you can see, the current portfolio is way lighter on bonds than it should be for our kids’ ages. That’s partly the reason for this portfolio reboot – I know we need to de-risk the RESP as our oldest daughter is just 3.5 years away from making her first withdrawal(!).

I’m okay with that. You’ll see that Justin Bender’s proposed asset mix is much more conservative than I think most people would expect. But that’s because the lifetime of this account is actually much shorter than we think. Even the most aggressive investor in their own retirement account has to admit that it doesn’t make sense to hold a large portion of equities when you’re close to making significant withdrawals.

The newly rebooted RESP Portfolio (as of January 2024)

Remember, I’m going to contribute $5,000 in January, 2024 to front-load their contributions for the year. That will earn $1,000 in CESG. I’ll also assume some investment growth between now and the end of the year, bringing up the portfolio balance to $100,000.

I’ll assign 56% of the portfolio to my oldest daughter (now named Vanguard – sorry!), and 44% of the portfolio to my youngest daughter (now named iShares – again, sorry!).

Vanguard’s share of the pot will follow the age 14 glide path and look like this:

  • VEQT – Global Equities – $11,200 (20%)
  • VSB – Short-term Bonds – $44,800 (80%)

iShares’ share of the pot will follow the age 11 glide path and look like this:

  • XEQT – Global Equities – $17,600 (40%)
  • XSB – Short-term Bonds – $26,400 (60%)

Once Vanguard approaches university age I’ll add a new high interest savings ETF to the mix, which will cover at least that year’s expected withdrawals.

This change will represent a significant “de-risking” of our kids’ RESP portfolio but one that has been largely overdue.

Readers, if you manage an RESP I’d love to hear your thoughts on this proposed change.

This Week’s Recap:

A few weeks ago I asked if outsourcing was the key to happiness. Some interesting responses!

I also explained how investors can control their urgency instinct. Don’t just do something, stand there!

Earlier this week I looked at a simple way for retirees to manage their investments using just two ETFs.

Weekend Reading:

Is this the end for attainable home ownership in Canada? Sadly, that seems to be the case in some parts of the country.

More on the increasingly narrow path to owning a house, without becoming house poor.

Meanwhile, unaffordable Toronto and Vancouver are ranked as top cities for young people to live and work in.

The Globe & Mail’s Erica Alini explains why living with your parents in your 20s is becoming common financial advice (subs).

Investment industry lobbyists have fought hard against measures such as banning embedded commissions and providing a fiduciary standard of care, largely claiming this would drive advisors out of business and lead to an “advice gap” for regular Canadians. Preet Banerjee rightly argues that there isn’t so much an advice gap as there is a quality-advice gap.

PWL Capital’s Peter Guay wrote an incredible guide for families on how to pass on the cottage to the next generation.

Millionaire Teacher Andrew Hallam on why you find it hard to invest (plus, what makes the best investors).

Of Dollars and Data blogger Nick Maggiulli claps back at finfluencers, saying if you’re so rich, why are you so desperate?

“After all, if you’re so good at building wealth, why don’t you just go and build more for yourself instead of selling me on how to build it?”

Should you buy a covered-call ETF? You could, but you might be giving up as much as 9.5% in annualized returns.

What do to with a spousal RRSP at age 71? Converting the account to a spousal RRIF is a common option, but be aware of the income attribution rules.

A lot of research around retirement spending strongly suggests that spending declines as we age (go-go, slow-go, and no-go years) for reasons related to declining health and waning interest in travel and hobbies. But, as Michael James on Money has long argued, another reason for this is because of bad spending plans in the early retirement years that force spending cuts later in retirement.

Why buying a car has never been more expensive, assuming you can even find one.

Travel costs have also soared, but travel expert Barry Choi explains how loyalty programs can still help.

Finally, economist Tim Harford’s take on the cheese, the rats, and why some of us are poorer than others.

Have a great weekend, everyone!

Print Friendly, PDF & Email

19 Comments

  1. AS on June 18, 2023 at 12:00 pm

    Hi thanks I manage my daughters aged 14 and 10 RESP too and buy lump sun every January. I am of the view that, if you can afford it, the RESP can be used strategically but to look the holistic picture. I can afford to pay for my 14 year daughter’s education so I am looking at my 10 year daughters timeline to contribute and keep a slightly more aggressive equity outlook. Both of them will be studying in university. This way we can make the pot grow tax free bigger over a longer timeline. It’s not for everyone but I got this idea from the white coat investor.

  2. Cristina on June 18, 2023 at 12:16 pm

    Hi Robb! Thank so much for this! I was just thinking about our family RESP recently! Our situation is slightly different because unfortunately, we have an account with Primerica holding Fidelity mutual funds. Do you know if it is possible to do the same thing but moving the money from Primerica, to lets say Questrade? Are there any implications by doing this, like loosing the grants? Thank you!

    • Robb Engen on June 19, 2023 at 10:00 am

      Hi Cristina, my pleasure. RESP transfers can be tricky, and I had a client recently give up on transferring hers to Questrade because they were so slow and unresponsive. It might make more sense to open a new RESP at a big bank’s discount brokerage arm (RBC Direct, TD Direct, BMO Investorline, etc.), start making contributions to the new RESP, and then transfer your Primerica RESP to the new RESP.

      The new brokerage platform can tell you whether they can accept all of the grants. For sure, they’ll accept the CESG but I know some brokerages won’t accept provincial grants (Quebec’s and the now discontinued Alberta Centennial Education Savings grant) or the Canada Learning Bond – so you may lose those in the transfer process.

      Depending on how old your kids are it could make sense to leave the Primerica RESP intact, but open a new RESP elsewhere and contribute to the new one going forward.

      • Cristina on June 19, 2023 at 11:48 am

        Hi Robb! Thank you so much for your reply. I’ll look into it. My kids are 7 and 2. We are in Alberta but the Alberta Centennial Education Savings grant was discontinued when the oldest was born. We received the Canada Learning Bond once (the first $500 only). We have about $30,000 invested in the Primerica family RESP. Any recommendations are welcomed, but for “loosing” $500 and potential returns in the 10 – 11 years remaining before the first withdrawal, I am leaning towards transferring to one of the big banks brokerage arm. Thank you again so much!

  3. Grant on June 18, 2023 at 2:35 pm

    Another way of doing this is to invest all the RESP money, for one or more kids, in VEQT until 5 years out from when you need any money. The put the amount needed in 5 years time in a 5 year GIC. Repeat the next year for the amount needed 5 years out from that point in time. If the market is down more than a few percent when it is time to buy a 5 year GIC, wait until the market recovers in a year or two, then buy 2 or 3 years worth of the appropriate term of GIC.

    • Andrew on June 18, 2023 at 9:29 pm

      Hi Grant, I have a similar approach except I am using VBAL and then buying the 5 year GIC for 2/3 of the amount needed in 5 years time. I will hold and then sell remaining VBAL as needed to make up the remaining 1/3 in the year for withdrawal.
      One issue I ran into was weak below 2% 5 year GIC rates in 2020 and 2021. I still went ahead as I wanted the certainty, and there no guarantees the rates were going to be any higher in future if I waited on buying the GIC but with a shorter term. I didn’t know at the time that I would be locking in negative real returns at those rates with today’s inflation, but still glad to have minimized risk.

  4. Lefty on June 19, 2023 at 8:47 am

    Hey great article, thanks for writing! I am in the exact (kindof) same boat as you currently, a 15-year old whose TD-ESeries based RESP in need of de-risking/future-proofing.

    I’m still at the drawing board stage, though I’m strongly thinking of chucking the entire bond component in favour of GICs/something simple like TDB8150.

    So I’d have (say) 60% TDB8150 and 40% VEQT.

  5. Dave Harries on June 19, 2023 at 9:41 am

    A word to the wise about RESPs though unrelated to the asset mix issues addressed this week.

    An additional consideration for the >20% of Canadians who live in Quebec…

    Quebec offers Quebec Education Savings Incentive (QESI) payments in a program similar to and on top of the federal government’s CESG but…

    NOT ALL RESP PROVIDERS WILL ACCESS QESI FUNDS ON BEHALF OF THEIR CLIENTS !

    For example, the last time I checked (admittedly several years ago) TD refused to participate in the Quebec program but, hopefully, that has changed by now.

    Time, low fees, and maximum grants (aka free money) = RESP success. Just make sure to know all the rules and you, too, can promise your children that they can complete their education with no debt.

    • Robb Engen on June 23, 2023 at 10:34 am

      Hi Dave, thanks for this. I had the same issue with TD and the now defunct Alberta Centennial Education Savings grant. TD Direct won’t (or wouldn’t at the time) accept the grant and so I’d forfeit the money if I transferred an old RESP account there. Not cool.

  6. tansy on June 19, 2023 at 12:51 pm

    Can you give some examples of High Interest Savings Account ETF’s, or perhaps do a blog post on these?

    • Robb Engen on June 23, 2023 at 10:32 am

      Hi tansy, here are a few examples:

      CI High-Interest Savings ETF (CSAV)
      Horizons High-Interest Savings ETF (CASH)
      Purpose High-Interest Savings ETF (PSA)
      Horizons Cash Maximizer ETF (HSAV)

  7. Chris on June 22, 2023 at 4:33 am

    I’ve got $162,000 worth of VGRO in my kids RESP. They are 15 and 13. I am thinking I will sell a bit and start building a GIC ladder since rates are so much better. We are in a fortunate position that we could easily fund the cost of university without the RESP but it’s been great to sock away the $5,000 every January 1st. Total contributions of $75,000 and grants of $14,400. Grants are now maxed but I will still add $5k each January.

  8. Chris on June 22, 2023 at 7:02 am

    Robb,

    I called the number you noted in your article and the only information they can give you is total contributions and grants per child but not growth as they have no record of gains, losses, products invested in etc. You may want to update the first paragraph of this article to reflect this.

    • Robb Engen on June 23, 2023 at 10:30 am

      Hi Chris, sorry – didn’t mean to imply that they would calculate gains – that’s up to you and your brokerage platform. Just meant I needed to do all three of those things and so the first step is to call the hotline and get the proper breakdown of contributions and grants.

  9. Animaus on June 22, 2023 at 1:40 pm

    Hi Robb,
    first time commenting.
    My first thought is ugh- look at all that work that has to be done so my kids can access my hard earned bucks I’ve squirreled away over the years.
    It somewhat flies in the face of DIY investing being simple and easy, and now I have to put a lot of energy into deciding if I want to go through with all that work.

    • Robb Engen on June 23, 2023 at 10:28 am

      I guess that’s one way to look at it…

  10. Laura on June 27, 2023 at 6:11 pm

    Thank you for this excellent information! I have two kids ages 2 and 6, and plan to implement this strategy next year as well. It’s a great solution to the problem of keeping both kids accounts seperated within the family RESP. I was interested to learn about the Investment Savings Account. I had NO IDEA this was a thing! Never heard of them until this article, and Rob Carrick’s recent article in the Globe and Mail. Very good to know there is another option for cash in a DIY brokerage account besides GICs or sitting earning 0%. (My brokerage blocks HISA ETFs).

  11. Derek O on June 27, 2023 at 9:55 pm

    We transferred our 6yr old daughters RESP from TD e-series to Qtrade last year, It was a pretty simple move and made keeping biweekly contributions still possible, because XEQT and XBAL are on the list of 100 ETFs for free trading. I was worried about potentially starting a GIC ladder when she approaches university, as Qtrade used to have $30,000 minimums on GIC purchases, but I see now they have a much more reasonable $5000 minimum. Of course by the time she’s at university age she may need $30000 a year, who knows. One reason we decided to make the move was having trouble with the way TD was enforcing minimum amounts of fixed income. We had to go an have an interview with a TD rep at about the 4 year mark, answered the questions, he said that made us a growth investor, so they adjusted our profile. Then when the next time it was time to buy equities again, our purchases were rejected. Took a while to figure out why, but they finally figured out that growth meant we should have 25% + or – 5to10% fixed income, and we were no where near that, so it would only let us buy fixed income. Tried to get that remedied back to an aggressive profile, through phone calls and it wasn’t working out, so decided to transfer the whole lot to Qtrade.

  12. jacqueline on September 4, 2023 at 12:13 pm

    Don’t waste your time trying to open an RESP at Questrade, if you are not the parents they have restrictions on who they will allow to open the accounts. I submitted all the necessary documents to open accounts for my 2 god daughters. After many hours over several weeks, multiple emails and phone calls back and forth, they finally refused my application due to the fact I wasn’t directly related ie, parent or grandparent. I was told this was a Questrade policy, even though it’s not indicated anywhere on their website. Each time I got a response it was from a different representative, and often there was a delay of days as the rep. had to check with another dept. to get an answer. It seemed that each dept. works in its own ‘silo’. After they wasted so much of my time, I decided not to proceed with the transfer of my LIRA, RRSP and TFSA (from TD Direct) which I had intended to do after the RESP’s were opened. It was the absolute WORST customer service experience with a financial institution ever! That’s no exaggeration. A representative still emails me every so often, asking if they can be of any service, even though no accounts were ever opened. Also, after they refused to open the RESP’s, they would not delete any of the personal data that I had submitted for the applications. They are sooo out of touch! With so many good options available for low cost investing, my advice to friends and family has been to look at alternatives and stay away from Questrade. Yes, they may offer ‘cheap’ pricing to get your money, but their rates to withdraw money are higher than others.

Leave a Comment





Join More Than 10,000 Subscribers!

Sign up now and get our free e-Book- Financial Management by the Decade - plus new financial tips and money stories delivered to your inbox every week.