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RESP Portfolio Update – December 2012





It’s been a couple of years since my last RESP portfolio update and probably would have been longer if it wasn’t for a reader request for a quick update. Since the last update, there has been a big change.  Instead of managing one RESP, now there are two!  We have the RESP accounts setup separately, but under a family plan.

The RESP portfolios for our children are setup with TD e-Series mutual funds which provide a low cost way to index the market.  I chose to go with mutual funds instead of ETFs as I like the freedom of adding small amounts at a time without having to pay a commission for every purchase.

The long term plan for the RESPs is to be aggressive for the first 10 years (90% equities 10% bonds) with increasing fixed income as the University tuition nears.  I copied the table from my RESP strategy article below.

Index 0-10yrs 10-14yrs 14-17yrs 18yrs +
Canadian Equity 30% 20% 10% 0%
US Equity 30% 20% 10% 0%
International Equity 30% 20% 10% 0%
Canadian Bonds 10% 40% 35% 0%
GIC’s 0% 0% 35+% 75%
Money Market Fund 0% 0% 0% 25%

Portfolio totals as of December 7, 2012

First RESP Portfolio (started 2nd quarter 2008):

Investments Units
Held
Price Per
Unit
Market
Value
%
Holdings
Book
Value
TD CDN Money Mkt 250.271 $10.00 $2,502.71 15.23 $2,502.71
TD CDN Index-e** 199.392 $19.92 $3,971.89 24.180 $4,053.94
TD US Index-e** 149.446 $24.76 $3,700.28 22.520 $3,076.98
TD CDN Bond Index-e** 205.104 $11.67 $2,393.56 14.570 $2,339.82
TD Int’l Index-e** 449.390 $8.59 $3860.26 23.500 $3,647.16
Total as of Dec 7, 2012 $16,428.70 $15,620.61

Second RESP Portfolio (started 3rd quarter 2011):

Investments Units
Held
Price Per
Unit
Market
Value
%
Holdings
Book
Value
TD CDN Money Mkt 150.932 $10.00 $1,509.32 23.780 $1,509.32
TD CDN Index-e** 78.626 $19.92 $1,566.23 24.680 $1,519.57
TD US Index-e** 45.955 $24.76 $1,137.85 17.930 $1,007.70
TD CDN Bond Index-e** 0 0 0 0 0
TD Int’l Index-e** 248.341 $8.59 $2,133.25 33.610 $2,045.02
Total as of Dec 7, 2012 $6,346.65 $6,081.61

We started the first portfolio in early 2008 near the peak of the market so there was a point in early 2009 where the market value of this portfolio was significantly below book value.  It’s comforting to see that rebalancing with new money every year has brought positive results.  This portfolio is up about 5.2% since inception (not including annual Canadian Education Savings Grant).

The second RESP portfolio was started near mid 2011, which fortunately, was during a market correction.  You may notice that this account does not have any bonds.  The reason being is that bonds have been fairly expensive over the past year or so, but I will be adding some when the time is right.  This account has returned 4.4% thus far (not including annual Canadian Education Savings Grant).

Going forward, I hope to deploy some of the cash as opportunities arise.  The cash portion of the portfolios are already relatively high with another cash contribution coming in the new year.

If you have setup an RESP, who is your provider?  What is your investment strategy?





31 Comments, Comment or Ping

  1. 1. On Demand

    I have 2 RESP for my son; The first one started when he was 1 with CST. Another one started when he was 15 with Scotia trying to fully utilize of the grant Investing in Scotia Partner Diversify Income fund Since it is pretty close to redemption.

  2. 2. Echo

    Thanks for the update, FT. I like how you’ve got your long term strategy mapped out in that chart. I have a similar set-up, two accounts under one family plan invested in TD e-series for easy monthly contributions. Right now I’m just investing in equal amounts of Canadian, US and International equities. I’ve got another 6-8 years with this approach before I start dialing down the risk.

  3. @Echo, what is your plan when you start to reduce risk? GICs? Bonds?

  4. 4. Patricia

    I have a family plan with National Bank (NB) for my grandchildren. I went there as they were one of the few who offered the Additional CESG at the time (their parents are in a low income bracket) and I wanted the Altamira Canadian Index Fund. This year I added in some bonds to make up 10% of the portfolio as the oldest is almost 10. I am very unhappy with NB on so many levels and next year I will be moving the RESP to another institution I have much more confidence in that now offers the additional grant too.

  5. 5. Barry C.

    Curious of how much you are putting into each RESP? Are you just putting in the minimum amount to maximize the savings grant or are you making extra contributions when you can?

  6. @Barry, I put in just enough to maximize the CESG. In other words, $2500 per child per year (to get $500 CESG each). I do it lump sum at the beginning of each year.

  7. 7. Kevin

    @FrugalTrader why have you deviated from your plan? You’re holding a lot in cash, but by my calculation, you’re still overly heavy in bonds for the first RESP. You’re stated goal is 90% equities but you’re holding at least 14.57% in bonds (or 17.19% of the non-cash value).

    For the newer portfolio, you still seem way out of balance with US very light and international very heavy.

    Have you changed your plans? Was there just a large correction and you haven’t rebalanced lately? Very curious.

  8. @Kevin, thanks for the feedback. Yes I have overshot on my bonds, however, it should fix itself when I invest the cash and contribution (Jan 2013) in equities. For the 2nd portfolio, the goal is to stick with the plan, but for whatever reason, I cannot buy when the index appears expensive. At the time, international equities were much cheaper than the rest, and bonds have been expensive since I opened the account. But yes, the goal is to eventually get to the plan outlined.

  9. 9. Kevin

    @FrugalTrader ah, even that’s interesting. What are you using to watch the oversold/overbought value of these indices? I find getting decent charting on them is difficult.

    It seems that you’re doing quite a bit of market timing, which it sounded like you were going to avoid for the RESPs (and a motivation to use the mutual funds rather than ETFs). Do you regret the choice to use the TD e-series?

    FWIW, I have a similar plan to the one you outlined above. Currently doubling up to try to catch up due to starting 6 years late. I’m using an automated purchase plan so the amount comes out just after every pay, calculated to maximize the CESG. So currently a little shy of $5k per year divided by the number of pay periods, then split into the four CDN Index-e, US Index-e, Int’l Index-e, and CDN Bond Index-e, 30/30/30/10 (well, a little higher than 10 since the minimum purchase is $25 I think).

    The CESG match still gets dumped monthly into Canadian Money Market, then I rebalance that every 3 months or so to get the 4 main ones back in line. There’s a warning in TD’s system about not redistributing amounts that were purchased in the last 30 days for some, 90 days for others, so I end up leaving about 2 months worth of CESG matching in the money market.

  10. @Kevin, I use ETFs as a proxy. For the Canadian index, I use XIU.TO, for the US index, I use XSP, and for international, I use XIN. When the indices dip, I buy so I guess you can call that market timing. I will admit that I find it very difficult to blindly buy – not saying that it’s a good/bad choice, but difficult for me to do. No regrets on using the TD e-Series thus far.

  11. 11. Chigu

    If you have been putting in 2,500 + 500 = $3000 since Q2 2008, how do you have a book value of 15,620.61? $3000/yr x 4.5 years = $13,500.

  12. @Chigu, I contributed in 2008, 2009, 2010, 2011, 2012, which is $15k. The extra $620 is likely due to the re-investment of the distributions.

  13. 13. Jason

    @FrugalTrader, how does the CESG work with TD e-series funds? I was told that you could not put the CESG money into e-series funds. How are you making the transactions work? Do you simply put you initial yearly contribution into the ‘TD CDN Money Mkt’, wait for the CESG and then move the initial yearly contribution into the various TD e-series funds? Do you have an article on this, as I have not been able to find a good one anywhere as of yet.

  14. @Jason, are you referring to the enhanced cesg for families with income under $42k (http://www.globalresp.com/resp_cesg.htm)? TD e-Series has no problem with the regular CESG. Like you said, I deposit $2500 in the money market fund, then redistribute money as I see fit.

  15. 15. Jason

    @FrugalTrader, maybe I am confusing it with the Alberta Centennial Education Savings Grant (http://www.canlearn.ca/eng/saving/aces/fact.shtml). Nevertheless, it is good to know the CESG will work with TD e-series funds, I’ll have to work on getting my account converted over to the e-series, thanks for your clarification.

  16. 16. Echo

    @Jason – have a look at this post I wrote and then check out the comments section where a TD rep confirms that the Learning Bond (or ACES grant) will get clawed back if you try to transfer it from the term deposit or GIC account to a Waterhouse account

    http://www.boomerandecho.com/resp-account-getting-started/

    From what I understand, the gov’t puts these restrictions on the banks because they don’t want you to “gamble” this grant money away by putting it in equities. Kind of ridiculous, but that’s what I was told.

  17. 17. Echo

    @FT – I don’t really have a plan yet but I suspect it will be GICs and not Bonds.

  18. I have outlined a plan and it’s similar to yours in term of ratios except I am buying stocks, REITs and ETFs. No indexing.

    Have a look. Would love to hear any comments.
    http://www.thepassiveincomeearner.com/2012/11/resp-strategy.html

  19. 19. Tim

    There are many mutual fund companies such as Mackenzie that will apply for the additional grant and will let you invest it. Offer the past five years a fund like the Mackenzie sentinel income fund has outperformed the Td e series index funds, plus you can get that additional grant working for you.

  20. 20. Ed Rempel

    Hi Echo,

    You have been misinformed by some bank rep. The government does not want you to “gamble the grant money by investing in equities? That’s hilarious. :)

    There is no issue investing the RESP in equities and keeping the grant, learning bond and other possible grants. We tend to have very high equity exposure most of the time when kids are young. Younger kids have a fairly long time horizon and saving enough for their education usually involves making a reasonable return on their investments.

    Whether or not you receive the learning bond or other grants is based on the RESP provider – not the investment choice. Some providers will apply for all 4 grant programs and some will not.

    If you move your RESP from one that applies for all the grants to one that does not, you will lose the ones the new provider does not carry forward. I don’t know the quirks at TD, but there are many good providers that where you can invest in equities and keep the grants.

    There are 4 grant programs – the basic grant (CESG), additional CESG, Canada Learning Bond and ACES (in Alberta).

    We have had no issues moving RESPs and keeping all the grants, but we are aware of which providers sponsor all 4 grants programs.

    Ed

  21. 21. Echo

    Ed, as far-fetched as it sounds, this has been confirmed by multiple sources at TD. Here’s an email I received from TD Corporate Affairs:

    “Providing our customers with access to the ACES Grant and Canada Learning Bond is supported at TD Canada Trust but is not available at TD Waterhouse.

    Like many Canadian Wealth Management institutions, TD Waterhouse is not set up to administer any government incentives other than the basic CESG, QESI and additional QESI.

    Unfortunately, if an RESP transfer takes place from TD Canada Trust to TD Waterhouse, and it is classified as an ineligible transfer (i.e. the grants aren’t administered in the receiving business – TD Waterhouse), any and all grant funds must be returned to Human Resources Skills Development Canada (HRSDC).

    TD Canada Trust does offer RESPs (with supplemental grants available to those eligible) in all our branches across Canada. In addition to GICs, there is a broad variety of TD Mutual Funds available and there are no set up fees to invest. For customers who do not qualify for additional grants beyond the basic CESG or QESI, TD Waterhouse may offer alternate RESP investment solutions.”

  22. 22. Echo

    Long story short, I’ve got a GIC with TD that has about $2,600 worth of contributions and grants (CESG, ACES). I wanted to transfer this to Waterhouse to invest in their e-series funds. I was told that if I collapse the GIC and transfer it to Waterhouse that I would lose the ACES grant money.

    So I left that money in the GIC and opened up a new RESP with Waterhouse where I now make all my contributions and invest in e-series funds.

    With the GIC intact on the TD side I’ll get to keep the $500 ACES grant for each child, plus another $100 each when they turn 8, 11 and 14.

    I don’t know how much of a pain this will be when it comes time to withdraw the funds, but that’s at least 15 years away.

  23. 23. Tim

    I used to work for Td and this is a Td policy, not a government policy. There are many other investment firms such as Mackenzie that invest the additional grant, regular grant and the bond. It would be worth looking into other places to invest that money as you can easily double the money invested over 14 years.

    Are you with Td Waterhouse or do you invest in the e series via the bank side?

  24. 24. Ed Rempel

    Hi Echo,

    If you read the letter from TD, it says that TD Canada Trust applies for all the grants, but TD Waterhouse does not. The choice of investment is irrelevant.

    You can move your GIC to an investment with more growth at TD Canada Trust or one of many other investment firms. Just call them first to make sure they apply for all the grant programs. If they do, then you should be able to keep all the grants.

    Note that your TD Waterhouse RESP will only get the CESG and not the other grants for any contributions you make there.

    Ed

  25. 25. Echo

    Hey guys, I’m not really interested in moving the $2,600 to another institution but I’ll investigate other investment options on the TD side. In the meantime, I’ve got everything else set up at Waterhouse (RESP, RRSP, TFSA) and I’m happy with the e-series funds for my RESP contributions

  26. 26. bobby

    I have RESP with AGF.com but in last 5 yrs. i didn’t earn anything. I can’t xfer to other institute for another 2 yrs because those are backend funds. Can anybody suggest which one of AGF’s funds are good to invest ?

    Thanks,
    bobby

  27. 27. Tim

    Agf has some okay funds. First a couple of questions. What is it invested in now? How old is your child/ren? How much are you currently contributing? How risky do you like your investments? With your current advisor are you able to start putting your new money into another firms funds? Sounds like you are not satisfied with your current advisor, have you considered switching? I know it is a fair number of questions…

  28. 28. bobby

    It is invested in following funds:
    AGF Canadian Large Cap Dividend Fund
    AGF Emerging Markets Fund

    What is your opinion or do you know any better options ?

  29. 29. Marjan

    Hi There,

    I have a question, lets say something happens to you or you forget to shift the asset allocations after the 10 year mark and you leave it as you initally started 90% equity 10% bonds, what will happen?

  30. @Marjan, sorry I missed this comment. The ratio of stocks/bonds is more of a risk/reward choice and is not mandatory. In other words, I could leave the 90/10 equity/bond allocation for the whole duration if I wanted.

  31. 31. Clive

    Are the dividend-paying international and us index funds in your current resp portfolio subject to non-resident withholding taxes or does this rule only apply to stocks?

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