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RESP Portfolio Update – March 2010

It’s been over year since my last RESP portfolio update and probably would have been longer if it wasn’t for a reader request for a quick update. Our RESP portfolio for our child is 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.

What did the diversified portfolio consist of?  The long term plan for the RESP 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%

Although my plan to is follow the allocation stated in the table, things have deviated a little due to the market volatility in 2008 then in 2009.  In 2008, I added a little to equities within this portfolio, but in hindsight, I should have added much more.  In 2009, I let cash build in the account as I fully expected a market correction to follow the strong rally.  However, as we all know, that hasn’t happened… yet.

Below is my actual allocation and portfolio values thus far.  We plan to deposit another $2,500 into the account in a couple weeks.

Portfolio as of March 17, 2010

Investments Units
Held
Price Per
Unit
Market
Value
%
Holdings
Book
Value
TD CDN Money Mkt 197.464 $10.00 $1,974.64 32.780 $1,974.64
TD CDN Index-e** 67.609 $19.25 $1,301.47 21.600 $1,246.99
TD US Index-e** 51.914 $20.48 $1,063.20 17.650 $1,144.09
TD CDN Bond Index-e** 53.033 $10.90 $578.06 9.590 $571.67
TD Int’l Index-e** 124.416 $8.90 $1,107.30 18.380 $1,239.03
Total as of Mar 17, 2010 $6,024.67 $6,176.42

I started his 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 the portfolio has climbed to almost the break even point

Going forward, I hope to deploy some of the cash as opportunities arise.  The cash portion of the portfolio is already 32% of the portfolio not counting the upcoming contribution.

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

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FT About the author: FT is the founder and editor of Million Dollar Journey (est. 2006). Through various financial strategies outlined on this site, he grew his net worth from $200,000 in 2006 to $1,000,000 by 2014. You can read more about him here.

{ 22 comments… add one }
  • Rusty March 22, 2010, 10:40 am

    We use Canadian Scholarship Trust (CST). We’ve only been in it for two years but it looks good so far. The thing I like about it is that you don’t have to worry about rebalancing or keeping a close eye on it — or risking it with the equity markets.

  • The Rat March 22, 2010, 12:09 pm

    It’s nice to see your funds have climbed their way back up. Let’s face it, the period of late 2008/early 2009 was rough on virtually everyone’s portfolios, but you’re in it for years to come right?

    I don’t have an RESP as of now but may consider starting one when I start a family.

    Nice post. Looks like you have a nice selection of index funds.

  • TJ Machado March 22, 2010, 2:43 pm

    Very similar strategy to yours. I bank with TD Waterhouse too. I have a single account for both my boys and have been religiously maxing out the government contribution each year. I intend to stop adding once the govt benefits max has been reached. My older son has just entered high school so all new money is going into corporate bonds. Additionally each year I will divest from the e-Series mutual funds and move over to fixed income.

    In general I use the rule of 5 – if you need the money in the next 5 years, do not invest in equities.

  • brad March 22, 2010, 3:06 pm

    Our strategy for our 3 year old is pretty simple – our $100 per month from the gov’t (until he’s 6) goes into his RESP. That gets topped up with birthday and christmas money (some education specific, some not). After that my wife and I top up whatever we can to maximize the 20% bonus from the gov’t.
    The majority of funds are in RBC’s “Target Education funds” which automatically adjust from aggressive to conservative for a set year (2010,2015,2020,2025).
    I have also bought a US growth fund that dropped late last year and currently am over-balanced in this (as a % of overall book value), but that will adjust itself because we don’t buy it monthly. I may add more of this (with any top-up funds at the end of the year) but not necessarily.

    really enjoy the site and the blog – thanks very much!

  • Vern March 22, 2010, 3:25 pm

    Thanks of the update on your RESP. It’s nice to see the resilience of your portfolio.

    My wife and I are expecting our first child in September and I’m considering using TD’s e-Series mutual funds as well since you can make small contributions; which is all we can afford as new parents.

    I have one question though regarding changing your Money Market fund into the different e-Series funds. When you decide to buy an e-Series equity fund do you transmit a Sell order for the money market funds and Buy order for the e-series in the same day?

    • FT FrugalTrader March 22, 2010, 4:20 pm

      Within easyweb (with TD), there is a button for “transfer funds” which will allow you to transfer from your money market to a fund of your choice. If you’ve already made the max contribution for the year, make sure you don’t click “buy funds” as it will count as a contribution withdrawn straight from your bank account (made that mistake once).

  • Jeff March 22, 2010, 11:12 pm

    I started an RESP for my daughter back in December. Decided to go with Questrade. That was the only way I found to go self directed without paying any annual fees. Plus commissions are only $5 per trade. Right now investing everything in Claymore’s CBO (laddered corporate bonds fund). I just love that ETF. Pays about a 5% yield without the risk of a permanent capital loss since the bonds are just held to maturity.

  • Frugal Greenie March 22, 2010, 11:47 pm

    How do you track the government contributions? Do you keep these funds separately or just lump all the money together?

  • FT FrugalTrader March 23, 2010, 7:56 am

    Jeff, I like CBO as well. Short duration, competitive yield and low correlation with the market.

    Frugal Greenie, I simply deposit $2500 every year, and a couple months later, $500 pops up into as a money market fund purchase (you set this up initially with your advisor). To answer your question, I lump everything together.

  • Dave March 25, 2010, 6:26 pm

    I am taking a few more risks in this account since my kids are both under 20 months so I have some time to recover…Having said that I like the idea of transferring in units that I have already purchased (i.e. believe in) this allows the transaction fees to remain outside of the RESP and allows me to time the entry level (at a high or low of the unit of the day, and pick the day based on its trade value). I have only 4 investments (all CDN) and two are REITS, one is a former income trust now a corp and the last is a gold mine. I put in the maximum last year by November for my youngest. I put in $5K, the gov kicked in $1K and it is sitting at $8,200 today.

  • cannon_fodder April 4, 2010, 4:45 pm

    FT,

    I had deployed almost all of our RESP funds into BMO Dividend Fund for years. Then when the market tanked in 2008/2009 I decided to get more aggressive with the pending upturn.

    A year ago my daughter’s RESP was under $17k. It now sits at $50k without any contributions. I first invested in Horizon’s BetaPro HXU (2x tracking of the S&P/TSX 60) and then sold out when it had gone up 78% in less than 3 months. Then, I switched to HXD because I thought the market had gone up to far too fast. I did get out with another 5% gain 2 months later as the market never really retraced like I thought it would.

    Then, I dabbled with HEU (2x tracking of Energy stocks on the TSX) and then got into the HND/HNU pair (2x tracking of forward month Natural Gas contracts). That is when the really volatile, but profitable, trades began.

    Haven’t always been successful, and most people would not subscribe to this method especially with 1st year university just over 2 years away but it has worked out very well so far.

    Horizon’s BetaPro products were a great vehicle for taking advantage of the market upturn last year.

  • Joy April 21, 2010, 5:49 pm

    I recently found this site and I find it very helpful and educative. God bless you all for sharing. For a variety of reasons I did not start the RESP when I had my three kids, however, I just opened accounts for them and now each of them has about 10k in their accounts. I now want to start the RESP for them, and intend to go with the TD e-series account, but I am just at a loss as to how to best invest their money. The oldest child is 8yrs turning 9 this year. Any ideas will be very helpful. Thank you all.

  • cannon_fodder April 23, 2010, 12:04 am

    Joy,

    You may want to evaluate FT’s matrix to see if that fits your comfort level.

  • Joy April 28, 2010, 11:23 pm

    Thanks, Cannon.

  • Mark April 7, 2011, 9:18 pm

    Why not take out an investment loan taking advantage of the Interest deduction on Investmetn loans. You are using the power of compounding with a larger lump sum than a monthly payment in the same investment. There are risks involved but it may be a tax advantage.

  • FT FrugalTrader April 7, 2011, 10:17 pm

    Mark, you cannot deduct the interest for funds borrowed for an RESP. As well, I already have a leveraged portfolio.
    https://www.milliondollarjourney.com/category/portfolio

  • Mark April 7, 2011, 10:30 pm

    I wouldn’t do an RESP is what I am saying. I would do an investment loan and a Non Registered Segregated Fund for the benefits and I would speak to my advisor first to see if this strategy is right for you.

  • Nando August 9, 2011, 4:18 pm

    Can we please have an update on RESP?

  • simkamak November 12, 2011, 7:47 pm

    Hi,
    TD’s website says: “The TD Mutual Funds Education Savings Plan supports only the basic Canada Education Savings Grant and not any other provincial or federal government RESP grants or tax incentives.” Was this a non-issue for you when you decided to use TD e-series? I’m in Quebec where the government provides 10% provincial grant, but seems like it can’t go into TD mutual funds.

    P/S Just found this on their website: “TD Canada Trust
    Education Savings Plan supports only the Alberta Centennial Education Savings Grant and not any other provincial government RESP grants or tax incentives.” Too bad!

  • GPATT March 24, 2012, 12:43 am

    Hi FT,

    I am wondering if you have done a comparison between Questrade’s RESP and TD’s. Given its flexibility, would not Questrade’s account be better?

  • Ed Rempel March 24, 2012, 9:59 pm

    Hi Mark,

    Interesting strategy. An investment loan will likely provide a higher return and tax savings, but it may be too aggressive given that education savings are a shorter duration and are taken out over just a few years.

    You could do an investment loan for your retirement plan and then use an RESP for education savings. This way, you have the benefits of the leveraged investments plus you get the RESP grants.

    Ed

  • Ed Rempel March 24, 2012, 10:07 pm

    HI Simkamak,

    There are actually 4 different grant programs. It appears TD e-series only offers one of the 4 grants. Here is a list of providers from HRDC: http://www.hrsdc.gc.ca/eng/learning/education_savings/publicsection/new_promoter_list.shtml .

    We are often surprised who qualifies for the various programs, especially the Canada Learning Bond. We apply for all the programs for everyone, just in case, and have found some people with higher income get it for some reason. It seems that the $525 for the CLB usually is only paid out when the first RESP is opened.

    Ed

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