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A Sample RESP Portfolio

August 28th, 2007 ·

Many readers have e-mailed me asking about how to set up self-directed RESPs. We’ve discussed RESPs in many earlier posts and you can find everything you need to know about RESPs and the Canada Education Savings Grant (CESG) on the Government of Canada website. For the purposes of this post, I’ll assume that you are familiar with the basic rules of RESPs.

Regular readers know that we have RESPs set up for our twin two-year old boys with TD Bank’s e-Series index funds. Our plan is to contribute just enough to get the maximum possible matching CESG grant. In prior years, the maximum CESG was $400 per year (for a $2,000 RESP contribution) but the current maximum is $500 per year (for a $2,500 contribution). We used to contribute $2,000 per year but starting next year, we plan to bump up the contribution to $2,500.

Since the boys are still very young and a long way from going to University, I can afford to take more equity risk with their portfolio. As a result, the target asset allocation for their education funds is: 20% bonds, 20% Canadian equities, 30% US equities and 30% developed market equities. Once you have the target asset allocation, investing your contributions is as easy as looking up the mutual fund for the corresponding asset class:

TDB909 - TD Canadian Bond Index - 20%
TDB900 - TD Canadian Index - 20%
TDB902 - TD US Index - 30%
TDB911 - TD International Index - 30%

The portfolio will be rebalanced to the target allocation once every year when a new contribution is made and the matching CESG grant is received. Assuming a modest 5% return and a total contribution of $36,000 over the years (to get the maximum allowed $7,200 CESG match), the total portfolio value will be $78,830 in 2023. According to this chart, post-secondary education will cost an estimated $94,420 in that year. At a more optimistic 6.5% rate of return, the RESP portfolio will just about cover their education costs. You can model your own contribution schedule and play around with return assumptions using this spreadsheet.

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24 responses so far ↓

  • 1 George // Aug 28, 2007 at 8:52 pm

    The spreadsheet link just returns a 404 error…

  • 2 FourPillars // Aug 28, 2007 at 9:21 pm

    The HRSDC website hasn’t been updated with the changes from this year but most of the info is still accurate.

    Mike

  • 3 The Dividend Guy // Aug 28, 2007 at 9:23 pm

    Hey CC,

    I also use eFunds for my kids RESP as the costs are hard to beat for something you can invest in one a monthly basis. I have taken a bit of a more aggressive stance with their RESP as they have the US Index and bond index, but I have also put in a dividend growth fund (you know me!). It has done well and is relatively maintenance free at this stage of the game.

    The Dividend Guy

  • 4 FourPillars // Aug 28, 2007 at 9:42 pm

    I forgot to ask - can you still set up an RESP with TD with no annual fee? Or is that only for accounts over a certain amount?

    Mike

  • 5 Dan // Aug 28, 2007 at 10:14 pm

    Hi CC:
    Great post about the RESP. I know that you can get a “family” RESP account now, so you can have one account cover more then one person. I have been having a very hard time finding out what the rules are with the family account. For example, is the CESG grant value increased, say $1000 per year if you have two kids listed? Would any contributions have to be attributed to a specific kid? If anyone knows of a good link explaining the variations with single and family accounts I would appreciate it very much if the link could be posted. Cheers

  • 6 Canadian Capitalist // Aug 28, 2007 at 10:15 pm

    George: My bad. I’ve fixed the link. Hope it works.

    Mike: I noticed that the HRDC info has not been updated with the changes introduced in the budget. I should have linked to your RESP post instead :)

    TDG: I don’t think the exact percentages of equity allocation really matter as long as we pick an asset allocation and stick to it. Like you, I am looking for a low maintenance portfolio that I don’t have to tinker with at all.

  • 7 Canadian Capitalist // Aug 28, 2007 at 10:21 pm

    Dan: I am making a post tomorrow on RESP basics covering all the rules I can think of. The RESP plans I have set up for my kids is a family plan. But contribution rules are exactly the same as for individual plans. The only difference is that the beneficiary can be any child in the family.

  • 8 FourPillars // Aug 28, 2007 at 11:42 pm

    Dan - the contributions have to be attributed to each beneficiary in a family account. In CC’s case, he probably set up the resp so that 50% of the contribution went to each son.

    Mike

  • 9 Quick Lunar Cop // Aug 29, 2007 at 8:43 am

    BMO also offers a calculator to estimate the cost of education. It includes options such as whether the child will live at home, expected return, and percentage of cost you want to cover.

    http://www.bmo.com/mutualfunds/ps/intuition/savings_worksheet.html

  • 10 Canadian Capitalist // Aug 29, 2007 at 9:56 am

    Mike: I don’t have to do any attribution. Two family RESP accounts are set up for each of my kids (I believe each account has a “main beneficiary”). The only difference is when the time comes to withdraw, the funds can be used for either child’s education. At least, that is the set up that TD Mutual funds follows.

  • 11 Dan // Aug 29, 2007 at 9:59 am

    CC: Why have 2 family accounts? Is it to allow $2500 contribution per child as oppose to $2500 per plan?

  • 12 Canadian Capitalist // Aug 29, 2007 at 10:00 am

    QLC: That’s an excellent worksheet. I have bookmarked it. Thanks.

  • 13 FourPillars // Aug 29, 2007 at 10:01 am

    CC - if you have separate accounts for each kid then are you sure they are not individual accounts?

    You can open up a family account or an individual account for each child but normally for multiple kids you would either open up separate individual accounts for each kid or open one family account for all the kids.

    If you have more than one child (beneficiary) on a family account then you have to assign the contributions to each beneficiary.

    I’m not familiar with TD’s resp so I might just be mixed up on their terminology.

    Mike

  • 14 Canadian Capitalist // Aug 29, 2007 at 10:19 am

    Dan: I am bit unclear if you are allowed to have one plan for both kids. TD Mutual funds explained that I have to make two applications for family plans - one for each child. The 1st beneficiary in the first application is the 2nd beneficiary in the second and vice-versa.

    Not sure if other institutions allow you to have one plan for one family, which is much simpler. Maybe others who have family plans can comment…

  • 15 Canadian Capitalist // Aug 29, 2007 at 10:23 am

    Mike: I am pretty sure both RESPs are family plans. I just checked online and the account is even called “Mutual Fund RESP - Family Plan”. I’ll check my application documents again this evening just to be doubly sure.

  • 16 FourPillars // Aug 29, 2007 at 10:44 am

    Ok, you had mentioned there were two accounts which confused me as I would expect a family plan to be in one investment account. However, it’s certainly possible that TD (and others) might offer family plans and keep the investments in two separate accounts on their system even though it appears to be one “plan” to the client.

    Anyways, I can guarantee that somewhere in the application process you set up the allocations for the contributions, probably 50% to each child.

    Mike

  • 17 Canadian Capitalist // Aug 29, 2007 at 10:59 am

    Mike, I checked the family plan application on E*Trade and there is no place where you can specify attribution to each beneficiary. So, I guess this is how it works everywhere:

    1. In the family RESP application, name Kid A as 1st beneficiary and Kid B as 2nd beneficiary. In the CESG application, request grants in Kid A’s name.

    2. In the other family RESP application, name Kid B as 1st beneficiary, Kid A as 2nd and make a CESG grant application in Kid B’s name.

  • 18 Basics of Registered Education Savings Plans (RESP) // Aug 30, 2007 at 7:11 am

    [...] While an individual RESP account can be set up by anyone, only a family member can set up and contribute to a family RESP. The family plan is identical to individual plans except that more than one child can be the beneficiary of the plan. There is some confusion on how family RESP plans are set up (see the comments section in yesterday’s post). [...]

  • 19 Basics of Registered Education Savings Plans (RESP) // Aug 30, 2007 at 7:11 am

    [...] While an individual RESP account can be set up by anyone, only a family member can set up and contribute to a family RESP. The family plan is identical to individual plans except that more than one child can be the beneficiary of the plan. There is some confusion on how family RESP plans are set up (see the comments section in yesterday’s post). [...]

  • 20 florch // Sep 11, 2007 at 3:52 am

    CC I have TD’s RESP family plan - just one account for both boys. They’re 2 years apart, so I had to build a little spreadsheet to keep their amounts separate.

  • 21 RESP - How To Get Started // Nov 23, 2007 at 11:30 am

    [...] is another post on getting started and please check out my asset allocation post on this subject. This post contains a sample RESP portfolio using the e-Series funds and includes the exact fund names as [...]

  • 22 Altamira Precision Series Index Funds // Nov 28, 2007 at 9:04 pm

    [...] am a big fan of TD e-Series Index Funds but if you already have an account with a discount broker other than TD Waterhouse, the Precision [...]

  • 23 DIY Smith Manoeuvre, Part 3 // Dec 12, 2007 at 8:21 pm

    [...] really simple. Open a separate investment account with one of the low-cost mutual fund providers. TD Mutual funds is my favourite but CIBC Mutual funds (if you qualify for their MER rebate) and Altamira are [...]

  • 24 Portfolio Size for Choosing ETFs over Index Funds | Canadian Capitalist // May 13, 2009 at 4:23 pm

    [...] of iShares CDN LargeCap 60 Index Fund (TSX: XIU) but you can buy index mutual funds such as the TD e-Series funds for as little as $100 (or even $25 for pre-authorized purchase [...]

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