Again, my asset allocation is similar to Geoff’s (my kids are 6, 6 and 3). As they grow older, the portfolio will become more conservative. The point is young kids have a long time horizon and can afford to take risks but if you are unwilling to do so, just dial down the exposure to stocks. As Goeff points out you can do that by boosting the allocation to bonds.

http://www.canadiancapitalist.com/investing-in-td-e-series-funds-for-your-resp/

FYI, most of my posts on RESPs are filed here:

http://www.canadiancapitalist.com/category/investing/resp/

I consider my allocation moderately aggressive but not foolish. The main goal is to maximize returns while minimizing (not eliminating) risk for me. But then again, I believe that 13 years from now coca cola will still be sold in stores, microsoft will be around, people will buy ipads or whatever and so my investing reflects this (with the 20% bond allocation hedging 20 cents of every dollar). There are people who advise with a newborn to go 100% equity but I couldn’t bring myself to do that, even though I’d have done better with that than my 80% in the last 5 years.

I don’t change teh allocation, though I do use the government match to shore up my %’s a bit.

My plan is once my son is 10, to move up to 30% bonds and then basically do that every year until he’s about 15 and he’ll be in 80% bonds, 20% equity since I won’t have a lot of time to recover if the market goes down.

You could always start at 40% bonds, 60% equity if you’re more risk averse.

Is your allocation considered aggressive? I am not second-guessing your choice, but I always thought that the main objective is to preserve the capital. How ofter do you change the allocation? Once every year?

As for allocation I personally do: 20% bonds, 30% international equity, 30% canadian equity, and 20% us equity. I think most people do some variation along those numbers (note: my son is 5. When he’s 10, he’ll be at about 40% bonds). That’s because I’m a bit conservative; I’d have done better with a 0% bonds allocation but hey, I have to hedge my bet just a bit.

We are in the shopping phase of opening an RESP account. We were approached by the Fondation Universitas (MER: around 1.4% + enrollment fees + the usual restrictions) (a group RESP plan available in Quebec). We are leaning towards an individual RESP.

A part from the TD e-Series, anyone knows similar products available at other banks? We are looking for MERs under 1.4%. I called TD Waterhouse and I really liked the fact that you can set-up an automatic monthly plan without any transaction fee (for th e-Series Funds). The 50$ annual fee is a bummer but still better than BMO Investor Line that charges per transaction. What is the recommended asset allocation?

It was a whopping cheque for over $4000 as a “first EAP”, of which she is entitled to 2 more if she keeps up the good work. Considering the current economic climate I was astounded. Canadian Scholarship Trust (which has a much better reputation) only paid out just over $400 a unit, but CET managed $700+ per unit. Granted I began CST a year later. I hope that our windfall wasn’t accomplished on the backs of students whose Moms aren’t as forceful as myself, but it is a relief.

And a $3600 return plus three $4000+ returns is absolutely incredible- $15600+ from a $5000 investment 17-19 years ago.

Ralph says it well. Any other money I ‘invested’ since then did poorly although we have some nice older compound interest growth Registered Retirement Savings Plans. But a lot of money just disappeared as groceries, home repairs, and into autos and so it is not available for the kids, and that summer job income gets pretty sketchy by March.

I’m still sold on group RESPs.

I would like to – in earnest and good faith – present my reasonably informed outsider’s opinion to those that pass by. In any and all cases, do your own research.

Firstly, I am aware that there’s a tendency in this forum (and others) to interpret those who favour group RESPs to be reps or other shills. In some cases there are good reasons for this (it appears several posters on here have pretended to be happy customers singing the praises of their particular group RESP, but are probably reps. I certainly don’t consider Mark a shill because he’s been up-front about being a rep, careful not to say which one he represents (there are hints), and shown he’s put some real thought into his arguments). With this in mind, I want to be very clear that I am not a rep or in any way affiliated with any group RESP plan, or any financial institution or fund. My actual career is as a consultant geologist.

Here’s a summation of my research and understanding:
- Group plans are complex. The fees and expenses are not trivial for the average person to understand.
- This complexity could be seen as deliberate obfuscation or as endemic to the system they use. Maybe a bit of both. However, it doesn’t reflect on their potential value to a client.
- You can achieve higher returns with a self-managed RESP, or with a bank managed plan that’s a little more aggressive (to make up for the somewhat higher MERs, requiring more risk exposure).
- These options usually require risk exposure, if you want to outperform a group plan. They also require you to do some work, and maybe be a bit knowledgeable, or trust your financial advisor(s) or the advice of people on the internet regarding how to manage your money. (Maybe don’t do the latter.)
- GICs or bonds are the low risk self-managed alternative, but your return rates will be pretty low. Mark above made some good points regarding how these won’t perform as well as a group plan because of how group plans can make use of the large pool of cash, and knowledge of when a client will need the money.
- Group plans offer low-risk but somewhat higher returns than your self-managed low-risk options.
- However, group RESPs (particularly Heritage) are designed to work best – and are probably the best option – for people who 1) want to put no effort into managing the plan, and get all the prov. and fed. government grants they are eligible for, 2) are pretty darn sure that they will always be able to make payments, and 3) are pretty darn sure their kid will go to an accredited institution for a 4 year degree. You’ll get pretty much everything back (not the MERs) and more (scholarships, depending on attrition) in this case.
- The list of eligible institutions with Heritage is pretty inclusive: http://www.heritageresp.com/content.aspx?id=140
- The very best results are obtained by kids who do a 4 year degree program and don’t fail so many first year credits that the university considers them still first year in year 2. (Actually if anyone fails first year courses they are partying way too hard. Find a tutor or wake up and smell the future.)
- If they do a 2 year college program you lose 75% of the enrollment fees, but get everything else the 4 year degree person would get.
- The return of the enrollment fees is “discretionary”, but from what I see the major group RESPs have a very good history of returning them in full when the criteria are met (again: eligible institution, 4 yr program, don’t flunk so much that you aren’t moving up a year. Actually, don’t flunk. Work hard.).
- The enrollment fees are up front, so your account gains very little principal in the first couple of years. People appear to get very upset about this. I put it down to either reps not explaining adequately, or the client just didn’t get it and was sold on the large (perhaps optimistic) predicted sums available at maturity.
- In the end, though, getting your enrollment fees back or not will be a fairly small %-change to the cash you get out of your plan.
- The *key* thing with these plans is to keep making payments, stay in for the long haul, and get your kid to go to a good school and work hard. With these criteria, the Heritage plan is very competitive for the risk level. To me it seems these are things everyone should be encouraged to do anyway, so the losses for getting out early or ceasing to make payments are an incentive to stay in, and not use your child’s education savings for a new truck.
- However, if a pushy rep convinces a family to sign up for more than they can reasonably afford, that’s crossing a big red line from “helping them help their kids” to “exploiting someone who doesn’t fully understand the system”.
- If consistently maintaining a payment of just $50 a month for 18 years is not something you think you can do, you probably shouldn’t do a group RESP. Mind you, you should probably review your personal budget if you have a kid and can’t find a consistent $50/mo for them.
- There are options to temporarily stop paying, or change your payment amount, but this sort of thing should only be for an emergency. There may be a buy-out option partway through the term (discussed above in this thread). I’m not sure if Heritage offers this.
- If you just exit the program without transferring it appears that (with Heritage) the losses are: 20% of the interest on the principal, plus the enrollment fees, the government grants, and interest on the government grants. These are strong disincentives to do what my wife’s parents did to her: when she was 10 or 11 they took out the $10k they had amassed for her education and used it to get new stuff after a house move. She worked multiple jobs all through her two degrees, and has worked very hard ever since, to pay off her student loans. We’ll be finally free of them next Sept.
- We are both professionals, live well within our means, and are not concerned that we would at some point be unable to make our yearly payment. We would never force our daughter to go to university, but we do intend to instill in her an appreciation for the immense value of a post-secondary education. In the end, if she doesn’t go, whatever. We weren’t going to have the money for ourselves anyway. We’d get about 2/3 of the value of the account back in that case.
- To wrap up, I have come to believe that the plans work well for most people, provided they stick with them and their kid goes to post-secondary. I like that it’s hands-off with just a yearly payment (in our case, others do monthly). I found our rep knowledgeable and friendly, certainly not pushy or deceptive. My wife and I have called her several times with followup questions, and she has been completely open and forthright (and knows the prospectus inside and out). I know, from reading others’ experiences, that there are reps who are definitely not like that. Who are pushy, deceptive, or manipulative, using misinformation and conscious omission to force sales. They cross the big red line I mentioned above, and their actions are indeed predatory. They should at the very least be reported. Aren’t there laws that govern how financial advisors give advice and conduct themselves? Do these reps answer to those laws?

So we’ve gone for it, and we’re going to stick with it. I’m confident that we will not miss a payment, or have to try to extract the money prematurely. If you aren’t able to be so confident, then it’s probably not for you.

A final word:
Again, I’m not a rep, or otherwise an industry member. Of course, due to the anonymity of the net, I cannot prove it (I considered trying but it’s pretty pointless really). I knew very little about RESPs at all until last week. I feel much better informed having read the prospecti and the more informed comments here. The point of my post here is to say that, after a lot of reading, I’m convinced that group RESPs (particularly the one we chose) offer the best RESP solution for us. If your risk tolerance, desired involvement level, and financial outlook are similar to ours, it might be the best option for you too. Note that I’m not offering this as advice. I’m presenting a rationale that works for my family, which resulted in a particular decision which in this sort of forum tends to be lambasted.

As others have repeatedly insisted: do your own research. Read the documentation thoroughly. Understand as much as you can about your options. Arm yourself with info, examine your financial situation, and come to the best conclusion for your child’s future.

Kindest regards to all.