By Tony Dong, MSc, CETF on January 9, 2024
Estimated reading time: 8 minutes

ETFs and RESPs: It’s always a good time to invest in education

By Tony Dong, MSc, CETF on January 9, 2024
Estimated reading time: 8 minutes

To maximize government RESP grants each year, you’ll need to contribute at least $2,500 by Dec. 31. Here’s why investing in ETFs may be a good option.

A young dad gives his toddler daughter a piggyback ride in the backyard

Image by pch.vector on Freepik

Registered education savings plans (RESPs) are a smart way to save for your kids’ or grandkids’ college or university tuition and other school expenses. Not only are you setting aside money for their future, but the RESP also gets a boost from government grants.

With that in mind, here’s a key date to circle on your calendar: Dec. 31. That’s the deadline for making RESP contributions to maximize government RESP grants each year. The Canada Education Savings Grant (CESG) matches 20% of what you put in, up to a limit of $500 annually. To receive the full $500, your contributions must total at least $2,500 by the end of December. The lifetime CESG maximum per beneficiary (child) is $7,200, and you can only catch up one year at a time—so, you can see why that annual deadline merits attention. That’s especially true if you only have a few years to save before your child heads off to school.

Now is a great time to plan your contributions for this year. Here are some things to consider.

What investments can you put into an RESP?

Despite its name, an RESP is much more than just a cash savings account. In fact, just holding cash in an RESP may not always be the best strategy, as inflation can erode its value over time. It’s worth looking into different ways to grow that money.

There’s no one-size-fits-all answer for the best RESP investment options. The right mix for your family will depend on several factors, including your financial circumstances, how much time you have, and how comfortable you are with risk. To help you make the most of your RESP, the Canada Revenue Agency (CRA) provides a list of “qualified investments” for this account, including the following:

Bonds: These can be either government-issued or corporate-issued. Bonds are generally seen as a safer investment compared to stocks, offering fixed interest payments over time.
Guaranteed investment certificates: GICs are issued by financial institutions, and you can choose terms such as one, two, three or five years. At the end of the term, you’ll receive a guaranteed amount of interest. Generally, you must wait until then to access your money.
Stocks: Investing in individual stocks can offer high returns, but they generally come with higher volatility than bonds and GICs. It’s essential to thoroughly research the companies you’re thinking about investing in—and remember, picking stocks can be risky!
Mutual funds: These funds can hold a mix of stocks, bonds and other assets. They offer diversification and are managed by financial professionals. Investors pay a percentage of the value of their investment towards annual management fees.
Exchange-traded funds: ETFs are similar to mutual funds in that they can hold a mix of assets like stocks and bonds. However, ETF shares trade on stock exchanges, just like individual stocks. Most ETFs are passively managed, but more active ETFs are coming onto the market.

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Investing in ETFs for a RESP

ETFs are a fast-growing asset class in Canada. They offer investors numerous benefits, including:

Built-in diversification: ETFs may bundle various assets, providing wide exposure across different sectors, asset classes and geographies, which helps in reducing investment risk.
Professional management: With ETFs, a fund manager oversees the selection and rebalancing of holdings, often trying to replicate specific stock market indices (such as the S&P 500), thus reducing the complexity of managing individual stocks and bonds.
Ease of transactions: ETFs are traded on stock exchanges and are accessible through financial advisors and online brokers.
Flexible asset allocation: ETFs offer a spectrum of asset allocation options, so they may be suitable for investors with different risk tolerances and investment timelines.

Investing for the future with Fidelity All-in-One ETFs

Choosing the best ETF for your RESP largely depends on two variables: your time horizon (how long until your child needs the funds) and your risk tolerance (how much market fluctuation and potential losses you can comfortably handle).

To simplify this decision-making process, one option to consider is an all-in-one ETF, such as those offered by Fidelity. These ETFs offer different asset allocations and risk classifications. Fidelity’s All-in-One ETFs have the following target asset allocations and risk classifications (as at Oct. 31, 2023):

Fidelity All-in-One ETFs	Conservative	Balanced	Growth	Equity
Risk classification	Low to medium	Low to medium	Medium	Medium
Ticker	FCNS	FBAL	FGRO	FEQT
Global equity	40%	59%	82%	97%
Global fixed income	59%	39%	15%	0%
Cryptocurrencies	1%	2%	3%	3%

Source: Fidelity Investments Canada ULC

Fidelity’s suite of All-in-One ETFs offers strategic diversification, with most of them giving you exposure to global bonds and stocks from all market sectors. Interestingly, they even include a small exposure to cryptocurrency (1% to 3% depending on the fund), adding a modern twist to traditional investment portfolios. (Read more about crypto in Fidelity ETFs.)

Fidelity’s All-in-One ETFs also embody the advantages of professional management, lower fees and diversified holdings. Each ETF has a different asset allocation, and they may be suitable for investors with various risk tolerances and objectives.

Planning ahead: Making the most of your RESP investments

Now, back to that Dec. 31st deadline. Each year that passes without maximizing government grants is a missed opportunity for compounded growth in your child’s education fund.

And remember, investing in a RESP isn’t merely about putting money aside. It’s also about strategically choosing where to invest that money to try to get the best possible returns for your child’s future education. Whether you’re drawn to the diversified, professionally managed Fidelity All-in-One ETFs or other investment options, the goal is to make your contributions work as hard as they can.

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An important message from Fidelity Investments Canada ULC

Commissions, trailing commissions, management fees, brokerage fees and expenses may be associated with investments in ETFs. Please read the ETF’s prospectus, which contains detailed investment information, before investing. The indicated rates of return are historical annual compounded total returns for the period indicated including changes in unit value and reinvestment of distributions. The indicated rates of return do not take into account sales, redemption, distribution or option charges or income taxes payable by any unitholder that would have reduced returns. ETFs are not guaranteed. Their values change frequently, and investors may experience a gain or a loss. Past performance may not be repeated.

The management fees directly payable by Fidelity All-in-One ETFs are nil. The Fidelity All-in-One ETFs invest in other underlying Fidelity ETFs that charge a direct management fee and/or administration fee. Based on the weightings of underlying Fidelity ETFs, it is expected that the effective indirect management and/or administration fee for Fidelity All-in-One Conservative ETF will be approximately 0.35%, Fidelity All-in-One Balanced ETF will be approximately 0.36%, Fidelity All-in-One Growth ETF will be approximately 0.38% and Fidelity All-in-One Equity ETF will be approximately 0.39%. The actual effective, indirect fees may be higher or lower than the estimated rates shown above based on the performance of the underlying Fidelity ETFs, rebalancing events initiated by the portfolio management team of the Fidelity All-in-One ETFs and changes to the strategic allocation, which may include the removal or addition of underlying Fidelity ETFs. Actual indirect fees will be reflected in the management expense ratio (in addition to sales tax, fixed administration fees, commissions, portfolio transaction costs and other expenses, as applicable, of each Fidelity All-in-One ETF and mutual fund version), posted semi-annually.

Each of the Fidelity All-in-One ETFs has a neutral mix, which includes a small allocation to Fidelity Advantage Bitcoin ETF™ ranging between 1% and 3%. If each portfolio deviates from its neutral mix by greater than 5% between annual rebalances, it will also be rebalanced. Such rebalancing activity may not occur immediately upon crossing that threshold but will occur shortly thereafter.

The investment risk level indicated is required to be determined in accordance with the Canadian Securities Administrators standardized risk classification methodology, which is based on the historical volatility of a fund, as measured by the ten-year annualized standard deviation of the returns of a fund or those of a reference index, in the case of a new fund.

A fund’s volatility is determined using a statistical measure called “standard deviation.” Standard deviation is a statistical measure of how much a return varies over an extended period of time. The more variable the returns, the larger the standard deviation. Investors may examine historical standard deviation in conjunction with historical returns to decide whether an investment’s volatility would have been acceptable given the returns it would have produced. A higher standard deviation indicates a wider dispersion of past returns and thus greater historical volatility. Standard deviation does not indicate how an investment actually performed, but it does indicate the volatility of its returns over time. Standard deviation is annualized. The returns used for this calculation are not load-adjusted. Standard deviation does not predict the future volatility of a fund.

The statements contained herein are based on information believed to be reliable and are provided for information purposes only. Where such information is based in whole or in part on information provided by third parties, we cannot guarantee that it is accurate, complete or current at all times. It does not provide investment, tax or legal advice, and is not an offer or solicitation to buy. Graphs and charts are used for illustrative purposes only and do not reflect future values or returns on investment of any fund or portfolio. Particular investment strategies should be evaluated according to an investor’s investment objectives and tolerance for risk. Fidelity Investments Canada ULC and its affiliates and related entities are not liable for any errors or omissions in the information or for any loss or damage suffered.

The presenter is not registered with any securities commission and therefore cannot provide advice regarding securities.

About Tony Dong, MSc, CETF

Tony Dong has been published on USA Today, U.S. News & World Report, TheStreet and more. He is also the lead ETF analyst for ETF Central, and he holds The ETF Institute’s Certified ETF Advisor designation.