Rebuilding an RESP from scratch

The Problem

The 29-year-old massage therapist from Edmonton is disappointed in the RESP she set up for her kids. Since the birth of her daughters—Kaia, 9, and Cyan, 2—she’s built up a $25,000 RESP portfolio, but it mostly consists of her contributions and grant money, with little in the way of market returns. Jillian was just 19 when Kaia was born and didn’t know very much about investing when she was sold an RESP while still in the maternity ward. She didn’t notice it was mostly invested in low-return bond mutual funds with big front-end loads. So last summer, she bit the bullet, paid a steep penalty and moved the education savings to a TD Waterhouse Family Plan RESP. “Now as a DIY investor, I want lower-fee investments and better returns.”

The Fix

Shannon Bender, an investment advisor with PWL Capital, says the first thing Jillian should do is call Employment and Social Development Canada to ensure she is not leaving any grant money on the table. To stick to her plan of building a growth-oriented portfolio, an allocation of 60% equities and 40% fixed income is a good place to start. Since she is already with TD she can access their e-Series index funds, which are well suited for an RESP. With just four e-Series funds Jillian can build a broadly diversified, low-cost portfolio. There are no trading fees on these funds, and TD Direct offers a systematic investment plan to help investors contribute regularly, so Jillian can put the RESP on autopilot. When Kaia turns 14, Jillian can shift to a more conservative asset allocation. “By the time Cyan is ready for her first year of university the RESP should be 100% in cash, high-interest savings or short-term fixed income to ensure the money is readily available when needed,” says Bender.