{"id":20325,"date":"2020-12-24T10:33:59","date_gmt":"2020-12-24T15:33:59","guid":{"rendered":"https:\/\/env-hardbacon-dev.kinsta.cloud\/?p=20325"},"modified":"2022-02-16T11:45:07","modified_gmt":"2022-02-16T16:45:07","slug":"resps-how-to-invest-in-your-childrens-future-without-being-fooled","status":"publish","type":"post","link":"https:\/\/env-hardbacon-dev.kinsta.cloud\/en\/investing\/resps-how-to-invest-in-your-childrens-future-without-being-fooled\/","title":{"rendered":"RESPs: How to invest in your children\u2019s future without being fooled"},"content":{"rendered":"
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While you and your spouse are<\/span> leaning over your little cherub\u2019s crib<\/span> <\/span>with adoring <\/span>gazes<\/span>, the proud parents that you <\/span>have already become<\/span> begin to imagine what <\/span>he<\/span> could become. A doctor<\/span>? A<\/span> lawyer,<\/span> or<\/span> a senior <\/span>executive<\/span>? A parliamentarian, or even a future Prime Minister of <\/span>Canada<\/span>? No, all these professions are well below the potential of this genius in the making who, for the moment, only knows how to cry, to eat, to fill <\/span>his diaper<\/span>, to <\/span>cry again and <\/span>to sleep<\/span> (rarely)<\/span>. He will become<\/span> the<\/span> <\/span>Leader<\/span> of the World. <\/span>Now that you\u2019ve realized this<\/span>, you must now determine the best way to help your future <\/span>Leader<\/span> of the World fulfill his destiny.<\/span><\/p>\n

\u00a0<\/span><\/p>\n

There\u2019s<\/span> no need to look at historical precedents (fortunately) t<\/span>o come to the conclusion that a Leader of the World<\/span> <\/span>must have<\/span> at least have a B<\/span>achelor's degree in an appropriat<\/span>e <\/span>discipline and most likely a M<\/span>aster's degree. How much will 5 (or 6, or 7) years of <\/span>university<\/span> cost in 17 or 18 years? Will you have the means to <\/span>afford this for your<\/span> <\/span>Leader<\/span> in training? What if <\/span>he<\/span> considers enrolling at a prestigious European school? Or gets accepted into an Ivy League university in the United States?<\/span><\/p>\n

\u00a0<\/span><\/p>\n

You've just moved into your new home<\/span> <\/span>and <\/span>you\u2019re<\/span> wonder<\/span>ing<\/span> <\/span>how you will manage to save<\/span><\/a> for <\/span>your <\/span>child\u2019s<\/span> <\/span>future between your mortgage, <\/span>your<\/span> <\/span>bills, groceries, your school and municipal taxes, all <\/span>from<\/span> a net family income which will undoubtedly represent a<\/span> decreasing fraction <\/span>of your gross <\/span>earnings<\/span> in the future. You need a plan, a solid plan.<\/span><\/p>\n

\u00a0<\/span><\/p>\n

The RESP, a good recipe in <\/span>theory<\/span><\/strong><\/h2>\n

 <\/p>\n

You\u2019ve made your decision. You\u2019re <\/span>going to contribute to a registered education <\/span>savings plan. In addition to your monetary contribution, it is normal for a future <\/span>Leader of the World<\/span> to benefit from government grants to help him achieve his full potential.<\/span><\/p>\n

\u00a0<\/span><\/p>\n

You've don<\/span>e your research. A contribution of $<\/span>100 per month for 17 ye<\/span>ars (or a net contribution of $<\/span>20,400 out of <\/span>your pocket) should put <\/span>more than $40,000 <\/span>at <\/span>your little one\u2019s<\/span> disposal when he is ready to leave<\/span> public school <\/span>for the sometimes-<\/span>rickety chairs of <\/span>a<\/span> university. <\/span>On top of this you\u2019ll get t<\/span>he 20% Canada<\/span> Education Savings Grant (<\/span>CESG), to which <\/span>in Quebec a<\/span> <\/span>10% <\/span>provincial equivalent<\/span> called the <\/span>Quebec Education Savings Incentive (QESI)<\/span> is added<\/span>, <\/span>plus your<\/span> <\/span>investment returns, all make<\/span> it hard to beat an RESP<\/span> <\/span>as the best way<\/span> to invest in your children's future.<\/span><\/p>\n

\u00a0<\/span><\/p>\n

You and your spouse have had your nose<\/span>s<\/span> <\/span>buried in<\/span> the documentation for several days now, <\/span>and you\u2019re<\/span> comparing the different<\/span> options.<\/span> You could choose to manage your investment <\/span>independently or entrust it to a regulated fund by subscribing to a group RESP.<\/span><\/p>\n

\u00a0<\/span><\/p>\n<\/div>\n<\/div>\n

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Investing through an RESP account<\/span><\/strong><\/h2>\n

 <\/p>\n

Most major banks <\/span>let<\/span> you subscribe to an RESP at their establishment through a <\/span>discount broker<\/span><\/a> or<\/span> an<\/span> <\/span>advisor<\/span><\/a>. However, in recent years <\/span>there is also<\/span> the option of going through a <\/span>robo-advisor<\/span><\/a>. Firms such as <\/span>Wealthsimple<\/span><\/a> or <\/span>CI Direct Investment<\/span><\/a> offer their clients an attractive alternative to traditional channels. <\/span>Their main<\/span><\/a> <\/span>advantage is<\/span> the absence of management fees, a<\/span>n important<\/span> detail if you<\/span>\u2019re not rolling in <\/span>gold and want to get the most out of your investment for one or more of your children.<\/span><\/p>\n

\u00a0<\/span><\/p>\n

Individual RESPs <\/span>help you plan <\/span>for the education of a single child, while family plans are ideal for people who want to <\/span>provide for<\/span> more than one of their descendants (<\/span>biological<\/span> or adopted children and grandchildren, but not nephe<\/span>ws<\/span> or nieces). Group RESPs, on the other hand, offer a much more rigid approach.<\/span><\/p>\n

\u00a0<\/span><\/p>\n

Investing<\/span> <\/span>through a Group<\/span> <\/span>RESP p<\/span>rovider<\/span><\/strong><\/h2>\n

 <\/p>\n

During<\/span> your research, you will invariably come across at least one group RESP provider. <\/span>The fact that<\/span> they exist and people <\/span>of healthy body and sane mind<\/span> subscribe to them<\/span> is <\/span>because they offer <\/span>a handful of <\/span>additional benefits <\/span>compared to<\/span> individual and family RESPs. However, <\/span>their<\/span> strengths can also objectively be viewed as serious constraints. <\/span>A<\/span> group RESP imposes an iron discipline on you in the regularity and amount of your payments. If you <\/span>don\u2019t<\/span> <\/span>anticipate any<\/span> unforeseen events <\/span>over<\/span> the next 17 or 18 years, this first point is really an advantage. It assures you that all your co-investors also have a crystal ball and that they are ready to stake their full contributions, in some cases, on <\/span>its<\/span> strength.<\/span><\/p>\n

\u00a0<\/span><\/p>\n

\u00a0<\/span><\/p>\n

Lastly<\/span>, investments made by group RESPs are subject <\/span>to very strict<\/span> <\/span>regulatory<\/span> rules in <\/span>order to protect parental contributions. This is only of benefit if your risk aversion is very high. It <\/span>goes without saying that even without <\/span>the regulatory body\u2019s<\/span> hand on <\/span>their<\/span> shoulder<\/span>s<\/span>, individual or family RESP providers are not going to gamble <\/span>your contributions at a<\/span>\u00a0casino.<\/span><\/p>\n

\u00a0<\/span><\/p>\n<\/div>\n<\/div>\n

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Membership<\/span> fees<\/span>: the fundamental<\/span> problem<\/span><\/strong><\/h2>\n

 <\/p>\n

If nothing you've read <\/span>so far<\/span> has turned you away from group RESPs for good, give<\/span> me a few more paragraphs to talk about membership fees<\/span>. In the case of Universitas, which remains one of the best-known providers of <\/span>this type of plan<\/span>, these fees<\/span> represent much more than a year<\/span>\u2019s worth<\/span> of contribution! <\/span>In fact<\/span>, if you<\/span> intended to contribute up to $<\/span>100 per month, know that your <\/span>membership fees will amount to almost $<\/span>2000!\u00a0<\/span><\/p>\n

The first year<\/span>\u2019s worth<\/span> of contribution<\/span>s<\/span> goes directly into the<\/span> sales representatives\u2019<\/span> pockets and only half of your contribution over the following 15 months will end up in the fund for the <\/span>benefit of your child. <\/span>This is <\/span>100 * 12 + 0.5 * 100 * 15 = $ 1950. We are therefore talking about a full-time session and <\/span>about 1 or 2 books\u2026at <\/span>today<\/span>\u2019s costs<\/span>. <\/span>Add to that the lost returns on that money over a 17 or 18-year time horizon, and<\/span> you've probably just thrown a full year of <\/span>education<\/span> (books included) in<\/span>to<\/span> the trash.<\/span><\/p>\n

Don\u2019t panic! <\/span>Universitas says that your membership<\/span>\u00a0fees will be refunde<\/span>d. <\/span>Is that so<\/span>? <\/span>How <\/span>can this be possible,<\/span> since they <\/span>would<\/span> have been paid to representatives<\/span> as a <\/span>bonus<\/span>? There is only one way to succeed in this sleight of hand: by digging into the fund intended for other people's children, or <\/span>into <\/span>your own if you are contributing for <\/span>all<\/span> of your toddlers. <\/span>Does this go against<\/span> your personal ethics? <\/span>Take comfort<\/span>, you have surely contributed to <\/span>reimbursing the fees <\/span>of parents <\/span>who\u2019ve<\/span> been there before you<\/span>\u2026you\u2019re just returning the favour.<\/span><\/p>\n

Should I address the<\/span> question of<\/span> management fees? No, <\/span>you already<\/span> know enough<\/span> about that<\/span>? <\/span>Ok then<\/span>.<\/span><\/p>\n

Individual, family or group<\/span> RESPs<\/span>?<\/span><\/strong><\/h2>\n

 <\/p>\n

It\u2019s<\/span> difficult for an impartial person to recommend a group RESP over an individual or family RESP. Group RESPs are big machines that fund their operating costs out of your contributions, <\/span>period. Not all RESPs are created equal and even if you expect <\/span>that <\/span>your child will end up being the<\/span>\u00a0Leader<\/span> of the World in the <\/span>years to come<\/span>, signing up for a family plan<\/span> now or a second individual plan later seems much more reasonable.<\/span><\/p>\n

 <\/p>\n

If you liked this article, you\u2019ll definitely like\u00a0<\/span>Hardbacon\u2019s mobile app<\/span><\/a>, which links to your banking and investing accounts, helps you\u00a0<\/span>plan your financial goals<\/span><\/a>,\u00a0<\/span>budget<\/span><\/a>, and\u00a0<\/span>invest better<\/span><\/a>. The basic version of the app is\u00a0<\/span>free<\/span><\/a>, but you can do more with\u00a0<\/span>Hardbacon Premium<\/span><\/a>. As a loyal reader of our blog, you can get 10% off any Hardbacon Premium subscription. To take advantage of this promotion, use promo code BLOG10 when subscribing through\u00a0<\/span>our website<\/span><\/a>.<\/span><\/em><\/p>","protected":false},"excerpt":{"rendered":"

While you and your spouse are leaning over your little cherub\u2019s crib with adoring gazes, the proud parents that you have already…<\/p>\n","protected":false},"author":101,"featured_media":4433,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_uag_custom_page_level_css":""},"categories":[155,280,309],"tags":[],"acf":[],"nelio_content":{"isAutoShareEnabled":true,"autoShareEndMode":"default","automationSources":{"useContentSentences":true,"useSocialTemplates":true,"useCustomSentences":false,"customSentences":[]},"followers":[],"suggestedReferences":[],"includedReferences":[],"efiUrl":"","efiAlt":"","highlights":[]},"yoast_head":"\nRESPs: How to invest in your children\u2019s future without being fooled | Hardbacon<\/title>\n<meta name=\"description\" content=\"You've just moved into your new home and you\u2019re wondering how you will manage to save for your child\u2019s future\" \/>\n<meta name=\"robots\" content=\"noindex, 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If you are hesitating between an RRSP, TFSA or RESP for your investments, see <\/span>this article<\/span><\/a>.<\/span><\/p>\n<\/div>\n<\/div>\n

Pooling participants' savings also gives the fund greater leverage and <\/span>helps<\/span> it maximize <\/span>its<\/span> return on investments. This rule<\/span> is pretty much always true when it comes to investing, but <\/span>if <\/span>your<\/span> child <\/span>doesn\u2019t <\/span>wish to pursue post-secondary education, you will have <\/span>literally <\/span>lost money<\/span> <\/span>(the value of the<\/span> <\/span>inflation<\/span><\/a> and interest that you <\/span>would<\/span> have <\/span>earned<\/span> by putting your money elsewhere<\/span>,<\/span> as well as your subscription costs, which <\/span>we will come back to). Why that<\/span>? In the case mentioned above, the sums contributed by the parents are returned to them, but the increased interest and government contributions remain in the fund<\/span> for the benefit of the other beneficiaries.<\/span><\/p>\n