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RESP tracking - couch potato investing

43K views 99 replies 19 participants last post by  BoringInvestor 
#1 · (Edited)
Hi all,

As a companion post to my existing thread, this new thread will solely focus on my daughter's RESP. As a change, I'll be openly disclosing the full value of the account.


RESP investing

Statistics show many Canadians do not take advantage of an RESP. Of those who do use an RESP, many Canadians are not aware they can invest for themselves, and instead invest in group plans that are not optimal due to higher fees, restrictions on withdrawals, and under performance.

I'm creating this thread to provide encouragement to those who are looking to take control of their child's RESP, by investing in a passive, index-tracking, low-cost, ETF portfolio.
Feel free to post your questions or your own RESP results below.


RESP setup

The RESP will typically receive new deposits, and be rebalanced on a quarterly schedule (January, April, July, October).

I'll be following the ETF model portfolio, as described on Canadian Couch Potato, with some modifications:


  • The ETFs being used in the account are: VCN (Canadian markets), VXC (International markets), and VAB (Canadian bonds)
    I've be allocating funds among three asset classes: equity, bonds, and GICs
    For the equity portion, I'm allocating 20% to VCN (Canadian), and 80% to VXC (International)
    Until the year my daughter turns 4 (2019), I'll be investing 100% of the portfolio in the equity class
    Starting in 2019, I'll reduce the equity portion by 1/9 (~11%), and move the funds to bonds: VAB. This process will be complete in 2027.
    Starting in the year my daughter turns 12 (2028), I'll be primarily focusing on capital preservation. To do this I'll be reducing the bond allocation by 1/5 (20%), each year and moving it into GICs with a maturity in 2033. I'll be fully out of bonds, and only in GICs, as of 2032.


RESP deposit & government contribution schedule

For RESPs, I have to be mindful of both of the rules surrounding personal and government contributions.

Personal contributions
Presently, there is a lifetime contribution maximum of $50,000. I'd like to front-load this as much as possible.
As I intend to hit the maximum, my goal is to deposit $4,000 per year from 2015 to 2023, $3,000 in 2014, $2,500 from 2025 to 2028, and $1,000 in 2029.

Government contributions
Like all Canadians, my family qualifies for the Canadian Education Savings Grant, which provides 20% of the contribution each year, up to a maximum of $500 / year, and a lifetime maximum of $7,200.
As I intend to get the maximum amount, if I follow my schedule outlined above, I'll receive $500 every year from 2015 to 2028, and $200 in 2029.


RESP results
The portfolio since inception (April 2015): up 5.20% or $467.35
If I count the Canada Education Savings Grant [CESG] funds as an investment gain, the portfolio is: up 18.35% or $1,467.85

The annualized (money-weighted) investment rate of return is 6.48%

The annual cost of the portfolio (i.e, the combined, embedded ETF management fee) is 0.24%, or $22.38

You can log in to view the attachment below.


Monthly performance:

2015
  • April 2015: -1.45%
  • May 2015: 2.08%
  • June 2015: -1.87%
  • July 2015: 4.88%
  • August 2015: -5.92%
  • September 2015: -2.79%
  • October 2015: 5.10%
  • November 2015: 1.31%
  • December 2015: 0.20%
2016
  • January 2016: -3.49%
  • February 2016: -3.60%
  • March 2016: 2.39%
  • April 2016: -1.09%
  • May 2016: 3.97%
  • June 2016: -1.13%
  • July 2016: 4.45%
  • August 2016: 0.72%
  • September 2016: 0.82%


View attachment 11874
 
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#2 ·
The best strategy is just to put in the $2500 each year and any additional in your own or spouses TFSA if you have room. This is particularly true after you have claimed all $7200 in grants.

I don't know where you live but there are some provincial RESP bonuses like this:
http://www2.gov.bc.ca/gov/topic.page?id=30F9685761484A8FA6CB7ED216B052EC

I'm assuming you can buy those funds free. If not, E-series is likely better.
 
#3 · (Edited)
Thanks for mentioning the strategy of limiting RESP contributions to only max the grant.

Upon reading your post I've looked into a few calculators and read posts and threads that talk about the difference between RESPs vs. TFSAs.
I've decided to stick with my original contribution schedule for the following reasons:
1. Upon working through the calculations I've found the ending balance differences between i) all RESP vs. ii) mix RESP & TFSA to be negligible
2. I'd prefer to keep all the TFSA room my wife and I accumulate available for our retirement planning
3. I want to keep the account portfolios and balances simple, by not mixing different goals in the same account type

It may not be the 'best' solution from an economic argument, but it's what will work for me, it's one I can stick to, and know I can make work.
That said - if someone does follow this mix RESP/TFSA strategy I'd be interested to know how it's working out for you.

Re: your other comments
- I'm in a province without any additional grants, and my family income is too high to qualify me from receiving any other federal government grants.
- I am with a broker that allows commission-free ETF purchases, so I don't need to use e-Series.
 
#4 ·
I can understand that. My plan is to use the RESP/TFSA vehicle as I mentioned in my post.

There are 'strings' on RESP withdraws and once you claim the grant they just add complication in my mind.

One idea is that it's possible to hold more than one TFSA which you could earmark as a hybrid-'RESP' or something and keep additional RESP funds there. To me that seems much easier and clean than potentially paying tax on RESP withdraws when you don't have to. All it takes is your kid getting a good summer job one summer and the tax man comes knocking. Of course, if you don't have the TFSA room then you don't. I guess it depends if this annual 10K keeps going forward or what. Something to keep in mind though.

Also, keep in mind that how you wihdraw funds matters first. See here:

http://www.moneysmartsblog.com/resp-withdrawals/
 
#8 ·
I think you need to re-read the thread.

The RESP wins every time when you account for the grant; however, once the $7200 is claimed it's better to hold and invest any additional monies in a TFSA.

You start paying taxes around $12,000 and education credits can be carried forward so you may as well save those up when making real money.
 
#10 · (Edited)
Some Provinces have added incentives.

Started one for our new born grandson last year. Just applied for the Alberta one time grant of $500. which is available IF you start the RESP at age two years of less.

This grant was apparently going to be eliminated by the budget that the Conservatives proposed prior to their defeat in the recent provincial election.

We like the RESP program for it's ROI but there are three other reasons. First, it encourages us to save for a child's secondary education. Second, the cost of post secondary education seems to be increasing at a much higher rate of inflation. I was astounded at the difference between my university fees and the fees that my children paid 30 years later. Thirdly, I suspect that in the future we will see many more people in post graduate programs simply to land a job. That means an extra year or two of fees and study.
 
#13 ·
Some Provinces have added incentives.
Started one for our new born grandson last year. Just applied for the Alberta one time grant of $500. which is available IF you start the RESP at age two years of less.
This grant was apparently going to be eliminated by the budget that the Conservatives proposed prior to their defeat in the recent provincial election.
Free money is always nice, but the Alberta grant of $500 (and $100 again at various ages) comes with strings. Namely it has to be kept in a bond fund. At least this is what TD told us.
 
#16 ·
Just looked at my PHN account. The RESP is invested in equity funds. But, I have just applied for the Alberta grant through them.

Was not aware that there were other monies available after the first $500. We only just found out about the $500. because of a critique on the recently proposed Alberta budget....they were cutting this but gave some time to apply if the child was still under 2 years of age.

Do you know if we have to apply for them as the time comes or are they automatically deposited in the RESP?
 
#17 ·
If you're talking about the Canada Education Savings Grant [CESG], the Canada Learning Bond [CLB], or the Additional Canada Education Savings Grant [Additional CESG], you'll need to apply through your RESP provider.
The CESG is available to everyone, the CLB and Additional CESG are available for lower-to-middle income families.
http://www.canlearn.ca/eng/savings/resp.shtml
 
#22 · (Edited)
June 2015 update

Commentary
June was the second full month of the RESP.

The month saw the final 2015 deposit of $3,000.
I intend to make the next deposit in January of 2016.

The final 2015 CESG payment should arrive in either July or August.


Results
The portfolio fell -1.87% in June, lowering my overall gain to -1.63%, and lowering my overall annualized rate of return to -14.87%.
If I count the CESG funds as an investment gain, the portfolio is up 3.28%.


View attachment 4882
 
#23 · (Edited)
July 2015 update

Commentary
July was the best month of the relatively short-lived RESP account.
The positions grew by 4.88%, or $216.10.

July saw the final 2015 CESG payment of $300, and the first dividends were paid into the account.
I'll rebalance the portfolio in August, then won't touch it again until the new year.

Results
The portfolio rose 4.88% in July, raising my overall gain to 3.28%, and raising my overall annualized rate of return to 18.87%.
If I count the CESG funds as an investment gain, the portfolio is up 16.19%.


You can log in to view the attachment below.

View attachment 5010
 
#24 · (Edited)
August 2015 update

Commentary
August was the worst month of the relatively short-lived RESP account.
The portfolio fell -5.92%, or -$275.10.

Results
The portfolio fell -5.92% in August, lowering my overall gain to -2.84%, and lowering my overall annualized rate of return to -10.38%.
If I count the Canada Education Savings Grant [CESG] funds as an investment gain, the portfolio is up 9.31%.


You can log in to view the attachment below.


View attachment 5513
 
#25 · (Edited)
September 2015 update

Commentary
September was the second worst month of the RESP account.
Both positions declared dividends in September, and the dividends will be paid out in October.


Results
The portfolio fell -2.79% in September, lowering my overall gain to -5.55%, and lowering my overall annualized rate of return to -15.27%.
If I count the Canada Education Savings Grant [CESG] funds as an investment gain, the portfolio is up 6.26%.


You can log in to view the attachment below.

View attachment 6185
 
#26 ·
October 2015 update

Commentary
October was the best month ever for the RESP account, and the account is just shy of breaking even (i.e., being equal to my total deposits and the CESG payments).


Results
The portfolio rose 5.10% in October, raising my overall gain to -0.73%, and raising my overall annualized rate of return to -1.71%.
If I count the Canada Education Savings Grant [CESG] funds as an investment gain, the portfolio is up 11.68%.


You can log in to view the attachment below.

View attachment 6801
 
#27 · (Edited)
November 2015 update

Commentary
November saw the portfolio return to positive territory (rising 1.31% or $58.33), as my investments have recovered all the losses from a couple months back.


Results
The portfolio rose 1.31% in November, raising my overall gain to 0.56%, and raising my overall annualized rate of return to 1.10%.
If I count the Canada Education Savings Grant [CESG] funds as an investment gain, the portfolio is up 13.13%.


You can log in to view the attachment below.

View attachment 7234
 
#28 ·
December 2015 update

Commentary
December saw a small monthly gain, for the third straight month of gains, and ends the first calendar year of the portfolio.
The plan in 2016 is to stick to a 100% equity allocation. Initially I was planning to put $4,000 into the account this year; as I won't be making any new deposits until June, I may end up altering that target as the year progresses.


Results
The portfolio rose 0.20% in December, raising my overall gain to 0.77%, or $34.60, and raising my overall annualized rate of return to 1.30%.
If I count the Canada Education Savings Grant [CESG] funds as an investment gain, the portfolio is up 13.37%.


You can log in to view the attachment below.

View attachment 7666
 
#29 ·
@BoringInvestor: Been following this thread for a while (even though this is my first official post on CMF). My wife is pregnant and I'm trying to piece together an RESP plan based on index investing. Seeing as how you're a fan of CanadianCouch potato, I'm curious as to why you chose to start reducing your equity allotment when your child is 4 years old, instead of 8 years old, as suggested in this blog post on CCP: http://canadiancouchpotato.com/2010/11/05/taking-risk-in-an-resp/

I'm having trouble deciding between the CCP RESP asset allocation (as outlined in the link I posted) versus following your allotment of gradually reducing equity into bonds, and then your child reaches high school, to transfer everything to fixed income (or GICs) during their post-secondary years. Both seem like great strategies, but I'm just curious why you chose to dial down risk more than CCP.

Looking forward to your reply.

Thanks!
 
#31 · (Edited)
Hi kingtosh82, thanks for your reply and interest in this money diary, and congratulations to you and your wife on your expanding family and your early planning for your child's RESP!

For our daughter's RESP, compared to CCP's blog, I decided to i) be more conservative and reduce the equity exposure earlier, ii) accordingly, move funds to fixed income at an earlier date, and iii) have everything in GICs once the funds are needed.
I think you'd be fine sticking with either model, I just chose to be a bit safer than what CCP wrote.

Using the following rate of return assumptions: equities return an average of 7%/year, bonds return an average of 3.5%/year, and GICs return an average of 2% per year, and coupled with our contribution schedule, by the time my daughter is 18 we'll have $90,000 (in 2015 dollars) in her RESP.
I suspect this amount will be more than sufficient to offset most, if not all, educational and related costs for undergrad.
 
#35 · (Edited)
January 2016 update

Commentary
January was a wild way to start the year, as the portfolio quickly suffered large losses. A late rally, plus dividends received, weren't enough to bring the portfolio back into positive territory.

For 2016 I'll be sticking with 100% allocation in equities (80% international, and 20% Canadian), and intend to put in $4,000 with deposits starting in June.


Results
The portfolio this month: down -3.49% or -$158.36.

The portfolio since inception (April 2015): down -2.75%, or -$123.76.
My overall money-weighted annualized rate of return is: down -4.01%.

If I count the Canada Education Savings Grant [CESG] funds as an investment gain, the portfolio is: up 9.41%.


You can log in to view the attachment below.

View attachment 8186
 
#36 ·
February 2016 update

Commentary
February continued the decline in 2016, and was the second worst performing month since the portfolio began.


Results
The portfolio this month: down -3.60% or -$157.66.

The portfolio since inception (April 2015): down -6.25%, or -$281.42.
My overall money-weighted annualized rate of return is: down -8.08%.

If I count the Canada Education Savings Grant [CESG] funds as an investment gain, the portfolio is: up 5.46%.


You can log in to view the attachment below.

View attachment 8738
 
#37 · (Edited)
March 2016 update

Commentary
Thanks to our generous family, March saw the first deposit ($2,100) to the account since June 2015.
Combined with the cash already in the account, I bought new shares of VXC and VCN to bring the portfolio to a near 80%/20% split.

I expect the $400 CESG payment (calculated as 20% of $2,100) to arrive in either late April or May, and also expect we can start regular quarterly contributions into the account starting in June.


Monthly results
The portfolio this month: up 2.39% or $151.10.

The portfolio since inception (April 2015): down -1.97%, or -$130.32.

If I count the Canada Education Savings Grant [CESG] funds as an investment gain, the portfolio is: up 6.06%.


Complete RESP results
The portfolio started in mid-April 2015 with $1,000

The value as of March 31, 2016, is $6,469.68
The annualized investment rate of return is -3.38%
The annual cost of the portfolio (i.e, the combined, embedded ETF management fee) is 0.24%, or $15.34

Where the money has come from:

Value of account holdings:

  • VCN: $1,300.32
    VXC: $5,151.26
    Cash: $18.10


You can log in to view the attachment below.

View attachment 9386
 
#40 ·
April 2016 update

Commentary
In April we received the Canada Educations Savings Grant ($420) for the deposit made in March.
We'll let this cash sit in the account until the next quarterly rebalancing in June, when we also expect we'll be making an additional deposit at that time.

Starting this month I've slightly altered the format of the attached image, and fixed a calculation error in my spreadsheet.

Monthly results
The portfolio this month: down -1.09% or -$75.34.

The portfolio since inception (April 2015): down -2.93%, or -$205.66.

If I count the Canada Education Savings Grant [CESG] funds as an investment gain, the portfolio is: up 11.71%.


Complete RESP results
The portfolio started in mid-April 2015 with $1,000

The value as of April 30, 2016, is $6,814.34
The annualized investment rate of return is -4.64%
The annual cost of the portfolio (i.e, the combined, embedded ETF management fee) is 0.22%, or $15.05

Where the money has come from:

Value of account holdings:
  • VCN: $1,351.68
  • VXC: $5,024.56
  • Cash: $438.10


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View attachment 9890
 
#44 · (Edited)
i feel you with the losses, i purchased the vanguard etfs pretty much while they were at their peak before the markets went down in 2015.
oh well, dollar cost averaging & time are on my side, hopefully for you as well!

Great job with saving for your kids!
Thanks.

I'm not concerned about the losses at this point. The markets are volatile and I'm 100% in ETFs that hold stocks. This is par the course.
 
#45 · (Edited)
May 2016 update

Commentary
May was the third best month for the RESP, and saw the account not only turn positive for 2016, but also returned the overall asset gains back to positive since December 2015.

Monthly results
The portfolio this month: up 3.97% or $270.35

Complete RESP results
The portfolio since inception (April 2015): up 0.92% or $64.69
If I count the Canada Education Savings Grant [CESG] funds as an investment gain, the portfolio is: up 16.14% or $984.69.

The annualized (money-weighted) investment rate of return is 1.29%

The annual cost of the portfolio (i.e, the combined, embedded ETF management fee) is 0.22%, or $15.76

You can log in to view the attachment below.

View attachment 10401
 
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