Reader Alex left the following comment on how to get started with a RESP for his soon-to-arrive baby:
Do you have any RESP accounts that you recommend? Most I’ve seen charge an administration fee, and I’d like to avoid that.
I have set up a RESP for my boys with TD eFunds, which doesn’t charge an administration fee and offers some of the lowest-cost index mutual funds in Canada. There is a bit of a process involved in setting up the account initially but once it is taken care of, you can contribute every year with the click of a button. Three-to-four weeks after the contribution is made the Canada Education Savings Grant (CESG) is automatically deposited into the account.
I park the initial contribution and the CESG in a money market fund, which I then liquidate and buy four funds according to my asset allocation target (TD Canadian Bond Index eFund: 20%, TD Canadian Index eFund: 20%, TD US Index eFund: 35%, TD International Index eFund: 25%). The portfolio is rebalanced roughly once a year when new contributions are made. This simple portfolio has performed reasonably well gaining about 4.3% over the past nine months.
There are other options available for RESPs that are not very attractive in my opinion. Group RESP plans like the Canadian Scholarship Trust are inflexible, expensive (the heavy promotions to new parents comes out of the pockets of existing plan members) and are invested in low-growth fixed income assets. I also avoided a self-directed RESP because they typically charge an annual administration fee if a minimum balance is not maintained.
Related Post – RESP: Getting Started
