In this lesson
The RESP is the account, not the investment
Opening an RESP gives you an account. Depending on the provider, you can hold cash savings, GICs, mutual funds, ETFs, stocks or bonds inside it, or a ready-made portfolio. The grants and tax rules are the same whatever you hold; what changes is growth, risk and cost.
Some holdings are protected and some aren't. CDIC protects eligible deposits, such as GICs and high-interest savings, held in an RESP at a member institution. Stocks, bonds and mutual funds aren't covered, and their value can fall.
In a group plan, the dealer invests for the whole group, and your child shares in the pooled earnings of families with children the same age.
Fees, risk and time horizon
Funds charge a management expense ratio (MER): a yearly cost, as a percentage of the money invested, taken from the fund's returns. On a $10,000 balance, a 1.5% MER costs about $150 a year and a 0.25% MER about $25. Over many years, the difference adds up.
Time horizon is how long until the money is needed. With a newborn, the first withdrawal may be 18 years away, so short-term ups and downs matter less. With a 15-year-old, a fall in the market could leave less for the first year of school, with little time to recover.
Many families start with more growth investments and move toward safer ones, such as GICs or savings, as school gets closer. Some providers offer age-based portfolios that make this shift automatically.
Managed, self-directed and in between
Each approach needs different questions:
- Managed (advisor or robo-advisor): someone picks and rebalances the investments for a fee. Ask what the total yearly cost is, including fund fees.
- Self-directed (online brokerage): you choose and trade investments yourself, usually at a lower cost but with more responsibility. Ask about trading and account fees.
- GICs and savings: predictable and protected by CDIC when eligible, but with lower expected growth. Ask about rates and what happens at maturity.
- Mutual funds and ETFs: diversified baskets of investments. Compare their MERs and how much they can fall.
- For any provider, the federal brochure suggests asking: what investment products do you offer, can I switch later, and which is the most secure?
Worked example
Parents of a 2-year-old choose a low-fee balanced portfolio and set a reminder for their child's 13th birthday to start moving part of the balance into GICs, so the first year of school is covered before it starts. This illustrates the approach; it isn't a recommendation.
Check what you learned
Pick an answer to see if you're right.
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Show answer
Answer: An account that can hold different investments. The RESP is the account. The investments inside it are a separate choice.
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Show answer
Answer: $150. 1.5% of $10,000 is $150 a year, taken from the fund's returns.
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Show answer
Answer: An eligible GIC at a member institution. CDIC protects eligible deposits such as GICs and savings. Stocks, bonds and mutual funds aren't covered.
Your turn
Write a one-sentence investment rule for the RESP: who chooses investments, how much risk is acceptable, and when the risk should be revisited.
- Note who will choose the investments: you, an advisor or a robo-advisor.
- Write down the fees: the account fee and each fund's MER.
- Decide how much of a fall you could accept in the year before school.
- Set the dates when you'll review the mix as school gets closer.