ABC Stocks asked me to post about my RESP strategy. As mentioned in my post on “Having a Newborn – Getting down to business“, I plan on opening a TD e-funds account (non aff) and buying cheap index based mutual funds.

Why TD e-funds?

What I really like about the TD e-funds setup is that they only offer low management expense ratio (MER) index funds. This is great for the investor who likes to “do it yourself”. Why not buy ETF’s instead? As I plan on putting small amounts at time, index mutual funds are cheaper than purchasing ETF’s via commission. In addition, the TD e-fund MER’s are so low that they are comparable to the MER’s on ishare ETF’s.

The Strategy

We’re going to implement a global couch potato based strategy where the RESP money will be split between 4 index funds and rebalanced on an annual basis. The 4 index funds will consist of:

  1. Canadian Equity
  2. US Equity
  3. International Equity
  4. Canadian Bonds

As for the actual percentages of each stock, that will change as time goes on to reduce risk and volatility. Lets assume that the RESP Plan will start withdrawing on year 18:

Index 0-10yrs 10-14yrs 14-17yrs 18yrs +
Canadian Equity 30% 20% 10% 0%
US Equity 30% 20% 10% 0%
International Equity 30% 20% 10% 0%
Canadian Bonds 10% 40% 35% 0%
GIC’s 0% 0% 35+% 75%
Money Market Fund 0% 0% 0% 25%
  • As you can see, from years 0-10 (Growth), the equity portion of the portfolio will be aggressive to hopefully maximize equity gains over the 10 years.
  • Moving into years 10-14 (Balanced), the portfolio takes a more balanced approach between equities/bonds to reduce risk without sacrificing too much in returns.
  • In years 14-17(Capital Preservation) is nearing withdrawal time, which means that capital preservation are among the top priorities. To do this, most of the portfolio will be in bonds/GIC’s. The equity and bond allocation will slowly be reduced to 0 over the three years while adding to the GIC allocation.
  • Years 18+ are the withdrawal years which means that capital preservation is the top priority which will be achieved via investing in a GIC ladder. This will allow money to be available every year that the child is in school. The annual lump sum will most likely be kept in a money market fund until the money is needed.

There is some planning to do with regards to the timing of the GIC ladder, but this is the general strategy. How does my plan look? Do you have any suggestions?

If you want to do some more reading on the TD e-funds, Canadian Capitalist also has a ton of information on them.

73 Comments

  1. Jordan on April 22, 2009 at 2:56 am

    I just noticed my link to the CRA website is now broken. Unfortunately the government makes no effort to create permalinks or redirect previous pages.

    Just to save someone else the hassle, the new “2008” version of the page which includes the clause of interest attribution for the CCTB/UCCB payments to minors, it is now at:

    http://www.cra-arc.gc.ca/E/pub/tg/5000-g/5000-g-02-08e.html#P532_55436

  2. laydeejai on November 7, 2010 at 12:21 pm

    My Question is this …..

    With so much invested into Equity up untill age 14 …. how do you recoup losses if the market crashes, or is effected by any situation in the world? EG: Haitti – Hurricaine. When the market goes down, so does my fund, if my fund is effected by the stock market it effect my CESG … I was told if I lose the CESG in the Market and my child doesnt go to school, I now have to pay that Grant back to government….

    Also the MER fees… how come nobody mentions this? ON AVERAGE we Canadians are paying a minimum of 2.49% in fees that are compounding on our total investments … so at the end … thats upwards to like $16,000+ that I will NEVER SEE AGAIN!!! Not to mention if the market crashes here and there during the first 14yrs … and we all know historically it happens on averege every 7yrs..

    So, I have a newborn … I want to invest $2500, its 2010 the market crashed both in 2008 and 2009 so when my son is aproximately 5yrs old the market should crash … then again at 12yrs … so how will I recoup those losses with only 5-6yrs left before he will need the money?

    I was looking into a group plan… Heritage Education and they have a fee like all group companies, however I get that back when my son goes to school and its a FRACTION of what I would be paying with a bank/trust comp with the MERs

    Can you offer advise?

    • FrugalTrader on November 7, 2010 at 1:57 pm

      laydeejai, you really can’t control what happens to the markets, which is the reason why the portfolio shifts from equities to fixed income nearing the withdrawal date. With regards to MERs, the TD e-series that is mentioned has the lowest mers around for index mutual funds. On the range of 0.50%.

  3. Peter on November 27, 2010 at 5:10 pm

    What are the names of the funds that you have the above strategy invested in? For example, under global equity, I see that there are a couple of e-series funds available, how do I know which to choose to follow the couch potato approach?

  4. FrugalTrader on November 27, 2010 at 10:24 pm

    Peter, can you list the exact names you see under the e-series?

  5. Peter on November 29, 2010 at 12:10 pm

    These are the line items I see under each category. There seems to be so many I’m not sure which to purchase to follow the couch potato. Thanks for the help!

    Fixed Income:
    TD CDN Bond Index

    Canadian Equity:
    TD CDN Index

    US Equity:
    TD DJIA Index
    TD Nasdaq Index
    TD US Index
    TD US Index Currency Neutral

    Global Equity:
    TD European Index
    TD Int’l Index
    TD Int’l Index Currency Neutral
    TD Japanese Index

    TD Mgd Idx Portfolios:
    TD MGD IDX AGG GR
    TD MGD IDX BAL GR
    TD MGD IDX INC
    TD MGD IDX I&M GR
    TD MGD IDX MAX GR

  6. FrugalTrader on November 29, 2010 at 12:15 pm

    @Peter, e-series funds have an “e” after the fund name, such as:

    TD CDN Index-e**
    TD US Index-e**
    TD CDN Bond Index-e**
    TD Int’l Index-e**

    That’s what I use for my “couch potato” like portfolio.

  7. Peter on November 29, 2010 at 12:27 pm

    These below all had the “-e” after the name…I just didn’t know what to choose to follow the couch potato

    Fixed Income:
    TD CDN Bond Index

    Canadian Equity:
    TD CDN Index

    US Equity:
    TD DJIA Index
    TD Nasdaq Index
    TD US Index
    TD US Index Currency Neutral

    Global Equity:
    TD European Index
    TD Int’l Index
    TD Int’l Index Currency Neutral
    TD Japanese Index

    TD Mgd Idx Portfolios:
    TD MGD IDX AGG GR
    TD MGD IDX BAL GR
    TD MGD IDX INC
    TD MGD IDX I&M GR
    TD MGD IDX MAX GR

  8. Peter on January 6, 2011 at 1:12 pm

    Hi All,
    Can anyone offer advice on the easiest way to rebalance the portfolio when the fund values change and skew your percentage distribution between funds? I was thinking of doing an auto purchase every month to get a 40/20/20/20 split between the funds but what’s the best way to rebalance also factoring in the extra cash from the grant? Do you rebalance yearly and buy just to top up or do you transfer from one over valued fund to a lower valued one? Any tips on how to make this as painless and automatic as possible using easyweb would be appreciated. Thanks!

  9. FrugalTrader on January 6, 2011 at 1:25 pm

    @Peter, CanadianCapitalist created a spreadsheet to help with the rebalancing. I also only rebalance with new funds.

    http://www.canadiancapitalist.com/sleepy-portfolio-rebalancing-spreadsheet/

  10. Peter on January 7, 2011 at 4:08 pm

    @FrugalTrader: thanks for the info. Once the funds are in the “TD CDN Money Mkt” would you do a ‘switch’ to the TD e-series funds when you rebalance? Does it make sense to rebalance more than once a year?

  11. jodi on January 10, 2011 at 1:28 pm

    I’ve recently been contacted by Heritage Education Funds about opening an account with them. To start off I should let you all know that we are a low income family with only one parent working, we have 2 children ages 6 born 2004 and our daughter born 2009. I would like to take advantage of the CLB and basically anything else the government is going to contribute, but at this time we don’t have the finances to contribute.
    what would you suggest for us to do?

  12. Baalat on January 16, 2011 at 12:48 pm

    @Peter @FrugalTrader: I have the same question. According to TD e-series rules the minimum ammount to buy each time is $100. So if you contribute $2500 per year (to maximize grants) and have 4 e-funds to distribute it would be $625 per fund, or a maximum of 6 transactions per fund ($104.17 each) per year. What I have not found is a way to make it automatically with e-funds (will we have to do it manually, each 2 months?)

  13. FrugalTrader on January 16, 2011 at 12:53 pm

    @jodi, once you open an account with one of those RESP scholarship companies, you are obligated to make the payments. Personally, if you don’t have the cash to contribute, then don’t. Perhaps you can take cash gifts etc to put towards their education.

    @Balaat, I do everything manually as well. All cash goes directly into a money market fund initially, then I rebalance as I see fit with the new cash.

  14. Steph on March 2, 2011 at 6:09 pm

    @Baalat, the minimum is only $25 per transaction if you set up a pre-authorized purchase plan (PPP). I set up a monthly PPP based on my desired allocation and then plan to use birthday (July) and Christmas money to rebalance (manually).

  15. Will on April 11, 2011 at 2:06 pm

    @Steph how can one contribute only $25 when each fund costs roughly $10 and the couch potato method uses 4 funds? 25 divided by 4 would not allow for the purchase of a single share of any e-series fund…

  16. Del Anderson on January 29, 2013 at 11:19 pm

    I have been a TD/Canada Trust customer since the early 1980’s, both personal and business. I recently opened a RESP for my Grandson and was blindsided when I was told that I needed TWO RESP accounts – one for the self-administered individual mutual fund and one for a term GIC. The policy is that all grants other than the CESG must go into the Term GIC account and remain in that account until he withdraws the funds or the account is collapsed!
    In this case, the GIC account would start with $1,100.00, gain $100 per year (CLB) and another $300 (A-CESG) over the next 14 years – not insignificant to me.

    Unless you want your RESP, and Government Grants to be invested in a Term GIC, beware of TD Canada Trust’s RESP !

    If you want your RESP invested in mutual funds, if you want to receive Government Grants that are available (beyond the CESG), and, do not want a RESP account plus a Term GIC account (yes, two accounts!), look at either Royal Bank of Canada, Scotia Bank, CIBC or Bank of Montreal and not TD Canada Trust!

    TD Canada Trust’s policy dictates that if you wish to receive Government Grants such as the a-CESG, the Canadian Learning Bond, Quebec Education Savings Incentive, or the Alberta Centennial Education Savings Grant, they will only process the applications if the funds from these Grants are placed into a Term GIC. And, these funds cannot ever be rolled into your mutual fund RESP or transferred.

    You have no choice in this !

    With TD Canada Trust, if you wish your TD Canada Trust RESP be invested in Mutual Funds, and, you also wish to receive Government Grants beyond the CESG, you must have two RESP accounts (imagine the headaches for you the subscriber, and also the problems when the beneficiary begins his or her post-secondary education) with this. You have no choice with TD Canada Trust.

    Royal Bank of Canada, Scotia Bank, CIBC or Bank of Montreal do not have such a restrictive policy.

  17. David on May 1, 2014 at 12:43 pm

    After reading many posts surrounding RESP portfolio strategies, I decided to share with you the strategy I build for my 9 month old. Here it is:

    33% CDZ.TO
    18% CEW.TO
    12% VGG.TO
    9% XEF.TO
    8% ZLU.TO
    8% ZSP.TO
    5% XCB.TO
    4% XEC.TO
    3% HFR.TO

  18. retireby45 on July 15, 2019 at 2:43 pm

    Which funds I can follow which has these distributions for RESP? I am trying to open one for my daughter but my doesnt seem to have a fund which does this kind of distribution.
    Any funds which you guys can recommend here?

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