There are many different ways to invest inside a RESP for your child’s education. I favour two investing strategies: couch potato using TD e-series mutual funds for diversification and dividend growth investing. For our family RESP, I am doing a hybrid approach, where I am investing in Canadian dividend paying companies and investing the dividends earned in the TD e-series funds for further diversification. I also plan to invest the grant money into the TD e-series fund.
Related: RESP’s 101
Why TD Direct Investing
I will generally be doing a lump sum contribution every year to the RESP and purchasing a Canadian dividend paying stock. By investing the full amount for two kids at once, I limit the number of trades being made. I chose to setup my kids RESP with TD Direct Investing, mostly because I had to go to the bank to setup bank accounts for both of the kids. While I was doing that, we took the 20 minutes to setup a family RESP account for them. Since the TD e-Series funds have no purchase fee, I am only looking at the one $9.99 trade per year, which on $5000, is only 0.2%. TD Direct Investing also has an annual fee of $100, unless you maintain a household account balance greater than $15000. Since my couch potato RRSP portfolio is with TD and is in excess of the minimum, I do not have to pay this fee. Strategies often change over time (or evolve), so I like that if I decide later, instead of doing a lump sum investment every year, I can setup a pre-authorized purchase plan (PPP) for the TD e-Series funds for as little as $25 a month. If not doing a PPP then the minimum fund purchase is $100.
Questrade As An Alternative
I do prefer Questrade as a trading platform because of the low costs for trading and both the web and mobile trading platforms are quite good. You may be interested to know that I do 99% of my purchasing and selling in my Questrade account from either my Galaxy Tab e tablet or my iPhone! Since Questrade only charges $4.95 per trade, they are typically half the cost of most other brokers, TD Direct Investing included. There is also no fee to purchase ETF’s and that overall makes using Questrade a good option for anyone doing small contributions.
For this portfolio, I will not be taking a global approach to diversification. The money will be split between:
- Canadian dividend paying companies
- TD Dow Jones Industrial Average Index Fund – e
I do not plan to have them equal weighted at this time and I am also not planning on re-balancing the portfolio on a yearly basis. If things are not going the way I want them to over the next few years, I will re-balance but changing how new capital is allocated.
For the first 0-12 years, I am placing an emphasis on growth and that is why you do not see any bonds included in the portfolio strategy. Most people hold bonds to help smooth out the ups and downs of their portfolio’s, but I do not have this concern. I generally only sell stocks when my investment thesis ends up having a flaw or there is a fundamental business change. For years 13-17 I will start to transition the portfolio over from growth to capital preservation by investing in a GIC ladder.
As I have only just created the RESP account this year, as of this writing it contains only one equity: CM. I am still waiting for the grant money to be deposited, at which time I will add the TD DJIA fund.