How to Allocate Your Family RESP as Kids Approach Graduation: Key Insights and Strategies

If you’re managing a Family RESP (Registered Education Savings Plan) for your children, you may find it challenging to navigate the best investment strategies as they approach graduation. With three children at different stages of life—ages 15, 13, and 9—how should you adjust your RESP portfolio to ensure optimal growth while minimizing risk?

In this guide, we’ll cover the main points discussed by Reddit users who are grappling with similar situations. From asset allocation to risk management, here’s how you can plan for your family’s RESP needs.

Key Considerations for Family RESP Allocation

1. Investment Strategy by Child’s Age: RESP owners often begin with more aggressive investments when their children are younger, but as they near graduation, it's essential to reduce risk to protect the savings. This ensures the RESP will be available when your child needs it for tuition and other educational expenses.

   • For Younger Children (e.g., 9 years old): You can afford to take a more aggressive approach with a higher proportion of equities (stocks) as there’s still a long time before they need the funds.
   • For Older Children (e.g., 15 and 13 years old): As they approach graduation, consider moving the funds into more conservative investments to shield them from market volatility. A common recommendation is to shift into balanced funds, which offer a mix of equities and fixed income.

   One advantage of the family RESP is the flexibility to use the funds for whichever child needs them the most. This means you could potentially exhaust the RESP for your oldest child first, which may free up more funds for your younger children.

2. Should You Use a Robo-Advisor or Manage It Yourself? If your RESP is currently in a robo-advisor account and you’re planning to take over the management, you may wonder if doing so is the right move. While robo-advisors offer simplicity and automatic rebalancing, managing the portfolio yourself can give you more control over the asset allocation.

   • DIY Portfolio Management: Consider using individual ETFs like VEQT (for equities) and XEQT (for broader exposure), while keeping funds for fixed income in safer options like CASH or CBIL. The benefit of this approach is that you can decide when to sell equities and when to liquidate safer, fixed-income investments, giving you more flexibility to manage risk as your children near their educational milestones.

   One potential downside of balanced funds like VBAL is that they may not protect you as well during market downturns. If equities experience a significant drop just before your eldest needs to withdraw, you may face larger losses. By managing it yourself, you can adjust the strategy to minimize such risks—liquidating fixed-income investments instead of equities, for instance, can allow your equities to recover over time.

3. Balancing the RESP Among Children: While it’s tempting to split the RESP equally among your children, this approach can be complicated, especially if they are at different stages of their education. If your oldest child is nearing graduation, you may need to allocate a larger portion of the RESP to their needs, leaving your younger children’s portion to grow for a few more years.

   A more dynamic approach is to allocate funds according to each child’s expected timeline for use. For example, your older child’s portion may be allocated to more conservative, income-focused investments, while your younger children’s portions could remain more growth-oriented, with riskier investments.

   Another advantage of a family RESP is that you don’t need to split the funds immediately. This allows the funds for the younger children to continue growing, while you use the older child’s portion first. As long as you keep the balance fair and make adjustments along the way, this can be a more effective strategy.

4. Handling Contributions Over Time: Even if your oldest child is about to enter post-secondary education, you can continue contributing to the RESP for your younger children. The government’s Canada Education Savings Grant (CESG) and other incentives remain available as long as you contribute to the RESP, and this can be beneficial in providing additional growth over the long term.

   Many families continue contributing to the RESP even as one child enters university. This ongoing contribution can provide added flexibility, allowing your younger children to benefit from compound growth for several more years.

5. Risk Tolerance and Flexibility: Your risk tolerance should align with your ability to cover education costs in the event of a market downturn. If you're uncomfortable with the potential for market losses affecting your ability to access the funds when needed, it may be wise to gradually shift your portfolio towards lower-risk investments as your children near graduation.

   It’s essential to assess how much risk you’re willing to take on in the short term, as well as how much you can afford to lose if markets experience a downturn. If your financial situation allows for more flexibility, you may feel more comfortable maintaining a higher proportion of equities for a longer period.

Final Thoughts on RESP Allocation for Families

Managing a Family RESP for multiple children at different stages of their education can feel like a balancing act. However, by adjusting your portfolio based on each child’s educational timeline, you can optimize growth while minimizing the impact of market fluctuations.

Consider the following action steps:

• For your oldest child: Shift towards more conservative investments (e.g., VBAL or fixed income) as they approach university.
• For younger children: Keep the investments more aggressive (e.g., VEQT) to maximize growth.
• Consider managing the RESP yourself to have more control over when to sell equities versus fixed-income investments.
• Continue contributing to the RESP for younger children even if your oldest is about to graduate.

By being proactive and tailoring your approach to each child's needs, you can create an RESP strategy that maximizes your family’s educational savings potential while minimizing the risks associated with market volatility.