How to Effectively Manage Your RESP for Your Child's Future: A Comprehensive Guide

Opening a Registered Education Savings Plan (RESP) is one of the most effective ways to save for your child's post-secondary education in Canada. But what happens once you open the account? Many parents are faced with a choice: Should you leave the RESP management to the bank, or take control of it yourself by opting for a self-managed strategy?

Here's a breakdown of how to manage your RESP efficiently, including insights from experienced RESP investors on Reddit.

Why Consider a Self-Managed RESP?

When you first open an RESP, banks typically offer portfolio options like the TD Comfort Growth Portfolio - I. However, one of the main concerns with such portfolios is the high management expense ratio (MER). For example, the TD Comfort Growth Portfolio - I has an MER of 2.12%, which many find excessive, especially when compared to low-cost exchange-traded funds (ETFs).

Opting for self-management allows you to avoid high fees while maintaining flexibility in your investment choices. Plus, ETFs typically have MERs much lower than mutual funds—often as low as 0.2%. For parents who value transparency and control over their investments, self-management could be a great option.

Popular ETF Choices for RESP

When considering ETFs for long-term RESP growth, there are several low-cost options to explore:

1. XEQT (iShares Core Equity ETF Portfolio)
   XEQT is a top choice for many RESP investors. It's a global equity ETF with a very low MER of around 0.2%. It provides broad exposure to international markets and is well-suited for long-term growth. Many Reddit users recommend keeping XEQT in your RESP for the first 10 years before gradually shifting to less risky investments.

2. XGRO, XBAL, and XCNS
   These are additional ETFs to consider as your child approaches post-secondary education.

   • XGRO (80% equities, 20% fixed income) is great for those seeking higher growth but with more risk.
   • XBAL (60% equities, 40% fixed income) provides a balanced risk-return profile.
   • XCNS (50% equities, 50% fixed income) focuses on reducing risk while maintaining reasonable returns.
     Many parents suggest shifting to these ETFs as the child nears their late teens, adjusting the portfolio to become more conservative as the RESP funds become closer to being needed.

3. XINC
   Once your child enters post-secondary education, shifting to a more conservative ETF like XINC (which focuses on income-producing investments) is a common recommendation. This transition helps preserve the accumulated wealth while continuing to generate returns.

RESP Grants and Contributions

One important thing to remember is that the Canadian government contributes to RESPs through the Canada Education Savings Grant (CESG). If you manage the RESP yourself, the CESG will still be deposited automatically as long as you’ve provided the necessary information when setting up the account. These grants are usually deposited shortly after the end of each month, so you can expect your grants to arrive soon after you make a contribution.

Risk Management: Balancing Growth and Security

When managing an RESP, the key is to balance risk with growth. Early on, you can afford to take more risk, so opting for ETFs with higher equity exposure (like XEQT) is a good strategy. However, as your child’s educational needs approach, shifting to a more balanced or income-focused portfolio can help protect your savings from volatility.

Some investors on Reddit suggest starting with XEQT for the first 10-12 years, then switching to more conservative ETFs like XBAL or XCNS as the child nears their late teens. This strategy—known as a glide path—gradually reduces the risk in the portfolio as the need for funds becomes more imminent.

Is It Worth Self-Managing Your RESP?

While managing your RESP yourself requires some initial research and effort, the long-term benefits are clear. By selecting low-MER ETFs like XEQT and adjusting your asset allocation as needed, you can significantly reduce fees and maximize your investment returns. Many parents on Reddit recommend this approach, noting that it’s easy to execute, especially with commission-free ETFs offered by many brokers.

Furthermore, by taking control of your RESP, you gain the flexibility to adjust your portfolio at any time, ensuring that your investments align with your financial goals.

Conclusion

A self-managed RESP can be an excellent way to save for your child’s education, offering low fees and better control over your investment choices. Consider starting with a global equity ETF like XEQT and gradually shifting to more balanced ETFs like XBAL or XCNS as your child gets closer to entering post-secondary education. This strategy not only helps manage risk but also optimizes your RESP’s growth potential.

With the CESG automatically deposited and a solid ETF strategy in place, you’ll be well on your way to providing a significant financial cushion for your child’s future education. Whether you’re just starting or already managing your RESP, this approach will help ensure your investments grow effectively and efficiently.