Registered Education Savings Plans (RESPs) are an effective way to save for a child’s college or university costs while taking advantage of government grants that boost savings. With RESP grants available each year, it’s important to plan contributions so you capture the full benefit.
One date to mark on your calendar is Dec. 31. That is the deadline for contributions that count toward maximizing annual government RESP grants. The Canada Education Savings Grant (CESG) matches 20% of eligible RESP contributions, up to $500 each year. To receive the full $500 CESG, you must contribute at least $2,500 to the RESP by Dec. 31. The lifetime CESG maximum per beneficiary is $7,200, and catch-up contributions can generally be made only one year at a time. For families with only a few years before a child begins post-secondary study, meeting the annual deadline becomes especially important.
With the year-end deadline in mind, now is a good time to review your RESP strategy and plan contributions. Below are practical considerations about investment choices and how to structure RESP holdings to seek growth while managing risk.
What investments can you put into an RESP?
An RESP is more than a cash account. Because inflation can erode the purchasing power of cash over time, many savers look beyond cash to investments that offer growth potential. The Canada Revenue Agency (CRA) allows a variety of “qualified investments” inside an RESP. The appropriate mix depends on your financial situation, the time horizon until funds are needed, and your risk tolerance. Common RESP investment options include:
- Bonds: Government or corporate bonds generally provide regular interest payments and are typically less volatile than stocks.
- Guaranteed Investment Certificates (GICs): GICs issued by financial institutions offer a guaranteed return over a specified term. They are low risk but usually require holding until maturity to access the principal and interest.
- Stocks: Individual equities can offer higher long-term returns but come with greater volatility. Thorough research and an understanding of the risks are essential before investing in single stocks.
- Mutual funds: Mutual funds pool investments across stocks, bonds, or other assets, providing diversification and professional management in exchange for management fees.
- Exchange-traded funds (ETFs): ETFs trade on stock exchanges like individual stocks and can provide broad diversification, often with lower fees than many mutual funds. ETFs are available in passive and increasingly in active formats.
Investing in ETFs for an RESP
ETFs have become a popular choice for RESP investors because they combine diversification, professional management, and trading flexibility. Key advantages include:
- Diversification: Many ETFs hold a wide range of securities across sectors, asset classes and regions, which can reduce the risk tied to any single holding.
- Professional oversight: ETF managers select and rebalance underlying holdings, often tracking a benchmark index to simplify portfolio management.
- Ease of access: ETFs are traded on exchanges and can be bought through online brokers and financial advisors.
- Flexible allocation: A broad selection of ETFs lets investors build portfolios aligned with varying risk tolerances and timelines.
Investing for the future with Fidelity All-in-One ETFs
Choosing ETF(s) for an RESP depends mainly on how soon the funds will be needed and how much market volatility you can tolerate. All-in-one ETFs are designed to simplify asset allocation by combining multiple asset classes in a single fund, which can be helpful for busy savers who want a tailored risk profile without managing many individual holdings.
One example is the Fidelity All-in-One suite, which offers funds with different asset allocations and risk classifications. As of Oct. 31, 2023, the target allocations and risk classifications for these funds were:
| Fidelity All-in-One ETFs | Conservative | Balanced | Growth | Equity |
|---|---|---|---|---|
| Risk classification | Low to medium | Low to medium | Medium | Medium |
| Ticker | FCNS | FBAL | FGRO | FEQT |
| Global equity | 40% | 59% | 82% | 97% |
| Global fixed income | 59% | 39% | 15% | 0% |
| Cryptocurrencies | 1% | 2% | 3% | 3% |
These all-in-one funds aim to combine global equities and bonds into a single allocation, and some include a small exposure to cryptocurrency (between 1% and 3% depending on the fund). All-in-one ETFs can offer the benefits of professional management and built-in diversification, with each fund tailored to different risk profiles.
Planning ahead: Making the most of your RESP investments
Missing the Dec. 31 deadline for annual contributions means passing up government grant dollars and the compounded growth those grants can generate. An effective RESP strategy considers both the timing of contributions and the type of investments held inside the account.
For many families, the goal is to make contributions work as hard as possible while managing downside risk as the time to use the funds approaches. For longer time horizons, a higher equity allocation may offer greater growth potential. For shorter timelines, a more conservative mix with greater fixed-income exposure may help preserve capital. All-in-one ETFs are an option for those who prefer an easy, professionally managed approach to alignment with a chosen risk level.
Further reading on investing
- How many ETFs can Canadian investors own?
- What’s the average monthly retirement income in Canada?
- What investments can I put in my TFSA?
- Your FHSA timeline: What to invest in and when
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Important information and disclosures
Commissions, trailing commissions, management fees, brokerage fees and expenses may be associated with investments in ETFs. Investors should read the ETF prospectus, which contains detailed investment information, before investing. Past performance is not a guarantee of future results; ETF values change frequently and investors may experience gains or losses.
The management fees directly payable by Fidelity All-in-One ETFs are nil. These funds invest in underlying Fidelity ETFs that charge management and/or administration fees. Based on the weightings of underlying ETFs, estimated effective indirect fees are approximately 0.35% for the Conservative ETF, 0.36% for the Balanced ETF, 0.38% for the Growth ETF and 0.39% for the Equity ETF. Actual indirect fees may differ due to performance of underlying ETFs, rebalancing activity or strategic allocation changes. Effective indirect fees are reflected in the management expense ratio and posted semi-annually.
Each All-in-One portfolio includes a small allocation to a Bitcoin-related ETF, typically between 1% and 3%. Portfolios will be rebalanced if deviations from the neutral mix exceed thresholds, though rebalancing may occur shortly after a threshold is crossed rather than immediately.
Risk levels are determined using standardized methodologies based on historical volatility measures, such as ten-year annualized standard deviation. Standard deviation measures the variability of returns and does not predict future volatility. This information is provided for educational purposes and does not constitute investment, tax or legal advice. Investors should evaluate strategies against their own objectives and tolerance for risk.
Information is believed to be reliable but cannot be guaranteed as accurate or complete at all times. Fidelity Investments Canada ULC and related entities are not liable for any errors, omissions or losses arising from the use of this information.
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