Smart Investment Strategies for RESPs
When you begin investing early on in Registered Retirement Savings Plan (RRSP), advisors are quick to recommend to take higher risks early on, because the logic is that even though you have higher exposure trying to get a bigger return, if things go south, you’ll have plenty of time for the markets to recover and make up any losses. Then the advice that goes along with that is that the older you get, the more conservative you should be in your investments for retirement, because the closer you get to retirement the sooner you will need the funds and shouldn’t rely on exposure to equites but instead focus more on fixed income.
What about when it comes to RESPs?
Shorter time horizons with RESPs result in different investing strategies. With an RRSP you might be investing for 50 or more years. With an RESP, that timeline is much shorter, typically only around 15 years.
So with a much shorter timeline, an RESP investment strategy should much more conservative than that of an RRSP.
Why More Conservative?
There is no need to be greedy and take unnecessary risks due to the Canada Education Savings Grant which gives you 20% return right off the start. It is limited to only the first $2500 invested into an RESP per year, but that is still plenty of a good return. Now if you are guaranteed a 20% return, why would you reinvest it into a risky stock? Sure you might get even a greater return, or like it happened during the tech bubble burst or the housing market burst, you might lose the 20% government grant and even much more? If you are guaranteed 20%, is there really a need to risk your money for a slightly bigger return?
While the money in the RESP technically belongs to the subscribers whom are usually the parents, guardians or grandparents of the child, the money is invested with the intent of using by their kids for their education. So in reality the subscribers are really only managing the money the kids money. Therefore, they should feel some fiscal responsibility when managing someone else’s money. This is especially true once the child begins to withdrawal the money. A typical post-secondary education is anywhere from 1 to 5 years and the RESP should be used up in that duration. So unlike in an RRSP, you will have a very high withdrawal rates. What this means is that a market downturn would have a devastating effect on the value of the RESP simply due to the fact that you will not have enough time for the markets to recover. So the high withdrawal rates are yet another reason to be more conservative with your RESP investments.
Leave it to the Professionals – GLOBAL RESP
Best advice is to leave the investing to professionals with a proven track record. One of the leading companies in Canada when it comes to RESPs is Global RESP Corporation part of the Global Financial Group of Companies.
Global RESP is the primary distributor of the Global Educational Trust Plan (GETP), offered by Prospectus through registered Dealing Representatives across Canada. As of April 30, 2014 the Global Educational Trust Plan (GETP) has over $1 billion in pledged deposits and over $540 million in assets under administration. Global RESP (GRESP) is also one of the few companies in Canada able to administer all provincial and federal grants available to client.
The Global Educational Trust Plan (GETP) is an individual scholarship plan that allows families to save for their child’s post-secondary education. Global RESP Corporation (GRESP) understands that when investing in a child’s future, there is no need to take unnecessary risks. This is why the pooled funds of Global Educational Trust Plan are prudently invested by professional investment managers primarily in provincial and federal government bonds, treasury bills, GICs, financial institution bonds and other capital protected investment vehicles to ensure steady and consistent growth.
With over 117,000 children successfully enrolled and more than 30,000 requests for post-secondary education funding for students attending post-secondary institutions in 37 countries worldwide, the GETP has provided over $181 million in education funding. To date, the Global Educational Trust Foundation (GETF) has refunded 100% of sales charges (enrollment fees) to eligible beneficiaries paid by subscribers since inception, albeit the refund is discretionary and not guaranteed.
With offices across Canada Global RESP Corporation and its Dealing Representatives represent decades of RESP experience helping parents, grandparents and family members build financial stability of their children’s educational future.