Fixed Income in RESP

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hamor
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Fixed Income in RESP

Post by hamor »

Hi all,

My son is 13 and I planned to gradually change his RESP asset allocation to 100% FI approx one year before he goes to Uni. I can't come up with anything better than 5 year GIC ladder, but the rates are so bad (low)...
Any other ideas? The account is in TD if it matters.
"Speculation is an effort, probably unsuccessfully, to turn a little money into a lot. Investment is an effort, which should be successful, to prevent a lot of money from becoming a little." Fred Schwed " Where are the Customers’ Yachts?"
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SoninlawofGus
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Re: Fixed Income in RESP

Post by SoninlawofGus »

On the S&P 500 (not accounting for exchange rate issues), rolling 5 year returns are positive around 88% of the time. It also has been argued (Bernstein, for example), that portfolio risk actually decreases with at least a small equity allocation (10-20%). I don't recall the math on that one.

My daughter is 14. Our current RESP equity allocation is 20%. We're 60% GICs, 13% RRBs, and 5% cash. I don't intend to change that mix.

Keep in mind that what matters is real return. You can still roll a five-year GIC ladder and pretty much track inflation.
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AltaRed
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Re: Fixed Income in RESP

Post by AltaRed »

You could always risk having the funds in a balanced fund like MAW104 if you are willing to risk a down year or two in capital during withdrawal. Otherwise, it seems to me that if capital preservation is a key goal for the withdrawal years, GICs are the best returns going OR....

If you are willing to take some credit risk to BBB or similar, many of the REITs issue subordinated (unsecured) debentures (usually in the form of ~5 year money) at rates in the 3+% range. You could generate a ladder of these best that you can from your broker's inventory. I've had pretty good luck with Scotia's inventory that I use somewhat in my RRSP to supplement corporate bonds and GICs. The key is to stick with quality REITs that are more fiscally sound with low leverage (relatively) and low payout (relatively).
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SoninlawofGus
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Re: Fixed Income in RESP

Post by SoninlawofGus »

AltaRed wrote: 07 Apr 2017 11:44 If you are willing to take some credit risk to BBB or similar, many of the REITs issue subordinated (unsecured) debentures (usually in the form of ~5 year money) at rates in the 3+% range.
Or even a stable preferred such as the PVS split share series paying over 4%.
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Re: Fixed Income in RESP

Post by Thegipper »

I have a RESP which will be used in 3 years. I am leaning towards parking the funds in a Vanguard Short Term Corporate Etf. At this stage preserving capital is important and figure it will a 2.5% annual return over the next three years.
hamor
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Re: Fixed Income in RESP

Post by hamor »

Vanguard Short Term Corporate Etf
you mean bonds?

Thanks all.

I don't think I will desperately look for 1-2% here or there... it's inconsequential really in this case, the most important part is the preservation of capital indeed, thank you for reminding me that.
"Speculation is an effort, probably unsuccessfully, to turn a little money into a lot. Investment is an effort, which should be successful, to prevent a lot of money from becoming a little." Fred Schwed " Where are the Customers’ Yachts?"
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Re: Fixed Income in RESP

Post by Peculiar_Investor »

I've posted this elsewhere, as it applies when you have near term (i.e within a couple of years) need for the funds. The following quote, often misattributed to Will Rogers, is well worth remembering
I am not so much concerned with the return on capital as I am with the return of capital.
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Quebec
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Re: Fixed Income in RESP

Post by Quebec »

hamor wrote: 07 Apr 2017 11:19 I planned to gradually change his RESP asset allocation to 100% FI approx one year before he goes to Uni.
I plan to sell the remaining stocks (which will be 25% of RESP portfolio at that stage) 2-3 years before RESP funds are needed, not one year. Can't be too conservative with a RESP in my opinion.

GIC ladder sounds fine, but be sure to choose the maturities so that money becomes available exactly when needed.
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hamor
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Re: Fixed Income in RESP

Post by hamor »

I plan to sell the remaining stocks (which will be 25% of RESP portfolio at that stage) 2-3 years before RESP funds are needed, not one year
My reasoning for one year before uni it'll be 5 years until his last undegrad year at that point, which sounds reasonable timeframe for me to switch the last 20-25% to FI.
"Speculation is an effort, probably unsuccessfully, to turn a little money into a lot. Investment is an effort, which should be successful, to prevent a lot of money from becoming a little." Fred Schwed " Where are the Customers’ Yachts?"
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