A self-directed RESP is one where you do all the work. In other words, you’re the one clicking “buy” and “sell” on your stocks and bonds within your RESP account.
But unlike a selfie, where you simply click a button, self-directed RESPs require serious know-how and financial savvy. In this article, we lay out the pros and cons of self-directed RESPs to help you figure out if this option is right for you.
Let’s begin with why people choose self-directed RESPs
People choose self-directed RESPs because they like having the control of deciding exactly what they’re going to invest in, whether that be stocks, bonds, mutual funds, exchange-traded funds (ETFs), GICs, or a combination of any of these products. And they also may choose to select which specific regions they invest in (for example, the Canadian stock market versus the US stock market), or how much they invest in various sectors (financials, energy, real estate, and so on.)
Another big reason people choose a self-directed RESP is that they don’t have to pay a fee to an individual or company to manage their assets.
However, self-directed RESPs still come with fees. Every time you make a trade in a self-directed portfolio, you may have to pay. Plus, many people who have self-directed RESPs buy exchange-traded funds or mutual funds, which each have a management expense ratio (MER). This MER fee can range anywhere from .2% to 2%, depending on the fund.
The downsides of a self-directed RESP
Successfully managing a self-directed RESP often involves having a solid understanding of the investments in your portfolio, including the potential risks associated with each of the individual securities held. You’ll need to determine what’s an appropriate investment mix for you. This can include the decision in terms of how much to allocate to stocks versus bonds, and gets potentially more complex from there if you’re deciding between domestic versus foreign, or Toyota versus G.M., etc. It will be up to you to determine if you’re properly diversified. You’ll also need to be able to track the performance of your investments and adjust your portfolio accordingly. This effort is important; if you make the wrong investment, you could lose thousands.
And there’s more: You may want to consider rebalancing your plan based on your child’s age and your time horizon. After all, as junior gets closer to browsing through college brochures, you’ll want to make sure that money is available when he enrolls in post-secondary education. That’s why, as an RESP matures, you may wish to consider gradually moving assets out of riskier investments, such as stocks, and into less volatile investments, such as government bonds. And you may need to do this rebalancing earlier than you think—we see firsthand how quickly toddlers go from throwing Cheerios all over the place to rolling their eyes at everything their parents say.
Many simply aren’t up to the challenge of managing a self-directed RESP
In short, investing in a self-directed RESP requires not only financial savviness, but also the time and effort involved in frequently checking one’s account, researching various investments’ performance, buying investments, rebalancing, and so on. And let’s face it, time is a rare commodity when you’re raising kids or babysitting grandkids. You’ve already promised your spouse that this is the year you’ll clean up the garage, remember?
If you don’t have the time or experience to invest your money for education savings, you might want to pass on a self-directed RESP and instead go for the peace of mind that comes with an expertly managed RESP from CST Spark.
The CST Spark advantage for the busy education saver
AT CST Spark, we’re a company that knows RESPs inside and out. Backed by 60 years of RESP experience and with all this expertise, we know what we’re doing when it comes to education savings. And we know just how many hopes and dreams are riding on RESP investment money, which is why we invest with one goal in mind: that we can help you can pay for education.
We’re one of the only RESP providers that not only invests money on your behalf, but also provides automatic age-based rebalancing hinged on when the money would likely be needed. This means investing for higher growth early on, and protecting your investments as your loved one gets closer to heading off to post-secondary school. After all, that money is important—for tuition, books, rent, late-night study pizza, the list goes on.
Another benefit of an RESP managed by CST Spark is that we keep our management fees low, at 1.5% + tax. We’re able to do so because we invest in low-fee exchange traded funds. Finally, we make sure you apply for government grant money and help you maximize your grants, because who doesn’t want extra money? If you have any questions at all, we’re always here to help .
Good luck, and happy taking-a-nice-long-and-relaxing-bath-every-night-while-we-manage-your-RESP-for-you.
Bright Plan is only sold by Prospectus. CST Spark is the distributor and Investment Fund Manager of Bright Plan.
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