Selfies. Self-portraits. Self-directed RESPs. They all have one thing in common—they’re driven by you. Unlike a managed Registered Education Savings Plan, where the provider manages the investment in equities and bonds for you, with a self-directed RESP, you’re the big boss in charge of it all. But with great power comes great responsibility. To decide if you’re up for the challenge, keep reading.
How do people with self-directed RESPs invest?
Those with self-directed RESPs invest their money however they want: in stocks, bonds, mutual funds, exchange-traded funds (ETFs), GICs, or a combination of any of these products.
In short, they choose exactly where and how they want to invest their money. If they’re adventurous, they might decide to invest their money directly in individual stocks. But if they’re the type of person who won’t eat a rare steak because it’s too risky, they’ll want to invest in safer options, such as bonds or GICs.
Why select to self direct your RESP
One benefit of going with a self-directed RESP is that you can access various investment products often at a lower fee, such as index funds and ETFs (a fund that tracks a market, sector or index). But, know that you’ll still have to pay some fees such as account fees, trading fees and/or a management expense ratio (MER) or any combination of these fees. These can certainly add up. Keep in mind that what you might save in fees, you will pay for in your time—the time it takes to buy those investments, to keep an eye on them, rebalance your plan based on your child’s age and your time horizon— you get the picture. Having your RESP managed by investment professionals like CST Spark can add more free time to your days.
The next big plus is that you’re in control (heck yeah!), and you can do what you want with the investment. Yes, self-directed RESPs are perfect for those who don’t like being told what to do. You invest based on your comfort level on your own. While some managed RESPs require subscribers to make regular contributions, with self-directed RESPs, you can make lump sum or routine contributions as you choose. You can also decide what kinds of markets you want to invest in, which sectors and the ratio of stocks or bonds you want to buy.
Are you financially savvy enough to manage an RESP?
When you hear the term financial portfolio, do you think, “that’s something best left to the experts,” or do you suddenly remember that you haven’t checked on your investments today? Your level of financial savviness might just be the most important thing to consider when choosing between a self-directed or a managed RESP. Investing in a self-directed RESP involves a solid understanding of an investment portfolio, and the potential risks associated with various stocks and bonds. If this isn’t you, you should turn to CST Spark to manage your RESP for you, worry-free.
You’ll also want to consider this
There’s work involved with investments, and let’s face it, you’ve already promised your spouse that this is the year you’ll clean up the garage. Having a self-directed RESP means you’ll want to rebalance your investments as your beneficiary grows, perhaps once a year or every couple of years based on your risk tolerance. When the child in your life is a toddler, you can safely invest in more equities and fewer bonds. Even if the stock market crashes, your funds should have many years to recover and grow again. But over the years, you’ll want to consider moving your money away from stocks and over to fixed income investments, such as bonds. That’s because one day, the child in your life will be a teenager, packing away their hoodies and trophies and getting ready to start post-secondary school. (I know, the thought makes us all pretty teary but stay with us here.) Junior is going to need the money pronto, and you wouldn’t want a stock market crash to eat away at those savings you’ve built up over the years.
Self-directed RESPs require work and financial know-how. If you prefer your investments to work more on auto-pilot, and you don’t want to have to remember to “rebalance” your portfolio on your own, 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 company that knows RESPs inside and out and manages your money based on the age of your child.
A race to the starting line
You’ll want to start investing as soon as possible. Trust us, (CST Spark and our affiliates) managed hundreds of thousands of RESPs and we see firsthand how quickly toddlers go from throwing Cheerios all over the place to rolling their eyes at everything their parents say. It’s time to start preparing, but you don’t have to do it alone.
The other key investment principle to remember is that, unlike an RRSP, where you can afford to be more growth-oriented with 30 to 40 years to ride out the market highs and lows, you’ll want to be more conservative with your RESP investment plan. Ensuring that your investments aren’t subject to major risks is critical in the 5 to 10 years before your beneficiary needs the money for post-secondary school.
Finally, whether you want your funds to be managed for you, or if you’re the kind of person who likes to be in the driver’s seat, the important thing is to get that RESP set up as soon as possible so that you qualify for as much government grant money as you can. If you have any questions at all, we’re always here to help (well, Monday to Friday from 9 am to 5 pm ET).
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.