Natasha Macmillan, Business Unit Director - Everyday Banking
There are various investment options for RESP funds. How you choose to invest the money in your RESP depends on the level of risk you are willing to take on, your investment goals, as well as the time horizon of your savings goal.
Here’s an overview of some popular choices of RESP investment options:
- Stocks: Stocks represent shares of a company, granting ownership in the corporation. For instance, owning Apple stock means being a partial owner of the company. Stocks are traded on exchanges such as the Toronto Stock Exchange, New York Stock Exchange, or NASDAQ. You can purchase stocks through a discount brokerage.
- Bonds: Bonds are debt instruments issued by companies or governments (federal, provincial, or municipal). By owning a bond, you become a creditor and receive regular interest payments. Unlike stocks, bonds are not traded on exchanges and are instead exchanged between investors. Bonds can also be purchased through a discount brokerage.
- Mutual funds: Mutual funds pool money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other assets. They offer a variety of funds, including equity (stocks), fixed-income (bonds), balanced (mixture of stocks and bonds), specialty (focused on specific sectors of the economy), and index funds (tracking specific stock indexes). Mutual funds are professionally managed, relieving you of individual investment decisions, but they involve management expense ratios (MERs) covering costs like portfolio management, marketing, legal, and administrative fees. The MER is usually between 1-3% annually, and there may be additional fees (up to 6%) for buying or selling funds.
- Exchange-traded funds (ETFs): ETFs combine features of mutual funds and stocks. Similar to mutual funds, ETFs consist of stocks or bonds, but they trade on stock exchanges like individual stocks Unlike mutual funds, ETFs can be bought or sold throughout the trading day. ETFs are known for their lower costs, with MERs ranging from 0.05% to 0.75%, often leaning towards the low end of the range. Although there may be costs for buying or selling ETFs through a discount brokerage, some brokers may waive these charges.
- GICs: GICs (Guaranteed Investment Certificates) are bond-like investments offered by most financial institutions. They provide a guaranteed interest rate over a specific period, from 30 days to 10 years. There are two types of GICs, redeemable and non-redeemable. Redeemable GICs have lower interest rates and can be cashed in at any time, while non-redeemable GICs offer higher interest rates but can only be redeemed at the end of the term.
When considering investment options for your RESP, it is important to assess your risk tolerance, investment goals, and time horizon to make an informed decision that aligns with your financial goals.