thesidds

I want to start putting something aside for our 2 sons future education. I'm thinking of signing up with Knowledge First Financial RESP . . . does anyone have anything good or bad to say about them. Or maybe recommend an alternative

iaink

Pay off the mortgage instead... guaranteed return on the money you put into it

My RRSPs have done virtually nothing over the last 5 years or so, and frankly I dont see that changing any time soon. Im starting to think the only people that win from Mutual Funds are the people selling them.

MarkG

You only just noticed?

My RRSP has lost money and they took a percentage as a fee for having lost it; they're the only ones guaranteed to make money from pension funds.

iaink

The only benefit at present is the 30-40% you get back on what you put in at tax time, but thats tempered by the fact that when you withdraw from those retirement funds down the line you pay the tax on that as income then.

Stuff it in something ultra conservative and any growth will barely cover fees and inflation, but at least it should still mostly be there in a couple of years time to do something more aggressive with when and if the market ever recovers Its that hope for compound growth that sucks you in, and the hope that they have some clue how to move funds around to shield it from the worst of the economic storm.

MarkG

And over the years in between you've paid 20-30% in fees...

cheeky_monkey

i closed my private UK pension back in 2006 for the above reasons...i would actually have earnt more money by stuffing it under the mattress..it was worth far less than what i had paid in over the previous 15 years...due to fees and front end costs.

iaink

When you sit down and look at the effect of management expenses its an eye opener.

If your fund grew at 5% over 20 years (I wish), but 2% of that went into expenses, the difference between 5% growth and 3% growth after 20 years amounts to 93% of the total you first invested! Someone tell me my numbers are wrong, please (5% gives 278% of the initial amount, 3% gives 186%)

Still, watcha gonna do?... I dont know enough about the market to do it myself, I have no idea about bond markets etc, you cant get a tax writeoff that way anyway, so Im open to alternatives that might actually lead to some long term growth but have some security too.

JonboyE

Many mutual funds charge 3% pa fees.

My calculation assuming you put $1,200 in a mutual fund on December 31 each year for 25 years, market growth is an average 5%, MER 3% and no bid-offer spread:

Investment $30,000.
Return $36,633
Fees charged $13,630

That is an annual compound investment return of about 1.5%. You are better off in GICs.

On average, in the 20th Century the TSX (inc its predecessors) grew at an average of 3% above inflation. Take off 3% MER and you are left with inflation. I don't recall ever investing in a fund that made the market (here or in the UK), never mind beating it. So, I have been paying someone to lose my money for me.

Nevertheless, it is probably sensible to have some part of your portfolio invested in mutual funds. I suggest a market tracker fund of some sort as it should at least keep up with the market and the MERs are usually lower.

Hawk13

Buy silver or gold coins for your kids - they'll be worth way more than any investment.

jimmydean

The OPs question was about RESPs and don't you get a 20% top up via the Education Savings Grant on the first $2500 invested per child each year? Surely this would offset against the management charges?

Siouxie

http://www.cra-arc.gc.ca/tx/ndvdls/t.../menu-eng.html

Personally, I prefer the TFSA's. http://www.cra-arc.gc.ca/tx/ndvdls/t.../menu-eng.html

justkidding

You are correct. This is a significant return on investment these days.

London Mike

To answer the OP's question, on RESPs (not RRSPs), there's a definite reason to this. Ignore the stuff about mutual funds, just set up a super conservative fund for this one and take the 20% contribution from the government of what you put down. It's free money. Do it, for your kids.

(and if they don't go on to HE you can put your own contribution into RRSPs later anyway).

Good luck.

iaink

There is an argument that you shouldnt go anywhere near contributing to RESPs until you have maxed out you RRSP headroom.

Kids can get loans for college. Adults dont have that benefit when they retire.

20% tax free on top of RESP contributions up to a max of ??? vs 40% tax back on RRSPs... Not much in it.

Hawk13

That's the advice we got back when the kids were young and agree Not much in it. Were also told to use the money to make lump sum down payments on your mortgage so that you'll be better of financially to help your kids thru school.

+1 on the Kids can get loans for college and then they learn some responsibility when going to college or uni - you can always help them pay it off.

Assuming your kids are young, you have at least 15 years to make the investment work for you whether it's RESPs, RRSPs or payments on your mortgage. The way things are going in the world today, I believe there are all a waste of investment capital.

Wish I would have simply bought some gold when my kids were 2 and 3 years old.