pp or solid bond fund for education savings plan for kids

[christina]

I am just starting an education savings plan for my kids, age 4 and 6, so my time horizon is a little over 10 years.
I have under $1k saved. I was wondering whether you would suggest PP at this stage, given the lack of money and the medium time horizon. I worry about transaction fees, which are $20 per transaction.

Is there something better for low-amounts of money? I am in Canada, by the way.

[KevinW]

In general I think it's reasonable to hold portfolios less than a few thousand dollars in a 100% cash account.  Once it reaches $4,000 or so, a 4x25 PP built out of ETFs at a discount brokerage, becomes reasonably economical.

The PRPFX mutual fund is another option with a low minimum investment.

[craigr]

EDIT: My response missed the fact you were in Canada. See CA PP's answer and be aware of currency risk being too heavy in USD.

[KevinW]

Stocks - Vanguard Total Stock Market - VTSMX
Bonds - Vanguard Long Term Treasury - VUSTX (or better - buy bonds for free now at Vanguard if you have enough to do so and hold directly)
Cash - Vanguard Short Term Treasury - VFISX
Gold - Buy bullion directly and store securely in a safe deposit box.

I like this implementation, but each Vanguard fund has a $3,000 minimum, so it's only viable for portfolios $12,000 or larger.

[craigr]

EDIT: My response missed the fact you were in Canada. See CA PP's answer and be aware of currency risk being too heavy in USD.

[KevinW]

If you did purchases four times a year that would be 16 trades a year. It would take you over six years at that rate to exhaust your free trades. By then you'd have a nice nest egg going and ongoing transactions are still cheap.

Yeah, and by then you could probably phase out the ETFs.  At that point you probably qualify for Admiral cash and stock accounts, which have no commission and slightly less counterparty risk, and individual bonds work fine.

IMO the life stages of a PP are:

< $3000: just hold cash

< $40,000: ETFs in a brokerage account where most trades will be free.  The TD Ameritrade deal described above is probably cheapest right now, but Vanguard, Schwab, Fidelity, and probably others, come close.

beyond: Vanguard Admiral stock and mutual funds (or Fidelity Advantage, or similar); individual Treasury bonds

(The boundary dollar figures are ballpark estimates and are negotiable.)

[Shadow]

Hi Christina,

for simplicity you could look at ING's Streetwise Balanced Funds at http://www.ingdirect.ca/pdfs/en/EN_FFS_ ... v_2011.pdf cheap and it's an index fund capturing market returns and allowing you some growth above inflation rather than their HISA. Mer of 1.07% seems pretty reasonable and a low cost option IMO for an RESP. You could stay with it for 10 years and then just transfer it into a savings acct. to preserve capital until they are ready for school. This is done simply and all on-line. Simple, safe, low cost and diversified. Good luck from Alliston, ON!

[AdamA]

PRPFX is a great way to do this.

I use it for my son, and I think it helps kind of earmark the money (keeping it separate from the DIY PP).

[CA PP]

Hi Christina,

Being in Canada be aware of currency risk.  I would be cautious of over weighting USD, as some seem to advocate on this thread.

You migth be interested to consider a CA PP:

25% XIC
25% Canada bond maturing 01 DEC 2045 3.5% (ISIN: CA135087ZS68)
25% Short term bond 1-3 years ladder
25% Gold (IGT/Physical)

Total expense ratio: some 0.1%

[craigr]

Hi Christina,

I am sorry but I have been scatter brained working on a bunch of stuff and did not register you being in Canada. CA PP's advice is spot on about currency risk and the kind of investments you should look into. Sorry for the wrong response.