Most people seem to separate RESP (Registered education savings plan in Canada) from their entire portfolio (retirement) because the withdrawal timeline is different (RESP will be likely used earlier than retirement fund). When kids are younger, they tend to invest in more equities and move to fixed income as they get older.
Because a pp's asset mix does not change over time, I was wondering if I could just treat RESP as part of the whole pp and not worry too much about the equal split of 4 assets inside RESP. That means I could be heavy on stocks or bonds in the RESP while my whole portfolio will have a proper asset mix. I'm planning to make a lumpsum of $5000 for this fund every year so it would not be cost effective to split it into 4 different ETFs. If I treat RESP as part of the portfolio, I could just buy the lagging asset in my entire portfolio.
I can see the problem though when my kids are withdrawing funds for college if the fund is minus, we can't harvest tax credits from stock loss. Am I making sense?
If RESP is not enough, I will be withdrawing funds from my other investment portfolio.
What about money for down payment for a house. We cannot afford to buy a house now but want to after 3-5 years. Would you keep that separate from a pp and keep that as cash?
Thanks!
Should a kids education fund be part of the whole portfolio?
Moderator: Global Moderator
Should a kids education fund be part of the whole portfolio?
Last edited by metta2006 on Sun Jan 22, 2012 3:28 am, edited 1 time in total.
Re: Should a kids education fund be part of the whole portfolio?
The rule of thumb is that money "that you can't afford to lose" should be in a safe 4x25.
So, is this education account the only hope of affording college? If so, it should be a complete 4x25 PP unto itself. If, on the other hand, you could still afford tuition even if the education account lost money, e.g. by liquidating taxable investments or paying cash from your wages, then IMO it's OK to lump that account in with others.
The same reasoning applies to a house downpayment. If the time frame is negotiable, then I think it's OK to lump the downpayment funds in with retirement funds. In that case you'd want to keep the funds marked for downpayment in taxable accounts so they can be liquidated. (In the US it's also possible to withdraw from a 401k penalty free for the purpose of purchasing a house, subject to various requirements. I don't know if there's a similar rule in Canada.) If the house purchase is on some kind of strict timeline then I'd create a complete 4x25 PP or PRPFX holding for that purpose.
So, is this education account the only hope of affording college? If so, it should be a complete 4x25 PP unto itself. If, on the other hand, you could still afford tuition even if the education account lost money, e.g. by liquidating taxable investments or paying cash from your wages, then IMO it's OK to lump that account in with others.
The same reasoning applies to a house downpayment. If the time frame is negotiable, then I think it's OK to lump the downpayment funds in with retirement funds. In that case you'd want to keep the funds marked for downpayment in taxable accounts so they can be liquidated. (In the US it's also possible to withdraw from a 401k penalty free for the purpose of purchasing a house, subject to various requirements. I don't know if there's a similar rule in Canada.) If the house purchase is on some kind of strict timeline then I'd create a complete 4x25 PP or PRPFX holding for that purpose.