Investing

Couch Potato RESP

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  • Feb 18th, 2016 6:50 pm
Deal Addict
Nov 26, 2011
2184 posts
252 upvotes
Ottawa

Couch Potato RESP

So I started an RESP for my 2 kids back at the end of 2013. I am with Scotia Bank originally went with the Scotia Canadian Dividend Fund for over a year and made good returns. I read up on the Canadian Couch Potato strategy and it kind of made sense so I sold all my funds and bought the Canadian, US and International Index. I am investing 100% in equities as the kids are 3 and 1.5 years old and therefore have a lot of time. Can someone help me on what percentage I should keep the balance at. As of now looking at current value of my RESP it looks like this;
Canadian Index Fund 33.7%
US Index Fund 47.0%
International Index 19.4%

I am about to put some money into the account and just want to know what percentage should I try to keep it at. Also is it better doing lump sum payments or monthly? Should I be selling the funds so that it turns to cash and then re-invest or just keep it at the same while adding new money. Currently I have lost money when comparing Avg Cost/Share to Current Cost/Share.
15 replies
Deal Addict
User avatar
Oct 9, 2005
1155 posts
419 upvotes
Toronto
General couch potato tactical asset allocation advice is an evenly-distributed target for CA/US/Int'l equities, so 33% each. If the new monies can do a ~10%+ swing in the ratios, I'd just add it all into Int'l (and some into CA if it's a lot of new monies), so that you keep transactions (and thus costs) to a minimum.

References:
http://canadiancouchpotato.com/2013/05/ ... ging-work/
http://canadiancouchpotato.com/2011/02/ ... rebalance/
Intricated
Sr. Member
Dec 26, 2013
543 posts
181 upvotes
Ottawa
Same here, 3 kids, oldest 6, putting in since 2013. I do CCP aggressive mix like you but with 10% bonds. Monthly PAP going into each fund with the grants going into the money market fund. This is what i use to rebalance. By lost money you mean, your market value is lower than your book value, I am almost at that point too, lots of time left.
Deal Addict
Oct 11, 2010
1013 posts
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Charlottetown
I do 60% VXC and 40% VCN in my daughters RESP, no bond.
Deal Addict
User avatar
Oct 14, 2001
1754 posts
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GMA
jfall wrote: I do 60% VXC and 40% VCN in my daughters RESP, no bond.
I do 5% canadian bonds using HBB, 15% canadian equities using HXT and 80% global equities using XAW.
Deal Addict
Nov 26, 2011
2184 posts
252 upvotes
Ottawa
masoud100 wrote: So I started an RESP for my 2 kids back at the end of 2013. I am with Scotia Bank originally went with the Scotia Canadian Dividend Fund for over a year and made good returns. I read up on the Canadian Couch Potato strategy and it kind of made sense so I sold all my funds and bought the Canadian, US and International Index. I am investing 100% in equities as the kids are 3 and 1.5 years old and therefore have a lot of time. Can someone help me on what percentage I should keep the balance at. As of now looking at current value of my RESP it looks like this;
Canadian Index Fund 33.7%
US Index Fund 47.0%
International Index 19.4%

I am about to put some money into the account and just want to know what percentage should I try to keep it at. Also is it better doing lump sum payments or monthly? Should I be selling the funds so that it turns to cash and then re-invest or just keep it at the same while adding new money. Currently I have lost money when comparing Avg Cost/Share to Current Cost/Share.
So say I decide to do 35% Canadian, 35% US and 30% International. Currently the unit price is cheaper than the book price. So if I sell anything I would technically be losing money. I want to put in at least $2500 extra money this year. If I do that, it would require me to sell around $350 of my US stock which is currently losing money compared to the average price I have bought the stock for. What should I do? Should I invest that $350 in Canadian and International or what?
Sr. Member
Jan 16, 2010
566 posts
123 upvotes
masoud100 wrote: So say I decide to do 35% Canadian, 35% US and 30% International. Currently the unit price is cheaper than the book price. So if I sell anything I would technically be losing money. I want to put in at least $2500 extra money this year. If I do that, it would require me to sell around $350 of my US stock which is currently losing money compared to the average price I have bought the stock for. What should I do? Should I invest that $350 in Canadian and International or what?
Rebalancing by cash flow is a common method (i.e. buy underweight areas when contributing new funds). Whether you need to sell to rebalance also depends on how off your allocation is. Some folks use the 5% rule, and only rebalance if the asset allocations is off by +/- 5% of the target. Given you said you would need to sell about $350, I'm guessing the allocation isn't off by much and it wouldn't be worth re-balancing, as you'll have to deal with transaction costs when selling.
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User avatar
Oct 9, 2005
1155 posts
419 upvotes
Toronto
masoud100 wrote: So say I decide to do 35% Canadian, 35% US and 30% International. Currently the unit price is cheaper than the book price. So if I sell anything I would technically be losing money. I want to put in at least $2500 extra money this year. If I do that, it would require me to sell around $350 of my US stock which is currently losing money compared to the average price I have bought the stock for. What should I do? Should I invest that $350 in Canadian and International or what?
Consider incorporating an element of threshold rebalancing, which as rasadam points out would mean if being off $350 is less than +/- 5% off an asset's target, it's not worth rebalancing.
Intricated
Deal Addict
Nov 26, 2011
2184 posts
252 upvotes
Ottawa
rasadam wrote: Rebalancing by cash flow is a common method (i.e. buy underweight areas when contributing new funds). Whether you need to sell to rebalance also depends on how off your allocation is. Some folks use the 5% rule, and only rebalance if the asset allocations is off by +/- 5% of the target. Given you said you would need to sell about $350, I'm guessing the allocation isn't off by much and it wouldn't be worth re-balancing, as you'll have to deal with transaction costs when selling.
What do you mean by transaction costs? I am with Scotia Bank and have my RESP invested in the index funds. I thought the only fee was the MER which is pretty low.
Sr. Member
Jan 16, 2010
566 posts
123 upvotes
masoud100 wrote: What do you mean by transaction costs? I am with Scotia Bank and have my RESP invested in the index funds. I thought the only fee was the MER which is pretty low.
You didn't mention the type of funds. If it's an ETF, then your broker may charge trade commissions to sell (whether flat fee or a percentage). Some mutual funds also have fees to sell, so if you needed to sell a portion to re-balance, then you'd have those transaction costs. That's an incentive to use a threshold for re-balancing as Intricated linked, and to also re-balance through cash flows.
Deal Addict
Jul 15, 2009
3647 posts
3043 upvotes
masoud100 wrote: So say I decide to do 35% Canadian, 35% US and 30% International. Currently the unit price is cheaper than the book price. So if I sell anything I would technically be losing money. I want to put in at least $2500 extra money this year. If I do that, it would require me to sell around $350 of my US stock which is currently losing money compared to the average price I have bought the stock for. What should I do? Should I invest that $350 in Canadian and International or what?
Are you sure that your US fund is down? It has been going pretty much straight up for the last five years. It's pretty much impossible for it to be down from what you paid unless you bought most of it in the last four months.
Deal Guru
Feb 4, 2015
10328 posts
6693 upvotes
Canada, Eh!!
masoud100 wrote: MY avg cost is $24.75 and the current price is $23.79. So I think currently my value is lower than book value.
Does that take into account any distributions?
Deal Addict
Nov 26, 2011
2184 posts
252 upvotes
Ottawa
georvu wrote: Does that take into account any distributions?
It includes everything. I have not been doing monthly deposits and last time I deposited any of my own money was late 2014.
Deal Addict
Jul 15, 2009
3647 posts
3043 upvotes
masoud100 wrote: It includes everything. I have not been doing monthly deposits and last time I deposited any of my own money was late 2014.
Scotia US Index fund was never higher than $22 in 2014 and before.

The only time you could ever have bought it for more than $24 was July to August 2015 or October 2015 to January 2016.

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