Investing

Questions on RESP investing

  • Last Updated:
  • Dec 9th, 2019 3:46 pm
[OP]
Member
Dec 1, 2012
245 posts
28 upvotes
Calgary

Questions on RESP investing

Hey guys, I currently have my son's RESP invested in TD e-series funds using the assertive CCP approach (25% each), and was looking at the statements to see what the return was. Balance currently is $16k, he's currently only 4yrs old so he has 14yrs to go, but one more crucial piece is that we're expecting a second one due in June 2020, so we will likely be starting his RESP as well.

Image
https://imgur.com/a/hXybMyC if the pic doesn't load

CCP says the 3 year is 4.90% and it's currently exceeding that so I'm guessing this is acceptable?
I was also talking to some RBC folks for a new RRSP plan our company is starting and discussed this investment with them, according to them their "Select Aggressive Growth" outperforms my current portfolio even though the MERs are higher at 2.14%
https://www.rbcgam.com/en/ca/products/m ... 592/detail looking there, the 3yr returns are at 7.5% (and the advisor claimed this was net after the MERs were taken off).

I was thinking or 3 approaches at this point, I am not experienced in this matter but I could use advise please:

1 - Change the allocations to match Aggressive CCP approach (90% equities/10% bonds vs the 25% each atm)
2 - Move the funds to RBC, yes the MERs are higher, but so are the returns and these are actively managed so they would automatically re-balance them, he also advised that they could bundle the following funds into one portfolio, I would just need to meet an advisor every year to rebalance stuff:

rbc cdn divident
rbc qube low
rbc us index
rbc int index
rbc bond fund

3 - Move towards doing ETFs at like Questrade, I see RBC also has a robo advisor service (Invest Ease)
14 replies
Deal Addict
Mar 10, 2010
1410 posts
385 upvotes
I've been trying to figure out where those return numbers were coming from and I think I've got it. By comparing their current YTD returns the fund looks like it's doing awesome (remember that CDN and US equities are up ~25% together). If you calculate the CCP returns as of the same date I think you'll find the 3-yr returns have gone WAY up. Check this thread for a good apples-to-apples comparison. There's very little chance that a fund with a 2.14% MER is consistently beating the same couch potato portfolio.
Sr. Member
Oct 21, 2016
863 posts
634 upvotes
mlallany wrote: Hey guys, I currently have my son's RESP invested in TD e-series funds using the assertive CCP approach (25% each), and was looking at the statements to see what the return was. Balance currently is $16k, he's currently only 4yrs old so he has 14yrs to go, but one more crucial piece is that we're expecting a second one due in June 2020, so we will likely be starting his RESP as well.

Image
https://imgur.com/a/hXybMyC if the pic doesn't load

CCP says the 3 year is 4.90% and it's currently exceeding that so I'm guessing this is acceptable?
I was also talking to some RBC folks for a new RRSP plan our company is starting and discussed this investment with them, according to them their "Select Aggressive Growth" outperforms my current portfolio even though the MERs are higher at 2.14%
https://www.rbcgam.com/en/ca/products/m ... 592/detail looking there, the 3yr returns are at 7.5% (and the advisor claimed this was net after the MERs were taken off).

I was thinking or 3 approaches at this point, I am not experienced in this matter but I could use advise please:

1 - Change the allocations to match Aggressive CCP approach (90% equities/10% bonds vs the 25% each atm)
2 - Move the funds to RBC, yes the MERs are higher, but so are the returns and these are actively managed so they would automatically re-balance them, he also advised that they could bundle the following funds into one portfolio, I would just need to meet an advisor every year to rebalance stuff:

rbc cdn divident
rbc qube low
rbc us index
rbc int index
rbc bond fund

3 - Move towards doing ETFs at like Questrade, I see RBC also has a robo advisor service (Invest Ease)
Clacker wrote: I've been trying to figure out where those return numbers were coming from and I think I've got it. By comparing their current YTD returns the fund looks like it's doing awesome (remember that CDN and US equities are up ~25% together). If you calculate the CCP returns as of the same date I think you'll find the 3-yr returns have gone WAY up. Check this thread for a good apples-to-apples comparison. There's very little chance that a fund with a 2.14% MER is consistently beating the same couch potato portfolio.
My RESP 50 percent AMZN 50 percent GOOG the couch potato was getting me nowhere great other then the govt grant. With the above stocks since and growth has been better. Sticking with this until kids are uni age atleast a decade .
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May 11, 2014
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First things first, when comparing portfolios you need to compare the same time periods and equivalent investments as @Clacker has alluded to.

So part of the problem with using Canadian Couch Potato info sheets is they do not regularily update these so it is difficult to quickly compare the funds to banks and investment fund pages who generally update monthly and in some cases daily on their websites.

Let's first take an equivalent comparison. The best way I find is to use the calendar year returns as a basis. So first, let's look at the RBC Select Aggressive Growth Portfolio Series A fund as recommended. As for comparison, I am going to look at December 31, 2018 and the calendar year returns.
http://funds.rbcgam.com/pdf/fund-facts/ ... f592_e.pdf
2009 16.6%
2010 7.5%
2011 -8.2%
2012 10.1%
2013 24.5%
2014 11.5%
2015 8.1%
2016 5.8%
201713.0%
2018 -5.6%

As of December 31, 2018 annualized returns are
1 Year -5.6%
3 Year 4.1%
5 Year 6.3%
7 Year 9.3%
10 Year 7.9%

When Calulating your current TD e-Series, it is a bit more difficult as we need to do math!
https://www.tdassetmanagement.com/Fund- ... DB900E.pdf
https://www.tdassetmanagement.com/Fund- ... DB902E.pdf
https://www.tdassetmanagement.com/Fund- ... DB909E.pdf


--------------TD e-Series Canada-------TD e-Series US--------TD e-Series Int.----------TD e-Series Bond
2009 ----------- 34.6% ---------------------- 25.7%------------------- 9.5%---------------------- 4.6%
2010-------------17.2% --------------------- 14.3%-------------------- 1.7%--------------------- 6.4%
2011----------- -8.9%--------------------- 1.6%--------------------- -10.0%-------------------- 9.1%
2012------------- 6.9%-------------------- 15.2%-------------------- 15.5%------------------- 3.1%
2013------------- 12.6%------------------- 31.5%------------------- 29.6%------------------ -1.6%
2014------------- 10.2%-------------------- 12.9%------------------ 2.5%-------------------- 8.3%
2015------------ -8.5%--------------------- 0.7%----------------- 18.9%------------------- 3.1%
2016----------- 20.6%---------------------- 11.2%----------------- -2.7%-------------------- 1.1%
2017----------- 8.7%---------------------- 21.0%------------------- 16.6%------------------- 2.0%
2018------------ -9.1%---------------------- -5.0%------------------ -6.5%------------------ 0.9%

Dec 31, 2018
1 Year ---------- -9.1%---------------------- -5.0%------------------ -6.5%------------------ 0.9%
3 Year ---------- 6.0%---------------------- 8.5%----------------- 2.0%------------------- 1.3%
5 Year ---------- 3.7% --------------------- 7.8%------------------ 5.3%------------------- 3.0%
7 Year ---------- 5.4% -------------------- 11.9% ----------------- 9.9%------------------- 2.4%
10 Year--------- 7.5% --------------------- 12.4%------------------ 6.8%------------------ 3.6%

So to calculate your portfolio, I weight each of the funds as per your portfolio, in this case 25% each to get

1 Year -4.9%
3 Year 4.5%
5 Year 5.0%
7 Year 7.4%
10 Year 7.6%

Notice how the returns are a bit lower than RBC? The biggest problem in comparing these though is that they are actually not equivalent portfolios. The RBC fund contains 100% equity, while your current Couch Potato portfolio is 75% equity and 25% bonds. The thing is to be a true comparison, you compare similar risk portfolios. So instead of this, let's make our own portfolio that is similar. Looking on the RBC fund page, you will see it is approximately 32.2% Canadian, 29.3% US and 38.1% International. For simplicity sakes, let's just say 33.3% or 1/3 of each TD fund and exclude bonds. Even though Couch Potato doesn't have this portfolio (HINT: You don't have to follow Model portfolios exactly point on point), you could do this to see if it is equivalent to the RBC fund. Now watch what happens when I calculate this...

1 Year -7.0%
3 Year 5.5%
5 Year 5.6%
7 Year 9.1%
10 Year 8.9%

See how now the returns are now similar? There are spots where this isn't exactly the same and that is to be expected. So RBC doesn't quite beat the TD funds, it's more a wash if anything.

But here are a few things I would note...

Going more aggressive may be warranted, but you have to remember that your children grow up quicker than your retirement comes. When your child is ready for school, they generally don't wait to go to school because your investments do poorly compared to someone retiring possibly extending their retirement by a year to increase pension or save up more. You should be careful not to go too aggressive or not to forget to tone down the risk as they get closer to school.

If you are planning to move to RBC because of returns, I probably wouldn't bother because it isn't worth the hassle. Rather the point is your would need to adjust your funds accordingly.

Going to Questrade is great in that you can get greater freedom in choosing different ETF investments which can come with greater choice and further savings in fees. However, this does mean you need to make your own purchases. It isn't that difficult honestly and with practice, buying your own ETFs is easy once you get the hang of it. But again this might be too much for you. If you are interested, I did highlight a possible portfolio mix you are more than welcome to emulate
rbc-target-education-mutual-fund-questi ... 1939895/2/

I would not recommend a roboadvisor like RBC Investease in your case. The thing is roboadvisors are quite expensive especially if you are already used to making your own purchases with TD e-Series. You are paying a surcharge worth more than the MER fees you pay on e-Series already and that isn't even considering the MER on the ETFs they are buying for you. For index funds, they should more or less be fairly equivalent if following the same index minus the difference in fees (comparing active funds is harder). So in your case, I would advise against a roboadvisor unless you find your own discipline or sticking to a set plan is difficult for you. Remember, ETFs are cheap as long as you can buy them yourself for free. They aren't a panacea. If there are any transaction costs (ie. TD Direct investing charging $9.99 to buy them or paying a roboadvisor to buy them), those savings can be easily wiped away and you may come out no further ahead or in some cases behind.

So rather I think the most important question is how you want to set your portfolio. A 75% equity and 25% bond is fairly growth orientated. Remember, Couch Potato portfolios are not rules; they are guidelines. You could do an in-between such as 80% equity, and 20% bonds (splitting may warp some of the numbers). The point is it doesn't have to be exact. Transferring to another institution should only be done on the premise if it is very worthwhile. Based on the numbers I calculated, I don't think so. The only consideration I would recommend is going Questrade and doing ETFs, but I would only do so if you don't get hit with annual fees with Questrade and you are OK doing your own ETF purchases. If not, TD e-Series is fairly competitive as is and the only remaining question is whether to adjust your portfolio accordingly. I cannot unfortunately answer that because it will really depend on your risk tolerance and goals.
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Deal Addict
Mar 10, 2010
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385 upvotes
Thank you xgbsSS for posting that, I didn't have time to write out a true comparison but it showed pretty much what I was expecting. OP the advice from xgbsSS is bang on, you are unlikely to do better with either the roboadvisors or the RBC select funds since both will cost you much more in MER to duplicate the same returns you have in your current CCP portfolio. If you feel you need to chase more returns then change your allocation, but keep in mind that things will swing more wildly in a pure equities portfolio so what are big gains this year can just as easily be big losses next year (though markets do typically increase).
[OP]
Member
Dec 1, 2012
245 posts
28 upvotes
Calgary
Yes thanks a lot @xgbsSS he definitely nailed it. I could look at changing allocations in e-series to dial up the risk a little but, say go 90% equities 10% bonds, he's 4yrs now, turns 5yrs in Sept, so I could go 10% bonds until he hits 10yrs old and then start dialing down the risk.
Also I'm guessing this is the post you're referring to @xgbsSS rbc-target-education-mutual-fund-questi ... #p31667213

In terms of purchasing ETFs is it a fairly simple process? I guess I can google that myself.
A few follow up questions please:
Can you do regular contributions every month like TD e-series?
Say I start with your 2 ETF approach in Questrade, starting at Age 4 vs dialing up the risk in my current portfolio to 90% equities 10% bonds, do you think I can play a bit of catchup by doing ETFs for not having a higher risk ratio before?
^ And will the lower MERs at QT really benefit when compared to e-series? I think it's like 0.20% vs 0.55% or something, sorry that's just off the top of my head

I have no issues moving to QT, if there are no annual fees considering I am coming with $16k and they would waive the transfer fee, I can check with them for sure. Or wait let's try @Questrade please confirm!

Solid advise there, I am happy I contacted you and I really did get some sound advise. Really appreciate @xgbsSS and @Clacker
Deal Addict
Mar 10, 2010
1410 posts
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Purchasing ETF's is quite straightforward, although you would only want to do it monthly if you had commission free purchase trades, if you have to pay for trades is completely not switching over to to ETF's if you're looking for monthly contributions. Off the top of my head I believe you'd be looking at reducing the MER from ~0.44 to ~0.18, but you'll need to check CCP or elsewhere for exact values. Also keep in mind that you're unlikely to see major cost savings since the values you're looking at are so small ($25 000 * 0.44% = $110 vs. $25 000 * 0.18% = $45).

Otherwise sounds like you're on the right track for your kids!
Deal Addict
Oct 4, 2009
2644 posts
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Montreal
Why is a change necessary? What’s wrong with your current asset allocation?

Passive low cost investing works great, so long as you let it and don’t screw it up. Just sit/stand/lie there.
[OP]
Member
Dec 1, 2012
245 posts
28 upvotes
Calgary
S5 wrote: Why is a change necessary? What’s wrong with your current asset allocation?

Passive low cost investing works great, so long as you let it and don’t screw it up. Just sit/stand/lie there.
That's why I was investing in index funds and rebalancing every year. I'm just looking for slightly more returns than what I got, and I do understand my asset allocation is not the highest but I was also curious into comparing with what RBC offered.

@Clacker and @xgbsSS so the RBC advisor was in our office talking a few people and called me as I was leaving the office, caught be off guard. I explained my research and your advise (anonymously offcourse), he basically compared the index fund allocation I currently hold to a custom portfolio on Morningstar's tool, the portfolio consisted of what I listed above rbc cdn dividend, rbc QUBE Low Volatility Canadian Equity, rbc us/int index and rbc bond fund), his argument was that while index funds are great for low fee and have been performing well, there are some markets that active funds can't be beat, mentioned that the rbc bond fund beats out the e-series index fund regardless of the MERs and the other two funds, the canadian dividend and qube fund are both active and also have done well.

He then compared the two portfolios over a 10yr period and these were the results:

Name 10yr 5yr 3yr 1yr
RBC 8.55 7.14 8.14 13.29
TD 8.46 7.49 8.30 13.05

His claim was even with higher MERs, the NET returns post all fees the RBC portfolio comes ahead and over time (if we talk about RRSPs), the 9 basis points or so over a 30 year period the difference can be approximately 10-20%. That was just comparing a 75% 25% equity bond mix, he strongly believes a similarly put together 90% equity 10% bond portfolio would outperform the index as well because of the active funds. He lastly claimed that the active funds are actually managed by experience people and every year you'd sit down with a proper financial advisor to rebalance stuff.

Is this an accurate statement, I mean this time he actually pulled up both reports in front of me (unfortunately I don't have the reports), and stated that that included date of Nov 2019, I even wrote down the numbers on paper from the PDFs he generated (the numbers are from there).
Deal Addict
Mar 10, 2010
1410 posts
385 upvotes
Remember the "advisor" is a salesperson and only gets paid if he sells you something.

If you want to see how much he actually believes his portfolio will beat your current one, then have him sign a legal document requiring him to pay you any difference in performance between your current portfolio and the one he is proposing for the next 10 years. You will quickly see his entire demeanor change and there is zero chance he'll sign something like that as he knows he will likely be paying you.

It's a fun exercise I've done before and it quickly stops the BS sales tactics.
[OP]
Member
Dec 1, 2012
245 posts
28 upvotes
Calgary
Clacker wrote: Remember the "advisor" is a salesperson and only gets paid if he sells you something.

If you want to see how much he actually believes his portfolio will beat your current one, then have him sign a legal document requiring him to pay you any difference in performance between your current portfolio and the one he is proposing for the next 10 years. You will quickly see his entire demeanor change and there is zero chance he'll sign something like that as he knows he will likely be paying you.

It's a fun exercise I've done before and it quickly stops the BS sales tactics.
Thanks and that's true, but if you look at the returns I posted, that was from Morningstar, the rbc fund outperformed my current portfolio by about 2% approximately having the same amount of stocks and fixed income allocation. According to the same report, the 3yr return was over 8% for the a-series funds, and mine didn't even reach there. Maybe I didn't rebalance on time or so, unsure, but it definitely underperformed looking at actual data.

I'm going to ask him out on signing but I will also see if he can compare the veqt and xbb etf allocation with his portfolio.
Deal Addict
Mar 10, 2010
1410 posts
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I'm not sure where you're getting that you under-performed by 2%.

Here's the total return numbers I pulled from morningstar just now, I only did 1 and 3yr, you can do the rest if you want
1yr 3yr
TD Intl - e 14.18 8.90
TD CDN - e 17.15 6.85
TD US - e 17.43 13.92
RBC Sel A 14.00 8.46

If we apply the same weighting as in the RBC fund the weighted average is about (I didn't account for the 3% cash the RBC fund holds): 1yr - 16.1% 3 yr - 10.0%

This is a comparison if you held the same weightings as the RBC fund, not what your portfolio actually is.

So you can see the RBC select portfolio under-performed the index funds by about the 2.14% MER they charge. (Edited to add the RBC performance from the same day I pulled the TD numbers)
Last edited by Clacker on Dec 9th, 2019 7:22 am, edited 1 time in total.
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Oct 14, 2001
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GMA
I'd go with an "All-in-One" portfolio approach using the Ishares offering (XCNS, XBAL, XGRO ...) which can be automated using Ishares pre-authorized purchase plan
[OP]
Member
Dec 1, 2012
245 posts
28 upvotes
Calgary
Thanh wrote: I'd go with an "All-in-One" portfolio approach using the Ishares offering (XCNS, XBAL, XGRO ...) which can be automated using Ishares pre-authorized purchase plan
Thank you for posting this as I had that in mind and after researching over the weekend, I'm 90% sure I'll be moving the RESP to Questrade with XGRO and PACC since Blackrock offers that, pity that Vanguard doesn't
RBC guy has tried winning me over and almost did by showing me actual data and returns. It was funny last I met with him, one of our colleagues here actually invests in XGRO and he decided to call it out and call BS on investing in XGRO, he compared the Aggressive Growth Series A fund to XGRO and yes it has better results, but as much as passion he had, he overlooked that XGRO is a 80% stock 20% fixed income split, the RBC fund is a stock heavy fund at 96% equities and 4% bonds, so yes it may perform better but I can get similar returns with XGRO with less volatility.

He said that when we were trying to compare a 80/20% e-series index fund portfolio to the Select Growth Portfolio which is a 70/30% split, you can get more returns with less volatility. Plus with XGRO I don't even need to worry about rebalancing as that is done automatically by adding more funds.

Thanks @Clacker @xgbsSS and now @Thanh for helping me not get tricked and do the right thing!
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Jun 27, 2007
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Toronto
Hi mlallany,

We can confirm that we are rebating up to $150 in transfer fees per account for any account you transfer to Questrade. If you send us a private message with your email address, we can have a member of our new accounts team contact you directly and assist with any question you might have about the transfer process.

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