[Stompie79]

Hi All
I have set up a TD e-fund RESP and am about to start paying into it monthly. I was looking at doing $25 Nasdaq Index $37.50 International Index and $37.50 Canadian Index with the grant from the government going into Canadian bonds. I picked these funds after looking at the previous year’s performance 2003-2008 from the TD website.
I do realise that past performance doesn't predict future performance but I had to start somewhere and these were the four that averaged over 5% each year for that period. Additionally I like the international as I understand it still has some exposure to the US. I don't think the US is going to be the powerhouse it has been but I'm happy to hedge my bets a little.

Anyways my main questions are
1) I have been googling and searching blogs for allocation information and no one seems to select the Nasdaq fund. I must admit I don't know a lot about this market except for it suffering a lot in the dot com bust. Am I missing something that should be warning me away from this index?
2) As inflation appears likely in the future might I be better leaving the government grant in the money market fund rather than bonds. I understand bonds don't do as well in an inflationary environment. I do want it is something low risk as I don't mind "playing" with my money but in my mind the government money is the childs and shouldn't be risked, apart from rebalancing if the whole market tanks again.

Thoughts? Opinions? I may be setting up a TFSA e-fund up (after the emergency fund is full) so I'd like to get as good an understanding of the fund options as possible.

Thanks

 

[DrStan]

You don't specify what the child's age is. How long do you have before postsecondary studies? If we're talking about a baby or young child, the money will have many years to grow inside the RESP. In that case, I think an all-stock portfolio is a good choice in the first few years.

It also depends what your view is on the American market. As a very personal choice, I'm much more bullish on the Canadian and international markets over the next few years. My RESPs (also with e-Series) are therefore split 50/50 between Canadian and International Index funds. You could also do 1/3 each in the Canadian, U.S. and International Index funds (keeping it simple). Also, I don't believe the International Fund has U.S. exposure. It's an EAFE (Europe, Asia, Far East) fund.

The money market fund yields almost nothing (0.12% a year), making it a very bad choice for a long-term investment. I think the Canadian Bond Index fund is a no-brainer if you want some fixed income in there. Bonds may fluctuate in value, but over the longer period inside the RRSP, they will provide much better returns than the money market fund. They should average 4-5% a year.

I'm not sure why you make a distinction between "the government's money" which you want to keep safe and your contributions. Once the grant is in the account, it becomes one complete portfolio. It doesn't matter where the money came from. You're not risking "the government's money". Select an allocation you like between stocks and bonds, and stick with it for your entire portfolio.

 

[CanadianCapitalist]

Hi All
1) I have been googling and searching blogs for allocation information and no one seems to select the Nasdaq fund. I must admit I don't know a lot about this market except for it suffering a lot in the dot com bust. Am I missing something that should be warning me away from this index?
2) As inflation appears likely in the future might I be better leaving the government grant in the money market fund rather than bonds. I understand bonds don't do as well in an inflationary environment. I do want it is something low risk as I don't mind "playing" with my money but in my mind the government money is the childs and shouldn't be risked, apart from rebalancing if the whole market tanks again.

DrStan has answered some questions, so I'll my views to these two.

1. The NASDAQ index is mostly a tech index and is concentrated in one stock market sector. A broad market index such as the S&P500 includes other important sectors. Passive investors do not want to make bets on narrow sectors. That is why you won't find much discussion of the NASDAQ index.

2. Inflation isn't the only expectation today; you'll find many with equally convincing arguments that you can expect deflation. The bond market reflects these two opposing viewpoints and unless you think that the bond market is wrong with good reason, for all you know, bonds could be a great investment here.

 

[Stompie79]

Thanks for the information. It's made a few things clearer.
Our little one is still a baby and the NASDAQ does seem a little specific so I think the idea of 50/50 Canadian and International Index funds is a good one. I'm with DrStan in thinking th US isn't for me for the time being.

I thinking I'll put the government money towards the Canadian Bond Index. I'm of the opinion that whatever keeps you investing is a good thing and having a bit less risk for the government money will do that for me.
In my mind the government money is hers and the money I invest is still mine. If I loose my money that's one thing but to loose someone else's is a harder pill to swallow. Anyway that's the way it is in my mind, we each have our peculiarities.

Thanks again.

 

[DrStan]

Sounds fine, this would work to to about 80 % stocks and 20 % bonds (the government contributions invested in the bond index fund). It seems like a very reasonable way to go. Good luck!