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Reducing risk in an RESP: How to invest as your kid approaches college or university


Saving for post-secondary education can be a lot like saving for retirement

Often, an RESP subscriber (that’s you, the person who opened the account) can take cues from the advice typically given to people who are saving up for retirement. Factors to consider include:

Let’s look at each of these factors in more detail, and what investments could be a good fit at different stages in your RESP journey.

Time horizon—how long you can contribute to an RESP

The longer you can wait before withdrawing from an RESP, the more risk you may be willing to take on, according to your risk tolerance and budget. Higher risk has the potential for higher reward—think of investments like equities (stocks) and equity exchange-traded funds (ETFs), for example. As your time horizon gets shorter, you can lower risk by shifting into more conservative investments, such as bonds and guaranteed investment certificates (GICs).

RESP risk level and tolerance

Risk is a part of investing, unless you stick with very safe, stable products like bonds, GICs and high-interest savings accounts (HISAs). If you invest in equities and products that hold equities (mutual funds and ETFs), be prepared for the ups and downs of the stock market. Many things can affect the value of an investment portfolio, including factors beyond our control (such as economic or political events, global supply chain issues and interest rate changes). It’s best to stay within your risk tolerance. Your investments shouldn’t keep you up at night.

What’s your budget for school?

The rising costs of living can make it harder for Canadians to save for long-term goals like a child’s post-secondary education. You don’t need a lot of money to start investing, though—that’s a common myth. If you can invest even $50 or $100 a month, this can build up over time, especially if you open an RESP while your child is very young (even before they’re crawling!). Plus, you can start receiving government grants. At Embark, we help all families plan their RESP contributions, including those on a tight budget.

How to manage the money in an RESP

Do you want to buy and sell the investments in your child’s RESP? If you don’t have the knowledge or the time to monitor and rebalance an investment portfolio, consider working with financial professionals. At Embark, RESPs are our product focus. We live and breathe RESPs, and our “glidepath” approach automatically adjusts the mix of investments to lower risk as your child gets closer to college or university.

Investing goals for an RESP

Will you be able to save enough to cover your child’s education? Consider this number: $6,834. That was the average cost of one year of full-time undergraduate studies for the 2022–2023 school year—and that’s just tuition, not including school supplies, residence, etc. Plus, the fees for professional schools such as dentistry, medicine, pharmacy and law are considerably higher. Don’t forget the rising costs of meal plans, rent/residence, computers and everything else a student needs.

Is an RESP taxable?

Yes, RESP withdrawals, excluding principal contributions, are taxable. But, they are taxed in the hands of the beneficiary, which is typically a lower rate. We can help you plan RESP withdrawals in the most tax-efficient way, ensuring that more of your hard-earned dollars go towards your child’s school expenses.



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