We, as parents remain concerned about the bright future of our children, and we want to ensure that they receive the best education. To fulfil our dreams for our children, it’s vital that we invest for them wisely, and should avoid certain mistakes as discussed below:
Delaying the investment
RESP is a great investment opportunity which enables you to save for the education of your child. It would be better if without any delay, you start investing early as it will give your investment the maximum time to grow.
Improper utilization of the available grant funds
We are indeed lucky to be in the wonderful nation Canada where the government understands the importance of healthy growth of children, and it generously supports parents in this endeavour by providing them a tax-free Universal child care benefit. The maximum Canada child benefit you could get is $6,765 per year for children under 6, and $5,708 per year for children aged 6 to 17. Your Canada child benefit is based on your family income from the previous year, the number of children in your care, and the age of your children (source: Government of Canada, Jan. 27, 2020). Parents can very effectively utilize this financial benefit by investing it in RESP. To further support parents in this savings initiative, for an annual deposit of $2500 in their child’s RESP, the government of Canada deposits $500 into this RESP account with a lifetime maximum limit of $7200. Besides, it provides catch-up provisions to parents who are unable to deposit the maximum amount in any given year. Along with that, an additional amount of CESG is available for eligible children from middle- and low-income families. You need to utilize these grants for maximum permissible benefit.
Ill- informed decisions about investmentfollowing the ‘herd behaviour’
Exercise prudence while deciding about the RESP product and company. Instead of simply following the celebrity endorsements or investments recommended by friends; be careful before you choose the investment.
Lack of understanding about how an investment works
Before you make any decision, it is very important to do a thorough research about available investments as it ensures that you:
- understand the risks associated with the investment, including the potential losses or returns;
- consider how it fits in your existing portfolio; and,
- know the amount of fees/ any penalties for early withdrawal that you will pay
Avoiding shopping around for an advisor
As a first time investor, we feel inclined to approach the same advisor who is being consulted by our parents, friends or relatives. But here, it is important to understand that the advisor that’s right for someone else may not be right for you. You need to choose the advisor as per your needs, the type of clients he/she works with and how involved you want to be in your investing decisions.
Improper Attention to Fees
You need to understand the fees you pay when you invest as they reduce your return. Before making an investment, ask questions and evaluate the available options. For instance, two investments may carry similar risk and expected return, but one may have higher fees – all else being equal, the fees would affect your returns.
Not making optimum use of RESP as an investment account
It is a proven fact that among the asset classes, equities provide the highest long term rate of return. An early investment into an RESP will let your stocks grow for 18 years or more.
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