I began a RESP for my son a couple of months after his birth. At the time I was very eager to start saving for his education, so I began investing into a Target Education fund without giving it too much thought. This fund is managed to gradually shift its asset mix from equities to money market funds as its “target” date approaches and seemed like a good hands-off approach to save for my son’s macaroni and cheese consumption come the year 2023.
I recently revisited this investment choice and realized the following. The Target fund has a MER of 2.08% and all it does is hold other funds, managed by the same institution, which in turn have MER’s in the 1.5% – 2.0% range. So I’m being charged twice for saving for my child’s education.
I plan to rectify this situation by switching my contributions to my bank's Canadian Index Fund, US Currency Neutral Equity Index fund, and Canadian Bond Index fund. I’ll place about 35% of my monthly contribution to the bond fund and the rest will be split between the Canadian and US index funds. The MER on these index funds averages about 0.70%, so I should be able to increase my yearly returns by about 138 bps (2.08% minus 0.07%). Over the next 16 years this could translate into an extra $4,000 for his studies.
Think of all the extra macaroni and cheese this will allow him to buy. I can hear him thanking me already.
I recently revisited this investment choice and realized the following. The Target fund has a MER of 2.08% and all it does is hold other funds, managed by the same institution, which in turn have MER’s in the 1.5% – 2.0% range. So I’m being charged twice for saving for my child’s education.
I plan to rectify this situation by switching my contributions to my bank's Canadian Index Fund, US Currency Neutral Equity Index fund, and Canadian Bond Index fund. I’ll place about 35% of my monthly contribution to the bond fund and the rest will be split between the Canadian and US index funds. The MER on these index funds averages about 0.70%, so I should be able to increase my yearly returns by about 138 bps (2.08% minus 0.07%). Over the next 16 years this could translate into an extra $4,000 for his studies.
Think of all the extra macaroni and cheese this will allow him to buy. I can hear him thanking me already.
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