RESP 2015 Update

We started investing for Devon’s education in June 2014.  We didn’t know it at the time, but our timing was magical: we picked the very top of the Canadian stock market to start allocating money to equities.

Since we opened Devon’s RESP account, the Canadian equities market started a long, sad plunge into a bear market. With this last, exciting week behind us, the Canadian market is officially down 20% from the highs it reached in the middle of 2014.  Whee:

Luckily, Devon’s RESP savings did somewhat better.  His portfolio right now is down about 2%.  When we planned his investments two years ago, we made a couple of decisions that helped mitigate the carnage:

  • We picked low-fee, broadly diversified ETFs that provided exposure to fixed income, international equity, and the US market.  Most broadly diversified portfolios did OK over the past few years.
  • We invested little in Canada. The Canadian stock market is only about 4% of the global stock market, and it’s extremely concentrated in natural resources and banking. Devon’s portfolio is heavily weighted towards international markets that are more diversified.
  • We picked some Socially Responsible funds, which have little exposure to oil companies.
  • We bought bond funds, even though they were extremely unpopular over the last few years. Even though the consensus was for bond funds to lose value, they’re one of the few investments that held up.
  • We kept our cash allocation fairly high as there were few opportunities to deploy capital, while still tracking our desired asset allocation.

Because Devon has a long horizon ahead of him, the best scenario for him is to have asset classes continue to lose value over the next few years. This would allow us to allocate to equities over a longer period of time when prices are low.  Everyone loves a sale!

It’s a lot less fun to allocate to equities when valuations are extremely high as they’ve been over the last few years, so the last few weeks on the markets have been pretty entertaining at least.

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