Demystification of the economy | Is RESP the best investment for a child?

Every Saturday, one of our journalists, in the company of experts, answers one of your questions about the economy, finance, markets, etc.

Published at 16:00

Richard Dufour

Richard Dufour
Press

“My grandson just turned 2 years old. From the time he was born, on his birthdays and at Christmas, we invest for him in RESP. We have been hearing for several years that this was one of the best government investments. But is it? Given the economic situation, should we prioritize other investments in her future? — Leeson Bouchard

A Registered Education Savings Plan (RESP) should be preferred, according to portfolio manager Thierry Tremblay, because it is a tool that not only deferred taxes, but thanks to generous government subsidies (between 30 and 50% depending on family income) allows you to to obtain a “risk-free” return, which is currently quite difficult to obtain.

“So if your budget allows it, I suggest continuing the good savings habits by keeping the contributions,” says this expert associated with iA Private Wealth Management.

However, the more important question is how to invest the contributions and grants once they are included in the RESP.

With stock markets and bond prices plummeting, investment opportunities are generally more interesting than they were at the start of the year, says Thierry Tremblay.

According to him, the most important point to consider is the degree of tolerance for volatility.

“If you are currently not comfortable with the stock market or any other more volatile investment, you can contribute to RESP and keep it all in cash. You can also invest in guaranteed and liquid products that will earn you a small percentage until the risks subside. »

Opening

Currently, according to him, we are seeing a confrontation between central banks and inflation.

“For several years, governments didn’t have to worry about this because inflation remained within the acceptable range of 1 to 3%, which allowed them to focus their efforts on growth and full employment. In retrospect, it now seems clear that the stimulus efforts were not only too great, but, above all, they lasted too long. »

Leading economic indicators (new building permits, consumer confidence, new industrial orders, etc.) point to a rapid slowdown in the economy, and the stock market seems to be anticipating this scenario, Thierry Tremblay emphasizes.

He argues that a falling stock market makes investments more attractive and that there is never a perfect time to invest. “For the first time since the 1970s, inflation has become a problem, and the cycle of raising interest rates does not seem to be over. »

However, as Thierry Tremblay says, since our reader’s grandson has a few years ahead of him before he dips into the RESP account, investing some capital in the stock market is not a bad idea. But, in his opinion, it would be wiser to go gradually.

“If you are driving in a blizzard, do you keep the same speed as in summer, or do you slow down? Why not do the same with your portfolio and reduce your risk when risk increases? »

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