My RESP journey

Sadly, but perhaps not surprisingly, I am not alone. A recent survey conducted for the Chartered Professional Accountants of Canada found that nearly half of Canadian parents had not even opened an RESP at all.

This year I committed to rectifying my situation. I have two children and therefore two time horizons -- a five-year horizon and an 11-year horizon. I needed to confirm whether the investments in my current RESP were appropriate and, if not, replace them with more appropriate ones. And I needed to set up a regular purchase plan to build on my existing savings and not miss out on free government money.

First, I wanted to understand what was at the root of my inertia. It didn't take long to figure out that I was suffering from a known affliction in investing called analysis paralysis.

The phenomenon of analysis paralysis is not limited to investing but manifests itself in that realm when an individual becomes so lost in the process of evaluation that he or she is unable to make a decision. I was not being driven by logic or rational thought but rather by emotion -- the fear of making a mistake.

I developed this as my personal strategy to overcome inertia:

1. Set a deadline. My deadline was the one I was given to submit this article. I had to have opened a brokerage account and provided investment instructions before I could submit my article.


2. Write a list. This magic list would curb my insatiable need to analyze just one more thing, that one thing that would lead me to the perfect investment.


3. Embrace a decision-making strategy that aims for the adequate over the optimal because aiming for the optimal will involve the excessive expenditure of time, energy and resources, and in my case, analysis paralysis.


4. If all else fails, break the glass and call for help.

Here's the list of criteria I used:

• Low cost;
• Low minimum initial purchase;
• Attractive total return and risk/reward profile;
• A "set it and forget it" investment.

I ruled out group RESPs from the beginning because of their fine and opaque print and high fees. And despite my desire for low costs, I ruled out exchange-traded funds because I didn't want to pay transaction costs for a periodic purchase plan and reinvestment of distributions.

For these reasons, my investable universe consisted of mutual funds. Using Morningstar's Advisor Workstation, I created a list of Series D funds that allowed a $500 or less minimum initial purchase. Series D funds, also referred to as do-it-yourself purchase options, were created for investors like me who are either investing with a discount broker or directly with a fund company. Management-expense ratios for Series D or Class D funds are always lower than purchase options (such as Series A) that are sold by commissioned advisors.

For the third item on my list, an attractive total return and risk/reward profile, I used the Morningstar Rating as the first step in my fund-evaluation process. The Morningstar Rating gives investors the ability to quickly and easily identify funds that have superior historical risk-adjusted returns and are worthy of further research. I screened for funds with a rating of 3-stars or better. This left me with a list of 100 funds.

At this point in my research I missed the fourth item on my list: a "set it and forget it" investment. I got lost in analysis paralysis for a while with these 100 funds. Fortunately two things happened: the deadline began to loom and I remembered the fourth part of my strategy, which was to break the glass and get help.

I sat down with a portfolio-manager colleague and she pointed out that the answer was right in front of me; I needed to narrow my list to include only target-date funds, given that I wanted to hand over decisions about asset allocation and rebalancing to professional money managers. The six-year age gap between my children meant that I needed two different funds.

I went back to my list of 100 funds, selecting funds only in the 2020 Target Date Portfolio and 2025 Target Date Portfolio categories. After further screening for cost, past performance and risk, I was left with four funds, two in each category.

• For my older son, my two finalists were PH&N 2020 LifeTime Series D and RBC Target 2020 Education Series D, both managed by RBC Global Asset Management Inc. I found that while the PH&N fund had slightly better total investment growth, the RBC fund had better risk-adjusted returns. I decided on the RBC fund.


• For my younger son, I looked at PH&N 2025 LifeTime Series D and RBC Target 2025 Education Series D. The winning fund for me was again the RBC fund, because it had better risk-adjusted and better rolling returns.

I then opened an RESP account with RBC Direct Investing, and set up automatic investment plans into RBC Target 2020 Education Series D and RBC Target 2025 Education Series D. I transferred my original investment, which was incidentally in the RBC Target 2020 Education Fund Series A, into the lower-fee Series D.

Target-date funds were designed for people, like me, who want a "set it and forget it" investment. I was able to overcome my fear-driven inertia by developing a focused personal strategy, sticking with it and embracing the mantra that there is no perfect investment. Sometimes good enough can be just right.