Save for a child’s university or college costs through RESPs.
Goodbye, BCE.
You've done all a father could ask and more in building his sons' registered education savings plan assets, but now it's time to sell. The stock market is no place for money that will be needed to pay university tuition bills in the next few years.
BCE was the one exception I made as I reduced the equity exposure in our two boys' RESP over the past year or so. I bought the BCE shares at $25.35 and they traded in mid-March at $53.75. But it's not the capital gains that convinced me to hang onto the shares, even if they do show up as a hefty 112.2-per-cent gain in the RESP account. No, the BCE shares were kept around for yield. Based on the purchase price and the current annual dividend of $2.60, the shares yield 10.3 per cent. That's long-term dividend growth for you.
It's hard to give up that yield, especially when the laddered guaranteed investment certificates I'm using for the RESP now producing returns of 1.5 to 2 per cent. But capital preservation is my only investing goal right now, and that means staying away from stocks altogether. The risk of losing capital outweighs the 10-per-cent yield from BCE shares and the potential for more share price gains ahead.
There is a case for hanging onto the BCE shares, of course. Assets in our boys' RESP will be drawn down gradually over the next four years. If the market drops or BCE falls out of favour, there's some time to recover. A more aggressive investor might buy that argument, but not me. My wife and I have worked hard over the years to put money into that RESP, and I'm not willing to gamble any of it at this late date.
If you're saving for a specific goal like your children attending university, then think about a five-year rule for stock market exposure. If you have more than five years to go until money is needed, stocks are OK. With less than five years, hold no stocks.
I know – I held onto the BCE shares longer than I probably should have. Don't make that mistake yourself. De-risk your RESP money before your kids head off to college or university. Don't let the tuition and residence bills arrive at the same time as a bear market.
Rob Carrick