Posted at 4:00 p.m
“My grandson just turned 2 years old. We have put money into an RESP for him since he was born, on his birthdays and at Christmas. For several years we have heard that it was one of the best investments with government input. But is that still the case? Given the state of the economy, should we favor another investment for his future? —Lison Bouchard
The Registered Education Savings Plan (RESP) is preferable, according to portfolio manager Thierry Tremblay, as it is an instrument that not only defers taxes, but also allows you to earn a “risk-free” return thanks to generous government subsidies (from 30% to 50% depending on family income). achieve what is currently rather difficult to achieve.
“Therefore, if your budget allows, I recommend that you keep the good savings habits by maintaining contributions,” says the expert at iA Private Wealth Management.
A bigger question, however, is how the contributions and grants will be invested once they are in the RESP.
In an environment where equity markets and bond values have fallen significantly, investment opportunities have generally become more interesting than at the start of the year, says Thierry Tremblay.
The most important point to consider, in his opinion, is the level of volatility tolerance.
“If you’re not comfortable with the stock market or another more volatile investment right now, you can make your RESP contribution and keep it all in cash. You can also invest in guaranteed and liquid products that earn you a little interest until the risks are reduced. »
A show down
Currently, he says, we are witnessing a standoff between central banks and inflation.
“Governments didn’t have to worry about this for several years because inflation stayed within the tolerated range of 1% to 3%, allowing them to focus their efforts on growth and full employment. In retrospect, it now seems obvious that the efforts to stimulate the economy were not only too big, but lasted too long. »
Leading economic indicators (new building permits, consumer confidence, new industrial orders, etc.) are pointing to a rapid slowdown in the economy and the stock market seems to be anticipating this scenario, stresses Thierry Tremblay.
He argues that stock market declines make it possible to invest at more attractive levels and that there is never a perfect time to invest. “Inflation is a problem for the first time since the 1970s and the cycle of rising interest rates does not appear to be over yet. »
However, says Thierry Tremblay, since our reader’s grandson has several years ahead of him before diving into the RESP account, investing some capital in the stock market isn’t a bad idea. But step by step would be wiser in his opinion.
“If you drive in a snowstorm, do you keep the same speed as in the summer or do you slow down? Why not do the same with your portfolio and reduce your exposure as risks increase? »
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