RESP investment advise?

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Hi Guys,
At the start of last year I sold all my units of BMO ZRE ($60k) held in my child’s RESP account fearing the worst. I’ve been in cash since then unsure on how to re-invest as I need to start withdrawing funds come this September. Now I’m thinking of leaving a small portion ($10k) in cash and re-investing the rest split between ZWU, ZWE and HHL, to squeeze out as much monthly dividends as I can.
Do you think this is a good investment strategy for the situation? If not can you please suggest an alternative.

Thank you, your advise is greatly appreciated!

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Asked on January 4, 2021 8:31 am
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Private answer

That's honestly a really tough situation.

Anyone who asks me what they should invest in with a 9 month timeline even during a stable market, in my opinion it would be a money market fund or some sort of extremely liquid and low risk investment.

And as we've seen, the markets are nowhere near stable right now. So investing money in the stock market that you need 9 months from now brings a significant level of risk.

However, it seems like what you're trying to do is keep the cash that you need over the next year or two liquid, and then invest the remainder into some ETFs. Which, wouldn't necessarily be a bad idea.

However, in my opinion you should never be looking solely for dividend yield. Especially on an investment that you'll need to sell to distribute to your child for their education. You need to be looking at total return.

People get very caught up in the dividend yield of a company, and often end up underperforming to chase high yields. If we look to HHL, we can see that although it pays a 9% yield, its share price has shrunk by about 0.8% annually over the last 5 years. After we subtract management fees, this is a mid 7% return annually.

I can't stress enough how much investors who don't need the consistent income to fund living expenses need to be looking at the total return of an investment.

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Posted by Dan Kent
Answered on January 4, 2021 9:50 am