The RESP has a lifetime maximum contribution limit of $50,000 per child. You can also receive up to $7,200 in government grants through the Canada Education Savings Grant (CESG). The grant is generally 20% of your contributions, up to $500 per year. That means contributing $2,500 a year receives the maximum annual grant.

For the astute reader, you may have noticed that $7,200 / 20% is $36,000. This leaves $14,000 of extra contributions available before hitting the $50,000 lifetime limit.

To maximize potential growth, there are a few strategies:

1. Contribute $2,500 a year and collect the grant steadily.
2. Contribute a larger amount up front, for example $16,500 in year one, and then $2,500 a year after that until the grant is maxed.
3. Contribute the full $50,000 up front and hope the extra years of compounding outpace the free 20% grant you gave up along the way.

The first approach is the simplest. The second tries to balance getting the grant with giving more money time to compound. The third is the most aggressive and only makes sense if the math works out and you have the cash flow to support it.

Withdrawals

There are withdrawal limitations you should be aware of if you go to maximize the amount you contribute.

First, the original contributions — the amount you deposited and that counts against the $50,000 lifetime limit — are treated differently from the grants and investment growth portion of the account.

The original contributions can be withdrawn without tax and fall under PSE (Post-Secondary Education) withdrawals.

The grants and investment growth fall under EAP (Educational Assistance Payments) withdrawals. EAP withdrawals must be used for reasonable education-related expenses and are taxed in the student’s hands. Since students often have little or no income, this is usually a good tax outcome.

The EAP withdrawals can be audited by the CRA. There is an inflation-adjusted limit per calendar year under which the promoter, aka the institution you have the account with, is not required to ask for proof of expenses. For withdrawals above this limit, your institution may ask for justification.

I’m not at the withdrawal stage with my kids yet, so I don’t have first-hand experience. However, I’ve heard the justification process is quite forgiving, so don’t be too intimidated — but do some research before you get there.

I’ve also heard that the umbrella of things that fall under education is quite broad. If my kids choose not to go to university or college, I may encourage them to pursue shorter courses or certifications that genuinely fit their interests. If that turns out to be a cooking class while they’re still living at home, I’ll consider the improved household snack quality a bonus.

If the money cannot be used

If the money is not able to be used for education, the original contribution money is returned to you. The grants are reclaimed by the CRA. The investment growth is taxed at your marginal rate plus 20%, unless it can be transferred to an RRSP under the applicable rules.

Not the worst outcome, but worth considering when the kids are older and you have a better idea of what they are interested in.

Own the market

The most consistent way to earn money in the stock market is to own the market. Over long horizons, global equity returns have been positive. Beating the average is difficult, so the strategy I use is to own a fund that holds the underlying stocks in their relative market weights and accept the average return.

I hold the vast majority of my equity exposure in $XEQT, an all-equity, globally diversified fund. It has an evidence-based home-country bias for Canada, meaning it overweights Canadian stocks relative to Canada’s share of the global market.

100% equity

Stock market funds are often broken up by the stock or equity portion & a bond portion. They range from 100% equities, to mixes like 80/20, 60/40, or 40/60. The most common being the 60/40 which is 60% equity and 40% bonds.

Traditional advice says to hold more of your investments in stocks while young and gradually increase your bond allocation as you approach retiremnt, however, more recent studies suggest that holding a 100% equity fund even through retirement is likely to outperform. However, this may mean years of reduced spending in retirement if the stock market takes a downturn.

Two ways to take on more risk

Owning the market captures the market return. There are two clear ways to take on additional risk in exchange for additional expected return:

1. Concentration — owning a smaller subset of the market. At the extreme this is single-stock picking. Other versions include sector tilts or factor tilts.
2. Leverage — borrowing money to invest, so your equity exposure exceeds 100% of your own capital.

These are different risks. Concentration risk is the risk that your slice of the market underperforms the whole. Leverage risk is the risk that the same market drawdown is amplified against borrowed money you still owe.

Concentration

Factor investing is the form of concentration I find most defensible. Factor tilts overweight stocks that fall under well-researched factors (size, value, profitability, momentum) that historically have outperformed the broad market. Still diversified, but not market-weighted.

In Canada, CIBC and Avantis launched $CAGE, which offers global all-equity exposure with factor tilts. It is the closest thing to a “tilted XEQT” available domestically.

I avoid concentration in my core portfolio, whether in a single stock, a themed ETF, or a sector ETF. If I take a concentrated position, it goes in my non-registered account with money I can afford to lose, so it cannot derail my long-term strategy.

Leverage

I prefer leverage over concentration when seeking to increase expected returns. A few reasons:

• It does not require me to predict which subset of the market will outperform.
• It scales with my conviction in the market overall rather than in a specific narrative.
• In Canada, leverage used to acquire income-producing investments generally produces tax-deductible interest, which directly reduces the after-tax cost.

Concretely, instead of holding 100% equity exposure with my own capital, I can hold something like 120% equity exposure by borrowing enough to buy an additional 20% stake in $XEQT. The borrowed portion compounds against the same market, but the downside also amplifies.

Since this strategy involves increasing equity exposure it implies you should prefer being in a 100% equity fund before considering using leverage. Otherwise, you may not have the risk tolerance for it.

Risk acknowledgments

• Drawdowns are real. A 100% equity portfolio can lose 30–50% in a year. Leverage amplifies that against borrowed money you still owe.
• Leverage can squeeze cash flow at exactly the wrong time. Rising rates often coincide with falling markets. Margin loans can be called.

A reasonable person can read all of this and decide that a 100% equity portfolio is too aggressive, or that any leverage is too aggressive. I am intentionally accepting these risks.