Recent Buy – Baby R2R’s New Portfolio

At the beginning of January, I set the following goal for the financial well being of our baby daughter. I am happy to report that I have started putting this plan into motion.

> New portfolio for our daughter – In 2016, my wife and I welcomed our daughter. Time to set things in motion for the financial well being of our baby daughter.

  • We have opened up a new RESP (Registered Education Savings Plan) account, which allows us to save and invest for her post-secondary education. The plan allows us to get education grant money from the government and is tax-deferred on the income generated. We intend to start investing this money soon and will post an update on which stocks/ETFs we chose.
  • In addition to the RESP plan, we intend to start a DRIP plan to put away a small amount of money each month (starting off with $100/month for now) that will be her nest egg when she is an adult. Time is one of the most powerful weapons in an investor’s arsenal and starting off a DRIP plan allows us to let the investment compound over the course of 20-ish years. I’ll post an update soon on which stock I am picking for this plan.

The Education Plan

A quick background on the Registered Education Savings Plan (RESP). RESP is an account type available to Canadians to save, invest and grow funds for post-secondary education. While not only limited to kids, it is generally targeted to help parents save for their kids’ education. The best part of this plan is that the government matches the contributions via the Canada Education Savings Grant (CESG). The grant amount is 20% of contributions to a max of $500 per year. So, to maximize the benefits, we would contribute $2,500 per year into this account.

The money in this account is tax sheltered. My contributions are after-tax dollars, so withdrawing that amount from the account when Baby R2R goes to college/university does not incur any tax implications. But the rest of the money is taxed (all the accumulated dividends, capital gains, CESG grant amounts etc), but taxed at our daughter’s income tax rate, which will be lower when she’s in school.

Investment Choice

For this account, I have chosen to go with index funds rather than individual stocks/bonds. I am following a similar model that I chose for my wife’s portfolio. I am going to take a 60/40 approach, but in the future may turn the dials up and down a bit, but not far off this balance.

I will use 4 funds for this portfolio as summarized below.

Exposure Fund Name Ticker MER # of holdings Yield Target Allocation
Canadian Equity BMO S&P/TSX Capped Composite Index ETF ZCN.TO 0.06% 250 2.7% 20%
International Equity Vanguard FTSE All World Ex-Canada Index ETF VXC.TO 0.27% 9,782 1.86% 40%
Canadian Fixed Income BMO Aggregate Bond Index ETF ZAG.TO 0.09% 10* 3.08% 20%
Emerging Market Fixed Income BMO EM Bond CAD-Hedged ETF ZEF.TO 0.56% 57 4.67% 20%

*ZAG holds 10 other bond ETFs

As noted in the table, the diversification of the four funds to follow the 60/40 approach will follow: 20% in Canadian Index (ZCN.TO), 40% in All World Ex-Canada Index (VXC.TO), 20% in Canadian bonds (ZAG.TO), and 20% in EM bonds (ZEF.TO). Based on the ETF composition, the breakdown is:

The above portfolio results in a weighted average MER of 0.25% and a weighted average yield of 2.83%.

The Nest Egg

As for the second part of the goal, I wanted to originally start a DRIP plan and put away a small amount of money each month, so that our daughter would have a decent sized nest egg when she’s an adult. At $100/month, in 20 years that would amount to $24,000 just in contribution amount.

My original thought process had been to contribute monthly in a non-registered DRIP account and simply swallow the tax imposed (even when a stock is held in-trust for my daughter, the income is taxed based at my tax rate). Even though dividends from Canadian companies (eligible dividends) get a favorable tax rate, this creates a drag on the overall returns over the next two decades.

To avoid this drag, I decided to invest on her behalf in my tax sheltered account — the Tax Free Savings Account (TFSA). The account allows me to invest and grow my money completely tax free (for both capital gains and dividends). I will simply earmark a portion of my account to belong to my daughter and will pass it on to her when the time comes.

The biggest advantage of DRIP plans is the dollar cost averaging that investors can achieve without transaction costs. While transaction costs are low in my brokerage account ($5 per trade), it is still a cost. To avoid spending $5 each month, I have decided to simply make 1 or 2 trades per year and forgo the more granular monthly dollar cost averaging. The other disadvantage is that I dont get a full-DRIP and only synthetic DRIP with this type of investment setup. But overall, I think the advantage of tax shelter trumps (poor choice of word these days) the disadvantages.

Investment Choice

Now, to the more interesting part — which stock to choose. I have decided to go with one of the oldest and the first dividend paying company in Canadian corporate history: Bank of Montreal (BMO)


BMO needs no introduction…the bank was founded in 1817 (celebrated its 200 year history a couple of weeks ago) and started issuing dividends in 1829. In fact, BMO has issued dividends consecutively ever since and has only reduced dividends once (in 1942). That kind of a history gives me tremendous confidence that the company will continue to flourish and pay dividends quarter after quarter for decades to come.

Last month, I bought 12 shares of Bank of Montreal (BMO.TO) @ C$99.43. The stock yields $3.52 annually contributing $42.24 towards my daughter’s annual income (her first income 🙂 )

33 thoughts on “Recent Buy – Baby R2R’s New Portfolio

    • Go for it, TFT! Let time do its magic and compound over the decades. Even if you dont make a lot of regular contributions on a regular basis…just letting that investment grow for the next couple of decades will help setting up a nest egg.


  1. Nice! I love it when you can do things like this. For us 100 Euro a month is to much without reducing our own saving capacity to much to realize our goals. We save 50 Euro’s a month for our daughter on a bank account with normal (read very low) rents. The nice thing is that our daughter receives a 10% bonus over the amount that is on the account on her 18th Birthday. The disadvantage is that you can only add 600 a year to the account.

    I would love to add something on the stock market for her, but a monthly contribution is to much for now. I am thinking of adding 1000 Euro’s as a 1 time investment, but I believe the stock market is to high right now for a single sum investment. We’ll see how it develops.

    At least, good going and good luck with the investment! You make some nice choices. 🙂

    • Thats an interesting type of account you mention. Too bad you dont get that bonus added in a small amount regularly to let it compound.

      I would recommend to go for it, even with a very small amount if you can. Time is the most powerful weapon when it comes to investments and letting something compound over the course of 10-20 years will definitely go a long way.

      Best wishes

  2. Bernie says:

    Great that you’ve set up an RESP for your daughter! Just wondering why so much fixed income content considering the long time frame the investment has to compound?

  3. Great idea! I have to agree that starting as early as possible is the key. I think that starting my 5 year old off with a nest egg one of the most important things that I can do to ensure that he is well positioned for a more comfortable future. I enjoy connecting with other parents that think the same way. Nice post – thanks!

    • You got it, Brian. Time is so important when it comes to investments. Start off now, and your 5-yr old will be thanking his lucky stars in 20-30 years for getting ahead financially.

      Thanks for stopping by. Your blog is new to me…will stop by and check it out.

  4. Really a nice feature, these tax sheltered accounts that give freedom to invest.

    We do save for our daughters, using after tax money. It is in an account with our name on it and the daughters as beneficiary. this is a little side saving for them.

    Other than that, in my financial plan, I have some cash flows foreseen for when to go to college. I still have to think about supporting a first house and a wedding contribution…

  5. I LOVE it. No doubt you are taking advantage of baby R2R’s greatest asset, time to grow and compound her slice of the investing world. I always say that these days there are no excuses for starting, even a modest account, for your child. With low or no fee platforms out there, minimal investment amounts starting at $10 anyone can put aside that kind of cash every couple of weeks or once a month. Just anything to start and take advantage of time. I look forward to periodic updates from this portfolio like I do with baby DivHut. Once a quarter or less should suffice as not much changes on a month to month basis. I’m happy and excited that you took this step for her.

    • Your posts on Baby DivHut’s portfolio have been an inspiration. Its great to see that portfolio value and income grow quarter after quarter. Im hoping that I can setup something similar for my daughter. Those small amounts can mean a lot in a few years time. In the first/second year of her life, she will be earning $40-$50, but that should increase nicely as I make more contributions and let the investment and income compound over time.


  6. Hi R2R,
    Congrats on investing in your daughter’s financial future – with time on your side, even a little goes a long way!
    I remember my parents bought some kind of investment bonds that paid out when I was 18. Of course I spent the proceeds almost immediately!
    Best wishes,

  7. Wonderful commitment to the financial well-being of your daughter, R2R! It’s amazing that Canada matches 20% of your investment contribution… I wonder how many parents make use of this amazing benefit!

    FerdiS, DivGro

  8. Congratulations on starting your daughter on the right foot, that’s great! While the free money in the RESP is obviously awesome, the DRIP plan is a great idea too. This is a really neat idea. It’ great you can put her time to work for her!

    • Thanks Jay. I hope to keep up with this program and secure a good future for our daughter. Giving her a good opportunity and launching her off with some stability is the least I can do for her.


  9. First of, congrats on this baby girl! I’m a little behind in fellow bloggers’ news! 😉

    RESP is the first thing to invest in for Canadian parents. So much to win, not much to lose! 😉

    Sounds like good plans, keep it up!



    • Thanks for the wishes DivGuy. Hope your travels are going well.

      RESP is truly an amazing account…hard to beat a 20% free money thats tax deferred allowing it to grow more over the years

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