Wealthsimple is a popular (and arguably the largest) robo-advisor in Canada, but how does the Justwealth vs Wealthsimple RESP compare?
There are so many robo advisors in Canada right now, and each have their own unique benefit. Some have benefits on top of their benefits… for example, target date RESP investments so you can decrease your risk when you come closer to needing the money. That unique robo advisor is Justwealth and their target date RESP investment.
This post will go over exactly what the RESP is and why it is a powerful tool to help you invest for your child’s post secondary education. This post will also look at Justwealth and Wealthsimple with a comparison of their pros and cons to help you decide which robo advisor provider is better for your RESP.
Table of Contents
What is an RESP?
An RESP is short for Registered Education Savings Plan. It was introduced by the Canadian government as a way to incentivize parents to save up money for their children’s post secondary education.
The RESP is open to everyone and you don’t get cut off from receiving this Canadian benefit when you hit a certain income level, unlike the Canada Child Benefit.
The after tax money that you invest in an RESP grows tax free. Not only that,the best part is, the Canadian government matches your contribution by 20% (up to a maximum grant of $500 a year) to a total grant of $7200 over the duration of the RESP.
The maximum that can be contributed in a lifetime per beneficiary is $50,000. The maximum grant paid out is $7200. If you contribute based on the maximum Canada Education Savings Grant (CESG) of $500, that’s a $2500 contribution annually up until the 14th year of your child.
There is no specific annual RESP contribution limit.
The RESP is just like the TFSA, and just like the RRSP. It is a basket whereby you can invest what you want in it, like individual stocks, mutual funds, GIC’s, or bonds.
What is a Robo Advisor?
Contrary to popular belief (haha), a robo-advisor is not actually a robot, but it is a way for people to invest without stress and with less expense and cost compared to if you invested with a financial advisor or mutual fund, for example.
In a nutshell, you put your money in the robo-advisor account and the robo-advisor company invests your money in a combination of ETF’s (exchange traded funds, or a basket of stocks that are traded on the stock market) suited to your risk profile.
The key thing that robo-advisors do is rebalance automatically so that your asset allocation continues to match your risk tolerance. This helps reduce your portfolio risk (decreases risk for loss).
There are a number of robo advisors available in Canada.
Here are a few of them compared in chart.
Here are some pros on cons of investing with a robo-advisor if you’re on the fence.
RESP with a Robo-Advisor
So what about setting up an RESP with a robo-advisor?
I think having an RESP invested with a robo-advisor is a good idea, because many new parents don’t have time to invest. Many new parents also do not have the financial knowledge and skill to know which stocks are a good buy, or they might not even have time to rebalance annually or regularly.
Also, as it comes time to use your RESP (e.g. when your child gets closer to post secondary education) you will want to reduce your risk in order to preserve the capital that you built up over the years.
Therefore, I think that choosing a robo-advisor is a good idea for an RESP. Most robo-advisors in Canada offer an RESP account option, with the exception of RBC Investease.
Okay, so which one’s better? Justwealth vs Wealthsimple?
Justwealth, created in 2015 by financial experts, is the robo advisor with the most investment portfolio options available (they have over 70 different portfolios to suit your unique needs).
The name Justwealth was coined from wanting to provide “justice” to Canadian investors who have been overcharged with high MERs for their investments from financial institutions..
Unlike a lot of other robo advisors who keep their portfolio performance more discreet, Justwealth proudly share updated information of the Justwealth robo-advisor portfolio’s performance on their website.
Justwealth RESP: Target Date Portfolios
Justwealth is unique and great in that they have Target Date portfolios for RESPs (no other robo-advisor in Canada has this).
You can input when your child may graduate and when you will plan to need the RESP. Then it will invest your money accordingly according to the Target Date- or when you need to use the RESP.
As your child gets closer to graduation from high school, you will want to preserve the capital invested and these Target Date RESP portfolios will automatically do that for you (one less thing to think about as a parent, I call this a win win).
So in summary, the Justwealth Target Date Portfolios are aggressive when your child is younger and then become more conservative as your child ages. It matures the year your child is projected to go to school.
The good thing is you don’t really need to pick your risk profile, the Target Date fund naturally does it for you! So even if you’re very risk averse and inclined to put your RESP into a 100% GIC or High Interest Savings Fund and earn next to nothing (and less than inflation) for the next 17 years, this will help you grow your child’s education money into something more sustainable.
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Here are the Education Target Date returns for the 2034 Portfolio (roughly my toddler’s Target Date) as of December 30, 2020:
- 7.21% 1 year return
- 8.86% since inception
Here is the target asset allocation of the Justwealth 2034 RESP portfolio:
The top 3 holdings are the iShares Core S&P TSX Capped ETF, the Vanguard S&P 500 ETF (US), and the iShares Core MSCI EAFE ETF (world).
Wealthsimple is the largest robo advisor in Canada (when you look at it from an assets under management standpoint- they have over 50% of assets under management with robo-advisors in Canada).
They are backed by Power Corporation of Canada. Wealthsimple was founded in 2014, and has over $5 billion in assets under management. Wealthsimple has clients in the United States, U.K., and Canada.
Here is the information on the Wealthsimple Growth Portfolio performance.
Here are some annual returns of the Wealthsimple Growth Portfolio:
The Best RESP Robo Advisor Is?
So when you compare Justwealth vs Wealthsimple, which one is better for the RESP?
Let’s look at a few different factors to differentiate between the two. Some of these factors we can compare include minimum deposit for the RESP, the robo-advisor fees, sign up promotions offered, and also BCTESG eligibility.
Minimum Deposit for the RESP
Although there is a minimum deposit of $5000 to start investing in other accounts with Justwealth, RESP accounts are the exception to this rule and have no minimum starting requirement.
Even though for the Justwealth RESP there is no minimum balance, there is a minimum fee of $2.50 charged per month for accounts that are under $6000.
Therefore, if you do decide to open up a Justwealth RESP, it would be a better idea to front load the RESP or at least deposit $6000 to avoid the ‘added’ monthly charge. By front loading anyway, you will increase the time that your investment is tax sheltered.
To be more clear, if you had $1000 invested in the RESP with Justwealth, you would have a $2.50 minimum charge instead of the Justwealth 0.5% robo-advisor monthly fee which would be $0.42 a month. Once you hit $6000 with Justwealth, that would be the $2.50/month at 0.5% fee.
The monthly robo-advisor fee for Justwealth is 0.50% for accounts under $500,000. The ETF fee would be on top of this cost. How much is the MER for the Justwealth Target Date RESP fund?
Let’s take for example the 2034 Target Date RESP. The Justwealth Target Date RESP of 2034 has an MER of 0.13%.
So the total cost is about 0.63% annually. This is quite low usually robo advisor fees including ETFs range from about 0.70% to 1.0%.
If you have less than $6000 invested, there is a minimum fee of $2.50 per month for the Justwealth robo-advisor. So if you had like $1000 invested for the entire first year of the Justwealth RESP, it would be $2.50/month= $30 annually, or a 3% fee. However, if you think about it, it’s really just $2.50, less than a price of a coffee for hands off investment management and peace of mind.
In comparison, Wealthsimple Invest’s robo-advisor fee is also 0.50% (for accounts under $100,000) but decreases to 0.40% for accounts over $100,000.
When I last checked, the ETF fees for Wealthsimple portfolios range from 0.06% to 0.25%. Let’s assume it is on the higher end, Wealthsimple would cost about 0.75%.
Since there is a maximum you can contribute to the RESP anyways (we’re not talking hundreds of thousands here over 40 years) I personally thank this 0.12% difference is miniscule.
If you live in BC and when your child turns 6 years old, you can apply for a one time $1200 grant from the BC Government, called the BC Training and Education Savings Grant.
There are a list of RESP promoters in Canada that offer this, not every RESP provider in Canada offers this. For example, Questrade does not offer this and you would have to open up ANOTHER RESP account to get your free $1200 deposited in an RESP.
Wealthsimple Invest is an RESP promoter, so if you were to already have a Wealthsimple RESP account you would get $1200 deposited for the BCTESG.
Justwealth is also an RESP promoter, and therefore you would be eligible to receive the $1200 in your child’s RESP when he or she turns 6.
Justwealth Promo vs Wealthsimple Promo
If you sign up for a Justwealth RESP, you can get $50 for assets deposited between $5000 and $24,999.
If you sign up for a Wealthsimple RESP, you can get $50 if you deposit $500 as an initial deposit.
Therefore, both of these promotions are the same but you need more money to get the $50 from the Justwealth RESP.
So, which one is better for an RESP? Justwealth vs Wealthsimple?
I would say that if you are opting to front load the RESP with a big cash initial bolus, Justwealth is a good pick.
You would initially deposit $17,000 into the RESP in year one and you will get a $50 bonus from the sign up offer. You would get $500 from the CESG bonus in year one after that $17,000 deposit. Then, year after year until around 14.2 years of age, you would contribute $2500 annually and get the 20% CESG match which is $500 yearly.
This would be my strategy (this is what we did with both our kids), front load the RESP.
The Target Date RESP is a good choice because you don’t have to worry about de-risking your portfolio when you get closer to your child’s post secondary education. Also, the annual returns from the Justwealth portfolio are pretty good.
If you do not have $17,000 to plunk into the RESP (and even less than $6000 to avoid the $2.50 minimum monthly fee charge), the Wealthsimple RESP is a good choice. You will have to remember to de-risk your robo-advisor portfolio selection as your child gets older though which can be a hassle and possibly stressful to do.
Hopefully this post helps you decide which RESP to open for your child, the Justwealth RESP or the Wealthsimple RESP. In the end the most important thing is the act of opening up an RESP, making regular deposits, and getting that free CESG money (and not investing your RESP into a Group RESP).
Combined with the Canada Child Benefit and in anticipation of the Canada Child Tax Benefit Dates, both of these Canadian benefits will help give you a financial boost when raising your children in Canada.
Justwealth vs Wealthsimple, what are your thoughts?
GYM is a 30 something millennial interested in achieving financial freedom through disciplined saving, dividend and ETF investing, and living a minimalist lifestyle. Before you go, check out my recommendations page of financial tools I use to save and invest money. Don’t forget to subscribe for blog updates, a free dividend yield spreadsheet, and the free Young Money Bootcamp eCourse.