Please, please DO NOT relax her hair. I will give you a personal cautionary tale. I had long beautiful type 4 natural hair that one of my relatives used to braid my hair each week. My hair grew so long that it was at shoulder length when I got my hair relaxed at the age of 9. My mother got my hair relaxed because she did not know how to take care of my natural hair.
Oh, if I knew what I knew then! Your daughter is 5, even at the age of 9, I did not know how to take care of my hair and it broke and broke until it reached my ears! I tried everything that was supposed to be easy when it turned out that the relaxer wasnt working -- even jherri curls over the relaxer which was horrible for my hair. I had one of those sad lopsided Salt N Pepa short fades for the longest time. It took me a decade to get both sides of my hair even and sometimes I still dont think they're completely even even though my hair is past my collarbone now,LOL!
When I have a daughter I will not let her relax her hair until she turns 13 -- which is what I believe Cathy Howse and the AA doctor behind the famous skin of color center recommend. In the meantime, I will find conditioners that work well with her hair and find pretty natural styles for her.
Also, note that a relaxer might change the texture of her hair and relaxers also cause people to lose their edges. I know this from personal experience.
I know that this is a personal choice and YOU are the one who will have to take care of her hair in the morning. If you do decide to keep it natural, consider doing what my cousin did, she put it in lots of pretty box braids. It would then be tied back with a ribbon. We are so advanced now, there are many beautiful styles for relaxed her, not like when I was growing up and the only thing my cousin could do was box braids.
There are so many naturals with beautiful hair on this board. Whatever you decide, there will be people on this board to support you.
P.S. I hope DSD see this. DSD has an entire section of her album devoted to all of the beautiful things shes done to her daughter's hair:
http://public.fotki.com/dontspeakdefeat/my_daughters_hair/