I recently had a great discussion with one of my clients about how to invest for their children’s education and thought this would be a great topic.
I realise that for some of you this is a ‘past tense’ topic but given the escalating costs of fee paying schools some of you may be planning to help out your grandchildren or you may just wish to pass this information onto your kids.
As with any investment, the sooner you start, the better your chances of reaching your financial goal and the more cost effective it will be. The overall cost of private schooling will be much less if you save early and often and let the magic of compound interest work over time than to pay for the fees out of your day to day cash flow.
The amount needed will depend on many things, including the fees charged by the school and how much they will increase over the years. Check with the schools you’re considering and they should be able to give you those details. Also consider how many years you are paying for – starting at kindy or just for high school?
When you have a sum of money in mind and a timeframe, we can then work backwards to calculate how much you’ll need to save and guide your investment strategy. Time is a really important factor when it comes to reducing risk. The longer we have to invest the higher up the investment risk/return curve we can afford – we’re not talking about speculating or gambling – but time allows you to perhaps allocate a bigger proportion to growth investments (shares/property). As always, we’ll consider your tax position, timeframe and the level of investment risk you’re prepared to tolerate all toward determining the best option for achieving low cost and tax effective exposure to products that will deliver the level of return you need.
There are many options out there, from specialised education bonds to direct share portfolios, to managed funds within a wrap account or for those more risk averse, saving within your own home loan (you’ll need to be disciplined to keep the money in redraw and not be tempted to spend it though!). Most people start with a small amount and then make regular contributions to build up the savings over time. You’ll also need the flexibility to add lump sums along the way (gifts, annual bonuses etc).
If you’d like to discuss this important topic further then get in touch and lets have a chat, or feel free to pass this information on.
All the best and as always I’m just a call or email away…
