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How To Create A Child Education Fund Using Investments!

Saving for your child's future education is an important task to start as early as possible!

Why?

The longer you save the more years to compound the interest/returns on that money.

And not to mention, more years of savings means more capital.

How much do you need to save up per kid for Singapore university?

I graduated from NTU Accountancy in 2008 and during that time (always the good old days) I paid only $3,800/yr for my university fees.

I did some detective work and the tuition fees have now inflated to $9,400 TODAY! 

So let's assume an inflation rate of 2% after 18years, the possible course fees per year at NTU may be $13,400/y if you have a baby today. 

Hence, $50,000 is needed (conservatively...).

But again, that is local singapore university for most courses. 

If your kid studies medicine, it will be more expensive =P

And of course, if it's overseas education, it's going to be a huge amount!

$50,000 using an education endowment plan

There are many specialised endowment plans to help you systematically save for your child.

For example, AXA Early Saver Plus is one such plan. I'd leave links below for you in the summary

Total returns are 3-4%p.a for such plans.  A portion of the projected maturity value is GUARANTEED!


Having said that, to save up $50,000 still needs around $300/m for 10years to a plan at 3%pa returns and a further 8year period before maturity.

(Fv 3%,10(n),$3,600,0)=$41,269 then (Fv 3%,8(n),0,$41,269)=$52,279)

Investing to build a child education fund

If an investment portfolio can deliver you more than 3% returns, that means you need less to reach the $50,000 mark.

University education is frequently a financial goal to work towards with my private clients.  I'd share some projections with you

How about $150/month for 18years to reach $50,000 with 5%p.a return?

(Fv 5%,18(n),$1,800,0)=$50,638)


These are a few key points

1) It is a lot easier to handle on a monthly budget - Just $150/m.

2) There is no rush for investment return which means we could explore investing with higher risk.

Is 5% reasonable with dollar cost averaging strategy?

When you invest on a monthly approach, it has the effect of dollar cost averaging.

The same regular amount gets more units when prices are cheap and less when prices are expensive. If you're keen to learn more, click on the video tutorial below.

The next question is to understand your risk appetite and capacity to take risk.

That depends on a few things

1) your investment experience

2) your cashflow and budget

3) your personality type

4) your investment timeframe


If it is determined that your portfolio can have more equities, there is a good chance to achieve 5%pa net investment return. Many equity funds have a long term record that achieves that.

If you're keen to hear an equity fund that I've analysed, click on the video below =)

Problems of an investment portfolio for child education needs

While it all sounds nice, investment returns can change drastically.

For parents who built a portfolio to get it liquidated this year in 2020, they would have suffered because of this pandemic's impact on stock performances.

It is a problem can cannot be fully solved because investments are not guaranteed. An endowment plan at least will mature with some guaranteed amount.


What if you invest instead $200/month for 14years with 5%p.a return.

And if markets are bullish then, re-allocate to more bond funds at that time to preserve the capital better.

Let's assume then subsequently changed to 2%p.a return

(Fv 5%,14(n),$2,400,0)=$47,036 then (Fv 2%,4(n),0,$47,036)=$50,914)

I've worked this with private clients. Look for my links below if keen.

More read and summary

A) Click to read 7 BEST SAVINGS PLAN IN SINGAPORE!

B) Click to read Why $50,000 may be sufficient for your child?


Remember, investing is ONLY A MEANS TO AN END.

There should be proper planning to ensure your child gets the targeted amounts when the time comes!

Josh Tan Jian Liang (CHFC) Principal Author

REVIEWS: https://theastuteparent.com/josh-tan Practising financial planner with Promiseland Independent Pte Ltd. EXPERIENCE: More than 13years. Josh Tan is a young parent, speaker, author and founder of TheAstuteParent.

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