How can I make the best/most of R10 000 towards my son’s education (university)? He is seven years old. I would also like to know which unit trust fund would be best should I want to invest R10 000 in a unit trust?
Thank you for your question! I believe starting to save for your child’s education is one of the greatest gifts you can ever give them!
I am not sure by your question if this is a once-off amount you would want to invest, or if you would be contributing monthly further into this investment. From the way your question is phrased, it does sound as if you’re a currently looking at a lump sum investment only.
Most of the investment platforms have minimum contributions rules – R500 for a monthly premium, and R20 000 for a lump sum. So, your plans around possible future contributions after the initial lump sum will inform which investment product will be suitable for you. A tax-free investment or a voluntary (flexible investment) allows for flexible contributions while giving you control over your choice of underlying investment options, and some of these products also offer lower lump sum investment amounts.
Since you are saving for your child’s tertiary education, you have about eleven years ahead of you before you will need the capital. Because of this, I would advise optimising the benefits of being invested in growth-assets (shares). This way you optimise the return possibilities by having time on your side and benefiting from the compounding effect. Starting to save early on, and of course, benefiting from compounding in the longer term, will help to ensure a successful investment strategy. I would advise adding a monthly contribution to your lumpsum investment to ensure you are saving enough.
It is important with any investment to understand that we first need to choose a suitable investment platform and product that will best suit your needs and contribution levels. Firstly, you need to choose which investment platform you want to invest in. Here you have a wide range of options. My advice will be to choose a LISP (Linked investment services platform). As the fees are transparent and there are no penalties associated with any changes made to the investment. Examples of these platforms include PSG Wealth, Allan Gray and Ninety One. It may also be good to compare the admin fees of a few options.
The success of the investment will ultimately be determined by the investment strategy that is decided on for the underlying funds. Are these funds suited to your risk profile and the investment term (time period) you are investing for? A longer time frame provides you with the freedom of allocating more to shares, as you will have time in the market that can help smooth out volatility along the way.
I will advise working with a financial advisor to determine the suitable needs and timelines for this investment. It is important to have a holistic approach when starting to structure your investment portfolio. There are a few important aspects that need to be taken into account, as this will also have an impact on the education saving goals in the longer term:
- Are you saving sufficiently for your own retirement at this stage?
- Do you have an emergency fund in place for yourself/family? If not, the temptation might be to dip into the education savings should there be a crisis.
- Do you have suitable risk cover in place to protect your own ability to work? Structuring income protection and suitable risk cover is imperative, and even more so if there are children who are dependent on your income.