Don’t you wish there was an instruction manual for parenting? Daily child care is enough of a challenge, and then there’s the future to worry about!
How much do I need to save for my child’s college years? What are the best investments for retirement? What will happen to them when I’m gone?
These are questions all parents ask, but there is no playbook, no step-by-step guide because everyone’s situation is a little different. In this article, we discuss some investment tips to help alleviate your financial worries.
What Should I be Investing For?
It all begins with setting investment goals. These are, of course, personal, and will vary from parent to parent. Only you can answer this question, but some common goals that parents often pursue include their child’s university fees, their retirement, what they plan to leave behind for their child, and for the general uncertainties of the future.
Investments can be done in a myriad of ways and different types of investments serve different purposes. It all depends on your investment needs and risk appetite. We look at how parents can use investments to save for some of the common goals in the following examples.
1. University fees
Saving for university tops the list of concerns among Asian parents, as we put a high value on education. Unfortunately, higher education also comes with a matching high price tag.
What can you invest in then? One example could be bonds.
Bonds are basically an IOU between you (the lender) and corporations or governments (the borrower). When you buy a bond and invest money into it, the borrower will pay you back the full invested sum on a certain date, called the maturity date.
Bond maturities can range from 1 to 10 years or longer. Buying a bond that has a maturity date that coincides with the future lump sum cash outlay required for your child’s university fees is one option for parents. Consider this as savings tucked away upfront for the future.
A bond also offers the additional benefits of paying a regular income at fixed intervals throughout the life of the bond. These regular payouts can help you pay for your other ongoing financial commitments in the meantime.
2. Retirement
Many of today’s parents want to free their children from the large financial burden of supporting them through their retirement. As such, more parents are looking at ensuring they have enough for their twilight years.
If this is you, you could look at investing in equities that pay dividends. Commonly referred to as “stocks” or “shares”, equities allow you to invest in a company by buying shares of that company in the stock market.
When we hear the word “stocks”, we might think of the necessity to buy and sell when the time is just right. And while you can trade stocks like that and profit from doing so, you would also need time, information, and an appetite for risk.
But often as parents, you might not have time to monitor stocks so closely. In this case, look at buying stocks for the long-term instead and focus on blue-chip stocks that typically pay out steady dividends. Blue chips refer to well established companies with stable earnings. Investing in blue-chip stocks is a strategy that could pay off in the long run and make for a happy retirement.
3. Legacy
What will you leave behind? Many parents want to leave their children with a legacy endowment to give them a headstart in life.
If you have the means, you could invest in real estate with the aim of leaving it behind for your loved ones. What’s more, this investment can offer additional benefits. Just by having an additional property, you could:
- Rent it out to provide you with additional income in the years that you don’t need to live in it.
- Sell it later if the value of your property becomes favourable or if you need the money.
- Put it to your own use later; as a starter home for when your child starts their own family, or as a more cost-efficient home when you become empty nesters. Your children can also inherit real estate when you pass away.
— and you don’t even have to physically own a property to get these diversification benefits.
You could instead choose to invest in a Real Estate Investment Trust (REIT) — a real estate-specific fund — and take advantage of the real estate market without committing a large sum on a second home.
4. Life’s Uncertainties
Other than those large goals mentioned above, there are still many more reasons to invest. If there’s one thing for sure, it’s that life will throw us many unexpected difficulties — illness, a death in the family, job loss etc.
As parents, we want to protect our family from what we can’t foresee. Insurance products cater to some of these needs, but you can also build a nest egg through investments. And for those of you who are not familiar with investment products, mutual funds can be a good option.
Mutual funds offer plenty of choices and are a good choice for new investors for the following reasons:
- Affordable: The required initial and subsequent outlays are often small, though they can also be as big as you want..
- Flexible: With mutual funds, your money doesn’t have to be tied up for long periods of time; you can opt out should the need arise (though there are fees to consider), which makes it ideal for use as a fund for unexpected events.
- Managed With Expertise: You don’t need encyclopedic knowledge about markets. Often, you can choose the amount of risk you’re comfortable with and then sit back and let the experts do their job.
Ultimately, there is no single investment that can answer all your financial needs as a parent. Finding the right mix of investments to cater to your family’s goals is the key.
There might not be an instruction manual for parenting or for what to invest in as parents, but financial advisors and various resources that are available can help you find the answers you are looking for. Do bear in mind though that all investments carry risk. No matter how “safe”, there is no such thing as a truly safe investment.
Want to know more about making financial investments? Have an Eastpring Unit Trust Consultant get in touch with you to discuss your investment objectives.