KCLau's Money Tips Forum

[mel]

Hi KC,

I have a new born baby. I would like to start saving for an education fund from now onwards. What would you recommend?

Thanks.

[KCLau]

A few places you can consider:

1. Endowment policy - I wrote a review here: http://kclau.com/insurance/great-eduplanner-education-endowment-insurance-plan/

2. Skim Simpanan Pendidikan Nasional - I wrote about it here:
http://kclau.com/money-saving-tips/personal-tax-deduction-education/

3. Unit trust or Investment-linked fund

4. Stock

4. Real estate properties

I think it will be easier to narrow it down the choice if you inform us your budget, and where you intend to send your child to for tertiary education (oversea, local univesity, college?)

[Christopher]

Hi Mel

KCLau was right. Unit trust or investment-link policy would be one of the many choices.

Considering the fact that its your new born baby, time is on your side.
Therefore, you can actually create a good balance investment portfolio for your child. This should include a good mixture of the following:

1. Global Bond Funds - Include Malaysian Bonds as well
2. Global Balanced Funds
3. Global Equity Funds - Partially include Malaysian equities as well

You should invest the same amount of money every month and regularly. This is what we called 'dollar cost averaging'. You can never catch the lowest price in any investment market but you can certainly try to get the best average price. In this way, you will almost certainly make profits over the longer term period. Especially at this juncture, most global equities are already bottoming.

Hope this helps.

[KCLau]

This is what we called 'dollar cost averaging'

Christopher points out a very important strategy for passive investor. Saving money in unit trust and investment-linked fund definitely pull off this trick pretty well.

[tabuxander]

4. Real estate properties

I think it will be easier to narrow it down the choice if you inform us your budget, and where you intend to send your child to for tertiary education (oversea, local univesity, college?)

hi kc, could you explain more details to consider real estate as a children insurance investment.

[KCLau]

Hi Tabuxander,

The concept is very simple. Let's say you need about RM300k for your child education 18 years later.

Instead of saving roughly RM500/month that gives 10% return p.a. (at the end of 18 years will have RM300k), you can buy a house/ or shop lot about RM150,000. Mortgage about RM135k. For interest rate of 5.5%, the monthly installment will be RM985.93/month.

If you buy a good property, which gives you more than RM1000/month rental income, basically you don't have to save anymore after your 10% down payment. The installment will be paid using the rental. Whatever amount that exceed RM985.93/month is your surplus.

Average case is that you rent it out for RM500/month. It is still the same as saving RM500/month in unit trust giving 10% return per annum. After 18 years, your property value might have doubled also, become RM300k.

When the time comes, you can either refinance the house or liquidate it to fund your child's education.

Above is just a simple illustration. Of course investing in real estate need more experience and knowledge.