“A newborn baby’s future is high priority for parents. We all want the best for our children. We are all concerned about how much money we will need to give our children the best education. But are some parents lulled into a false sense of security by the thought that they still have plenty of time to save for their baby’s education? Education is expensive. You have to start saving today to ensure that you have enough money by the time your child reaches school-going-age,” says Cholo Obasi, Market Development Manager at Old Mutual.
Although saving before baby arrives is recommended, parents do still have options available for saving for their child’s future during the baby steps stage.
Here are a few investment principles to help parents ensure security of the child’s future.
- Understand time horizon and risk profile – if there are 18 years to go, there is enough time to invest in growth investments, which should ensure the best return on investment. But if there are only five years to invest then a more cautious investment strategy should be considered, because there won’t be time to make up market losses. Remember that cash is unlikely to outperform inflation over the longer term, although it may be seen as a safe haven during uncertain times.
- It is better to make regular investments over the long term. Most people want to invest when markets are doing well and tend to disinvest when the markets fall. It makes better sense to keep on investing through market lows when share prices are undervalued and a lot cheaper.
- Diversify – so that if one market does not perform well there are still other investments performing. Don’t focus on returns from individual investments. See your investment portfolio as a whole.
- Balance your portfolio – do not invest only in property or only in cash. Remember cash and bonds provide stability where shares and property potentially provide growth. Choose a professional portfolio manager whose job it is to investigate opportunities and make sound investments.
- It is time in the market that counts – not timing. The longer you are in the market the better will be your likelihood of making up for losses. If you decide to switch out of the market when it falls, you run the risk of realising losses and destroying your wealth.
- Remember each person is unique – a good investment for your neighbour is not necessarily a good investment choice for you, you need an individual plan.
- Invest with a company that has a proven track record and that is well known within the industry – do not invest with a company that offers astronomical returns that are simply not viable in current market conditions.
- Consult a financial adviser or broker who is licensed in terms of the Financial Advisory and Intermediary Services Act to assist you in compiling a holistic financial plan that meets your requirements and that takes your circumstances into consideration. Ensure that you budget and that you have medical cover, an emergency fund, and protection against the financial risk of death, disability or dread disease. Ensure that you have a legally valid will.
(Press release, Lime Envelope, July 2009)