investing for children education

How to invest for your children’s education

For most of us, securing our children’s future and happiness is our primary goal. From the time they are born, our focus is on them; ensuring their needs are met and providing them with the best start in life. As parents, we aspire to give our children more than what we had… a way to improve the lives of the next generation.

Education, specifically a private education, is viewed by many as a way to not only invest in their child’s future, but to provide them with a platform that will propel their all-round development and their professional networks in addition to the perceived exceptional academic standards.

But private schooling doesn’t come cheap. It’s a long-term commitment and can cost from £3000 upwards per term depending on the school. That’s a minimum of £9000 per year at least, not including school trips, uniform and other miscellaneous costs. Term fees for secondary schools are usually higher. We are not trying to scare you… we’re simply saying that if you do want to invest in a private school education for your children, it needs some thought and planning and that’s what we are here for.

So, the question is, what should you be doing so that you can afford these fees…here are some of our thoughts:

Plan, plan, plan… we cannot stress the importance of planning. If a private education is something you aspire for, for your children, plan on the saving and investment mechanism as soon as they are born. Timeframe is important. It could be that you want them to go to private school for their secondary education and not for the primary years. In that case, you have more time to save and invest and build up a healthy nest egg for them.

Assess your risk appetite and attitude… This is crucial when deciding what investment vehicles, you might choose, because investment involves taking risk. It’s interesting to note that people’s risk appetite changes as they grow older (it usually reduces). It also depends on your financial position. It could be that you may have some funds to invest in higher risk investments with the hope of earning higher returns. If you are expecting a return of 8-9%, you are likely to be taking on significant risk in the current market scenario. Our team will work with you to assess your current financial position, taking into account your earnings, assets, savings, mortgage and inheritance to determine your risk appetite and recommend the best investment strategies for you.

Investing in funds… One of the ways to build and grow your income is to invest in funds. Funds are basically investments in the stock market, but each fund consists of a basket of stocks of different companies. Funds are rated based on their risk profile and their returns. It is a fact that in the long term, investing money in the stock market through specific funds will produce much higher returns than even the best savings accounts.

We work closely with our clients to understand their needs, financial position and financial goals and recommend funds that best suit them. For those of you more interested in the nitty gritty of funds, we found this insightful guide on investment funds in thisismoney.co.uk.

ISA’s… The tax-free advantages of an Isa mean that Individual Savings Accounts (Isa) are a must for parents looking to save money. You have an overall £20,000 annual limit on investments which will see returns given tax free. You can choose whether you want to split this between Stocks & Shares ISAS, cash ISA (including Help to Buy ISAs), innovative finance ISAs and Lifetime ISAs

Grandparents…If your parents intend leaving a sum of money to you or your children, they can save on inheritance tax of 40% by paying for school fees and giving you your inheritance in their lifetime. It’s worth having a chat with them.

We can work closely with grandparents to understand their cash flow needs and find ways in which they can help with your children’s school fees and reduce the inheritance tax burden. A lump sum is free from IHT if the person making the gift survives for seven years after.

IHT is not incurred by those who contribute a regular amount from their income, assuming the money donated does not affect the lifestyle of the donor and thus force them to use savings. If grandparents use their stored wealth to provide a regular income, then they can gift from this free of IHT worries. 

The key to meeting your financial goals is to plan effectively and to plan early. One of the areas we like to focus on is the Annual Portfolio Review. For us, this is key. It’s vital to remember that as we grow older our financial goals and aspirations can and will change. And that change will require a change in investment strategy. The best way to share this with us is through the Annual Portfolio Review. During this review we will assess where you are, where you’d like to be and recommend how you should get there with regards to your financial goals.

Investment offerings, interest rates, tax rates and financial products are also rapidly changing factors in the overall investment arena. It is likely that during your Annual Portfolio Review, we will be able to recommend new investment products and offerings that are better suited to your needs. It’s, therefore, sensible and prudent to meet your advisor every year to adjust your portfolio if there is something better out there.

The Duke Godley team has been working with families for the last 30 years, building relationships and nurturing them to meet their financial goals and aspirations so that they can give their children the best start in life, whether it’s a private school education, a deposit for a property or a once-in a-lifetime wedding.

Give us a call on 0208 515 1200 if you think we can help or drop us a line at dgfp@godley.co.uk and we’ll get back to you.

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