Clerical officer Janet Miller’s* stress escalated as the start of the academic year drew closer because she was not prepared to cover the tuition expenses for her son, who was scheduled to start his freshman year at university.
The private sector worker was banking on her August bonus that she usually receives to pay the expenses for his first semester. Unfortunately, her company advised staff that because of its poor financial performance, a bonus would not be paid this year.
Ms Miller’s heart sank as she read the memo circulated to employees. She now wondered how she would pay her son’s tuition…
For Delories Jones, senior vice president of Sales and Marketing at JN Fund Managers Ms Miller’s circumstance underscores why it is important for parents and guardians to plan for their children’s education, particularly for their tertiary studies, which is often a very costly undertaking.
Investing is a good means for creating a pool of funds for future endeavours such as education financing says Mrs Jones. And she advises that among the smart, long-term options parents can choose to meet their financial needs are mutual funds.
Investing early is key, she points out, as it allows parents to take full advantage of compound interest over time. With careful consideration given to financial goals, risk tolerance, and investment timeframes, mutual funds can yield great benefits.
“The longer your investment horizon, the more time your money has to grow,” she explains.
She advises investors who choose mutual funds to select a mix of funds that suit their risk tolerance and goal attainment targets, particularly since education expenses often have a fixed date.
“It’s essential to balance risk with potential returns,” she says.
By investing in a variety of assets, mutual funds spread risks, which can help balance potential returns with the level of risk one is comfortable undertaking. This is particularly helpful when saving for a fixed expense like education, the JN Fund Managers executive notes.
By setting up an Automatic Investment Plan (AIP) to automate a fixed contribution monthly, Mrs Jones says persons can also reduce the impact of market volatility through dollar-cost averaging. By that she means that the investor, by making a fixed contribution monthly, will, over time, benefit from a lower average price per share than if they had purchased all the shares at once. Therefore, if Ms Miller had invested in mutual funds and made her contributions via an AIP monthly, she would be at an advantage in the long run, regardless of the market conditions over the lifetime of her investment.
As the goal date approaches, parents can shift to more conservative mutual funds, such as market funds, Mrs Jones says, to protect their capital and ensure stability until the funds are needed.
“Education funding is a long-term commitment. Be prepared for market fluctuations and avoid impulsive decisions based on short-term trends,” Mrs Jones cautions.
Consulting with a financial advisor is critical, she advises, to develop a personalised investment strategy and staying informed about the performance of mutual funds, fees, and changes to the investment plan. Regularly reviewing portfolio statements is also essential for staying on track with financial goals.
* (Name changed to protect identity)
