What would you do with your money right now, if you had 30 years of foresight?
Our Relationship Manager, Nicholas Mohammed, shares great advice given to him by one of our treasured clients. Here are some actionable tips to securing your child’s future – by a loving grandfather.
This article is an 11 min read.
Mr J (name changed to protect the amazing) visits our head office every month to put money into a well-known local mutual fund for his grandchildren. He’s been investing on their behalf for the past eight years, monthly, like clockwork. In the early days there were two grandchildren and now there are twelve; ever so often one of them accompanies him and they hand over their money with pride and excitement. I remember when he came to open an account for the tenth grandbaby (she would have been a few weeks old at the time) he told us, somewhat abashed, that everybody would be getting just a little less that month because he wanted to share the deposits equally. Mr J is a Superstar Grandpa.
What can we learn from him? Let’s break it down.
Not yet a month old and already Grandbaby 10 had a play in our local stock market via a mutual fund. The earlier you start (and the more consistently you save), you’ll be able to amass a larger sum and will benefit from the power of compounding.
It’s probably not an exaggeration to say that the majority of Trinbagonians have a Unit Trust fund account, given to us by Aunty A or Uncle B before we even knew what it was. It’s also probably not an exaggeration to say that the majority of these accounts have only had one or a few deposits and are now dormant. An initial $400 deposit can only go so far even if it has been working hard for fifteen years.
Grandpa J’s grandbabies are all invested in growth mutual funds. There is another fund that features a capital as well as minimum return guarantee he could have selected, but Grandpa J knows that the earlier you start and the more long-term the outlook, the better it is to invest in equities, via mutual or exchange traded funds yes but also through direct share investments. This is so because stock market volatility flattens and typically outpaces inflation. It’s important to understand this because we have a largely risk-averse investment culture, but our fear of losing while investing leads to us losing via stagnant savings and missed opportunities.
As young as some of them are, Grandpa J involves his grandbabies in the investment activity he does on their behalf. Similarly, we should all talk about money, finances and investments with our children. Lovingly tending to a nest egg that an ill-prepared (adult) child squanders when it’s handed over to them has happened to many a frustrated parent. It’s important to transfer not just dollars and cents but knowledge of and ease with money decisions. Providing a financial steppingstone for their future is great but giving them guidance at the present time is also essential. Get them involved in what you are doing for them and teach them about financial planning. As simple as a monthly allowance and letting them save to buy what they want will help them understand the value of money. It’s simple, yet effective.
My parents always advised this, and I have tried my very best to follow these words. Similarly, even before he became a superstar grandpa in our eyes, Grandpa J was Mr J, a regular who consistently deposited money into his own investment accounts. You need to take care of yourself first and you also want to avoid having to dip into your children’s kitty at the first sign of trouble. To get to the primary goal of ensuring that our children don’t struggle or see the hardships that we may have faced growing up, that they could reach their desired career path, drive a car at 18 or build their dream home by 25, we must ensure that we ourselves have that solid foundation to pave the way.
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Some other things to think about:
Not when that’s all you’re doing. My parents tried to help me on my career path but they had started too late and kept all their funds in a bank savings account. Like many, when they said “we’re saving for Nick’s education” they meant that literally, but savings alone isn’t enough because it can’t outrun economic inflation and neither can it outrun “lifestyle” inflation which is what happens when you improve your life so much so that you increase your expectations as to what your child deserves, is due, or expects. This typically comes with a higher price tag. So, look at alternatives to the traditional saving methods. There are many different financial investment instruments that could bring higher growth to your funds and at the same time suit you. Investment instruments are not only long term but short term, some provide a flat return, others variable interest and many features can be tailored to address your needs and wants for their future if you opt for an investment management service.
So Junior is 14 and can’t wait to apply for that great sports psychology degree in Switzerland. Don’t panic. If you’re now starting, the phrase “better late than never” was made for this moment. Of course, so was “pie in the sky”. This is where the brass tacks and hard truths come into play. Be practical. Create a monthly budget. This allows you to clarify your financial position and calculate how much of your savings can be converted to investments. Always remember to have your objectives clear before delving into an investment. Know your timeline, financial aim, purpose, how much can be invested and maintained and most importantly how could that investment assist you to attain the goals set out. Don’t get hooked by quick fixes and get rich schemes which could see you lose it all. After the reality check, it’s then time to manage expectations. We can’t do everything for our children; they need to spread their wings and fly, but we can make that strip a little longer so that their take-off can be comfortable.
Your investment plans should change as time goes by. Even if you were an early bird who started investing for your child’s tertiary education when they were just born, the strategies to employ when your time horizon is eighteen years differ drastically from when the big payout date is a year or two away. The shorter the term, it’s prudent to begin “playing it safe” by converting a larger allocation of your portfolio to fixed income instruments despite their lower rate of return. But you still have to consider liquidity demands, and re-investment dilemmas from frequent interest payments for example. Throughout the investment period, you’d want to have ensured you had your money working as hard for you as you worked to get it and this comes through a diversified and well-balanced portfolio which could be comprised of assets like ETFs, mutual funds, direct stocks, real estate, bonds, annuities and other insurance products, fintech investment innovations and the list goes on. An advisor will ensure your investment strategy is personalised to your specific situation, will introduce you to opportunities that should suit you best and just as importantly, steer you clear from those opportunities outside your risk level.
We all have dreams growing up. Some are accomplished and others not. I was one (and definitely not the only) to have a career direction curtailed due to the lack of a proper nest egg. Today, as parents, our major aim is not letting history repeat itself.
If you want to secure your children’s future, investing is the key. With the guidance of a professional advisor, your funds can grow leading to your financial independence and a future for your children that is not as uncertain as perhaps yours was.
