With soaring inflation, investing early not only makes perfect sense for building wealth but also helps to defray the cost of raising a child in Singapore.
“How to start investing for my children?” If that is a nagging question in your mind, read on because this article will discuss the financial goals you should set for your little ones and how you can utilise investment portfolio diversification to achieve your goals.
What Are the Financial Goals Related to My Child?
Every parent’s idea of what they want their child to experience growing up is different. However, there are some common financial goals that you may start working on if you want to give your children a financial head-start:
- Education funds are the most crucial since expenses can stretch from preschool enrichment classes all the way to overseas education. This financial goal is essential because it can help to cover the costs of their education and ease the financial burden on both you and your child in the long run. In Singapore, some of the best endowment funds are becoming popular choices for parents to save up for their children’s education.
- Emergency funds can cushion your children from unforeseen financial difficulties such as sudden medical problems, school-related costs or parents’ loss of income. All these unplanned circumstances can affect cash flow and emergency funds are useful for relieving financial strains that may affect your child’s well-being.
- Long-term financial security ensures your children are protected until they reach adulthood. This goes beyond managing the cost of raising a child in Singapore because it takes into consideration larger financial challenges such as buying a home, starting a business or starting a family.
How To Invest for My Child
First and foremost, you must establish the financial goals, how much you need to achieve and the investment period to reach the goals. These three components are inter-linked because the investment timeframe can help you decide what kind of investment products are most realistic to achieve the goals you set.
As a rule of thumb, high risk investment products may be more suitable for financial goals that need to achieve large sums within a short timeframe. If you have the flexibility of a longer investment period, like over 10 years, you can select from either high risk and low risk products or a combination of both to achieve the goals you set
Next, decide on an investment strategy after studying the variety of investment options in the market. Conservative and low risk investments may offer lower returns while more aggressive investments could provide higher returns but also means there is a chance of losing your capital. When in doubt, always use a financial calculator or seek the help of a financial advisor to determine how much you need to contribute to reach your desired goals.
How To Match My Goals With My Investment Portfolio
Assuming your son is five years old and you want to achieve the following goals:
| Financial goals | Investment period | Sum required |
|---|---|---|
| Overseas education fund | 15 years | S$200,000 |
| Emergency funds | Yearly | S$500 per year |
To achieve a large financial goal of S$200,000 overseas education fund, growing your money with even the best savings accounts in Singapore can be quite inefficient. Consider investing in higher yield products that allow you to grow your money without having to invest a large sum of capital. For example, investing S$10,000 in Syfe’s Core Equity100 with recurring S$900 every month can fetch you around S$216,000 in 10 years.
Alternatively, if you have a very low risk appetite, buying some of the best endowment funds in Singapore like Gro Junior Saver (NTUC Income), Tokio Marine Kidstart, Aviva MyEduPlan and Manulife Educate can also help to achieve the long-term financial target. These plans are conservative and provide additional medical and life insurance coverage that are not readily available from other investment products.
To achieve the yearly emergency fund of S$500 annually, leveraging fixed deposits or some of the best savings accounts in Singapore with multiplier features are low risk investment options that require minimum management. With financial institutions like Hong Leong Finance offering as high as 3.8 percent per annum for its fixed deposit, you can easily achieve your financial goal within a year with a S$13,500 deposit.
What Are My Investing Options
Overall, starting to invest for your children is a thoughtful and strategic way to secure their financial future. However, it is essential to approach investments with careful planning and consider factors like risk appetite, investment period and portfolio diversification to grow your funds most efficiently.
If you are new to investing, these are four of the most accessible investment options to consider.
Endowment Insurance Plans
This is a type of life insurance that provides both protection and savings benefits. It combines elements of insurance coverage with a savings or investment component. Some of Singapore’s best endowment funds are gaining popularity amongst parents because they can potentially yield better returns than regular savings deposit accounts.
Online Brokerages
The best online brokerages in Singapore provide highly efficient trading platforms to trade a plethora of investment products across many markets around the world. From stocks and bonds to exchange-traded funds (ETFs) and mutual funds, portfolio diversification can be relatively easy to achieved when you invest with an online broker.
Robo-advisors
Robo-advisors are automated investment platforms that use algorithms to create and manage a diversified portfolio based on your financial goals. The investment process is designed to be very straightforward so that both beginners and experienced investors can utilise them seamlessly. Invest with a robo-advisor if you prefer a more passive investment strategy.
Savings Account
A savings account is a type of deposit account offered by financial institutions that allows you to store their money in a secure and easily accessible manner while earning a modest interest on the balance. Interest rates of the best savings accounts in Singapore can range between 0.05 percent to over 7 percent. Savings accounts are great for short-term savings and they provide a safe place to keep money for emergency funds and regular expenses.