FINANCING YOUR CHILD'S EDUCATION
Investing for your child's education should be a major priority and there are just three fundamental considerations: start early, invest in the right name and use assets that will give you the highest returns.
An investment of $100 a month for 10 years at 5% will only give you $15,500 at the end of the period, whereas $100 a month for 15 years at 10% would be worth $41,500. The extra time, coupled with the higher rate, makes a huge difference.
Don't invest in the child's name or in the name of the parent as trustee. In both cases you'll be liable for children's tax at 66% when the income exceeds $416 a year. It is much better to invest in the name of the lowest earning parent and keep the money in a separate account earmarked for the child.
The best vehicle is a quality share trust. You can start with as little as $1,000 and make regular monthly contributions of just $100. We used conservative figures of 10% per annum in the above example but you may well do far better. For example, someone who began investing $100 a month in January 1990 into a fund that matched the All Industrials Accumulation Index would have accumulated $29,500 at December 2000 - a compound gain per annum of 13.32%.
Another option is to plough money into your home loan, paying off the loan and freeing up funds by the time your child reached the expensive years. If you would like to learn more about your options and the best strategy for your particular circumstances, call your nearest Whittaker Macnaught office for a consultation.
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