Planning for university costs: Investment strategies for South African parents

In your fast-paced professional life, finding the time and headspace to plan for your child's future education can be challenging, to say the least. On top of all your other commitments at work and home, this kind of financial planning can start to feel like just another thing you need to put on that famous list of things you need to do but never find the time for. Never mind the unsettling feelings that come with not having this set up.

This one is important, and here's why:

Ensuring that you have the financial resources available so your child can pursue higher education is a crucial investment that can significantly shape their future success. That's particularly true here in South Africa, where decent jobs are scarce, and competition for available positions is often high.

At Momentum Velocity Club, we want to help you provide those opportunities to your child, so in this guide, we offer our insights into long-term investment strategies. We have drawn up two savings scenarios featuring plans specifically tailored for parents planning for university or tertiary education fees.

Remember: If you found this guide useful, we encourage you to chat with us about how we can assist you with developing a personalised financial plan that includes an education savings fund to give your children the perfect tertiary education.

Want to book a free consultation with us? Our team of experts look forward to meeting you!

The importance of a diversified portfolio

Before delving into specific savings plans, we first need to explain the importance of building a diversified investment portfolio.

Diversification can include a mix of equities, bonds, real estate, and savings accounts. Each asset class reacts differently to market conditions, providing a balance that can protect against significant losses.

Investing in a range of assets also allows for more consistent growth over time:

●       While equities might offer higher returns, they come with higher volatility.

●       Bonds and savings accounts, on the other hand, provide stability but with lower returns.

●       Real estate investments can offer both appreciation and rental income, adding another layer of security and potential growth.

By spreading your investments across these various assets, you mitigate the risks associated with any single investment performing poorly.

2 Education investment scenarios

Now, we present 2 education savings scenarios developed by the Momentum Velocity Club (MVC) team. These scenarios cover a broad range of personal circumstances. While none might specifically resonate with your circumstances, the goal of these is ultimately to illustrate the benefit and necessity of a disciplined education savings plan.

Scenario 1: Starting late but strong

●       The estimated annual tertiary education cost (including tuition fees, books, stationary, and entertainment but excludes accommodation) is R102 800.

●       Duration of study: 3 years.

●       Years to save before study begins: 5 years (start of high school).

●       Estimated future education costs: R479 000.

●       Estimated monthly amount to save: R5 456.40 increasing 10% per annum with an assumed growth of 8% per annum. 

For parents who start saving later, typically when their child enters high school, the monthly savings requirement is higher due to the shorter time frame until the funds need to be available. This scenario emphasises the need for a disciplined savings approach, possibly exploring high-yield savings accounts or conservative investment funds that can offer better returns while maintaining a lower risk profile.

Starting late necessitates a focus on steady and reliable investment options. Consider a balanced investment portfolio consisting of bonds, fixed deposits and cash, and some exposure to local equities and offshore assets. These can offer returns that outpace inflation while protecting the principal investment.

In addition to these investments, it might be beneficial to look into education-specific savings plans that can offer tax benefits or matching contributions from the government or employers. These plans can help amplify your savings efforts, making it easier to reach your goals within a shorter period. Regular contributions, combined with the power of compound interest, can significantly enhance the growth of your savings, even if you start later than ideal.

Scenario 2: Early bird advantage

●       The estimated annual tertiary education cost (including tuition fees, books, stationary, entertainment but excludes accommodation) is R102 800.

●       Duration of study: 3 years.

●       Years to save before study begins: 13 years (Starting from Grade 1).

●       Estimated future education costs: R955 00.

●       Estimated monthly amount to save: R2 095, increasing 10% per annum with an assumed growth of 8% per annum.

Starting to save early offers significant advantages. With a longer investment horizon, parents can benefit from compound interest and potentially higher-risk, higher-reward investment options. This scenario suggests a more aggressive portfolio, including a higher mix of equities for growth and bonds for stability, leveraging the power of time to build substantial savings with lower monthly contributions. Equities (local and offshore), or stocks, can provide significant growth over the long term, making them an ideal choice for parents with a longer savings period.

For families anticipating higher education costs, starting early is crucial. This scenario, despite the higher yearly costs, shows the importance of an aggressive savings strategy complemented by a diversified investment portfolio.

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Essential investment strategies for busy professionals

●       Automate your savings: Set up automatic transfers to your investment accounts. This ensures consistency and removes the hassle of manual transfers. Automation helps maintain a disciplined saving routine, which is crucial for long-term goals.

●       Consult with the MVC experts: Given your demanding career, leveraging the expertise of MVC financial experts can help tailor investment strategies to your specific needs, dreams and risk tolerance. They will provide advice and a personalised budget, keeping you on track with your investment goals.

●       Periodic reviews: Schedule regular reviews of your investment portfolio. Adjust your investments based on performance and changing financial goals. Regular reviews ensure that your portfolio remains aligned with your objectives and risk tolerance.

●       Educational savings accounts: Explore specific investments designed for education saving. These accounts can offer benefits like tax savings.

●       Emergency fund: Ensure you have an emergency fund to cover unexpected expenses. This prevents the need to dip into your education savings in case of financial emergencies. A well-funded emergency reserve can protect your long-term investment plans from short-term disruptions.

Conclusion

Investing in your child's future education is a commitment that requires strategic planning and disciplined saving. By understanding the benefits of a diversified portfolio and selecting a savings plan that fits your timeline and financial capacity, you can secure a bright future for your child without compromising your current lifestyle.

Start today by speaking to MVC experts, and let your investments work for you, even when you're focused on your career and family.