Investing in your children’s future
No parent would deny that the start of this academic year is very different from previously. On top of the significant costs of kitting out children for school, many will have been worried by the recently published exam grades, as well as the ongoing Covid-19 health concerns. The return to school should, however, bring back a sense of normality to education, which will remain a key element of their future achievements.
Most parents want to give children the best education they can afford, which can mean financially supporting them in school and through university – with the hope of improving their prospects in life. So, what steps can parents (or grandparents) take to meet the long-term costs associated with education, and to give their children the best start?
Time horizon is key
It cannot be stressed enough how important having a long-term financial plan is. The earlier you start putting money away, the more likely you are to build a substantial fund, as your investments have more time to accumulate. Regular investing, even if it’s a relatively small sum, can also provide substantial returns. Although not guaranteed, equity markets have historically increased in value over the long-term. Conversely, they tend to be more volatile in the shorter term (often in line with the economic cycle). By regularly investing, you can smooth out these fluctuations – an effect that is often called pound cost averaging, particularly important with children’s time horizons being long.
Long-term investing can also benefit from income compounding, when dividends are reinvested. Over time, both your original investment and the reinvested income can grow. For example, over 25 years to 31 May 2020, the share price of The Scottish increased by 225%. The share price plus dividends taken as cash would raise this return to 357% over the same period but, if those dividends had been reinvested, the total return would have been 497% (all before any dealing expenses).
The combined benefits of pound cost averaging and compounding are likely to increase the greater the time available to invest. That’s why it’s worth starting early, a timely start can make life a lot easier when educational expenses fall due.
Investing can be for everyone
Technological change has broken down many barriers, giving parents (and indeed all investors) information and opportunity that would have been out of reach previously. Investing is more accessible than ever thanks to the rise of online, often low-cost, share dealing platforms.
Whether you’re looking to invest a small sum every month, or larger lump sums, there are numerous options available. The major share dealing platforms typically offer products appropriate for investing for a child’s future. These may give access to shares that are traded on a stockmarket, including investment trusts.
Long-term investing with The Scottish
Here at The Scottish, our focus is on managing a global equity portfolio. We invest with an eye to long-term growth and aim to increase our dividend ahead of UK inflation, which we’ve accomplished in each of the last 36 years, qualifying as a ‘Dividend Hero’ according to the Association of Investment Companies.
Our approach – at a glance
– We’re contrarian investors, and so take a different view from the crowd. This lets us curate a portfolio of unfashionable and undervalued stocks that are ripe for improvement.
– Our portfolio consists of our best ideas on a global basis, diversified by sector and region.
– Our independent, closed-ended structure aligns well with the long-term goals of our investors.
– Our Ongoing Charge Figure (OCF) is low relative to our peer group which is valuable as a small difference in OCF can affect an investor’s return over the long-term.
Please always remember – if you’re unsure about investing, or are worried about making any decision, you should always speak to a professional financial adviser.
Please remember that past performance may not be repeated and is not a guide for future performance. The value of shares and the income from them can go down as well as up as a result of market and currency fluctuations. You may not get back the amount you invest.
The Scottish Investment Trust PLC has a long-term policy of borrowing money to invest in equities in the expectation that this will improve returns for shareholders. However, should markets fall these borrowings would magnify any losses on these investments. This may mean you get back nothing at all.