One of the questions we receive quite frequently from our viewers is where to invest for their children’s future. The answer depends on what the investment is for.
Saving for next year’s school fees would be a very different investment decision from saving for your six-year-old’s tertiary education. Investing to provide them with a future legacy, would again require a different approach.
If you are saving for the short term, for example for school fees over the next few years, then you would want to take a low-risk approach and invest in a low-risk product such as a fixed deposit or a money market unit trust account.
However, if you are saving for future education and have more than five years to invest, then you need to invest in a product that can provide you with growth. A diversified unit trust with exposure to offshore and local investments would be an example of an appropriate investment for longer than five years. There are many low- cost solutions that also offer low monthly minimum contributions.
If you are looking to invest to create a legacy for your child, then opening a tax-free investment account in their name is a great way to kickstart their future.
Your child qualifies for the R36 000 per annum contribution, so you are not limited to your own allowance. In the event of your death, no estate duty would be payable as the account is already in your child’s name.
Your child could also contribute to the fund as long as the total contributions don’t exceed R36 000 a year. The downside is that at the age of 18 your child could access those funds, so maybe don’t tell them about it until they are bit older.
If you start investing for your child at a young age, the power of time and compounding will provide them with a secure future.
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