In December 2011 MPs permitted Universities to raise undergraduate fees from £3,350 to £6,000, and up to £9,000 in “exceptional circumstances” such as Oxford and Cambridge. Financing a child’s higher education pathway has therefore potentially become significantly more difficult for a large percentage of those entering University this year and beyond.
This report investigates ways in which the burden of financing a child’s University costs can be alleviated via sound financial planning and a solid investment strategy.
Junior Individual Savings Accounts (JISAs) were introduced in November 2011 as a means to establish an investment portfolio for young children in order to give them as secure a financial start in life as possible.
Junior ISAs can hold cash like normal savings accounts, or they can take the form of Stocks & Shares investments, but all benefit from having a yearly tax-free allowance.
Depending on the type of ISA chosen, they can either provide instant access funds or a longer term investment fund helping to offer and secure a child’s financial future, whilst promoting the concept of structured saving to the next generation of investors.
It is calculated that three years of University schooling plus living expenses will run up to about £50,000 in the current environment. This cost is projected to increase steadily throughout the coming decade.
As a result, investment trusts can be one of the most effective ways of accumulating funds in time for a child’s higher education.
Investment trusts consist of diversified portfolios that are professionally managed. Because the portfolio contents are pre-selected by experts, opening an investment trust can be one of the simplest methods of establishing a successful long-term investment strategy.
Trusts exist with a variety of risk levels which allow investors to select on the basis of financial risk exposure versus return potential.
The level of risk accepted by an investor should depend upon factors such as the value of the initial investment, the length of time available before the child begins University and the investment growth requirement.
As independent journalist Malcolm Anderson states for example;
A trust might hold 30% of assets as cash, 30% as reliable bonds and 40% in diverse equities guaranteeing a stable return that is not overly subject to the volatility of the stock market.
However, a portfolio of up to 80% diverse equities may make better financial sense as the opportunity to earn greater dividends is increased but if the stock market takes a downturn the investor will still have cash on hand to recoup losses.
If the investment trust can be structured for the long-term – 10 years+ – even greater financial risks can potentially be taken which will yield the greatest returns in stable or positive conditions. Successful investments can be exploited for longer and there is also time to regain losses should stock markets suffer a fall. The fact that the natural short-term volatility of stock markets is balanced out over time means that investment trusts can be considered to be solid options for long-term financial growth.