Reflecting on lessons from Dad on Father’s Day
As Father’s Day approaches, Nic Whittles, father of one, is reminded about the debt of gratitude he has to his own parents, who made provision for him to study.
“It all comes down to planning,” says Nic, who is an Employee Benefits Consultant at 10X Investments. That, he says, is why he has been putting money into a 10X Investments unit trust since his son, now 3, was born.
“My parents planned ahead and made provision for me, which meant I was able to study when the time came.”
“Even if your child ends up not wanting to study,” says Capetonian Nic, “there still needs to be some plan in place so they can be themselves.”
In addition to putting money aside so that Nic and his brother could study, their parents regularly invested money for their own retirement. They have a decent retirement nest-egg and are on track to be able to preserve their standard of living in retirement and not have to rely on their children to support them.
Nic is grateful to his parents for having planned well, meaning they gave him a good start in life. They have also passed on the values that underpin the choices they made.
“That has been passed on to me, that I must take care of myself,” he says. “If you don’t put plans in place early it will probably be a struggle eventually.”
Father’s Day advice from a new dad
There are many things on a new father’s mind. Chris Eddy, 10X Investments senior investment analyst and father of a newborn baby, shares some thoughts:
I want to protect my daughter from harm, but I also want teach her to take care of herself. I want to encourage her to be independent and adventurous, but I would also like to make sure she has a safety net.
When it comes to helping her to develop independence, courage and curiosity I can only promise to “do my best”. Thankfully, when it comes to making sure there is a safety net, I can be much more specific and apply lessons based on a lot of evidence.
As is usually the case in investing, a key to success is to start early and choose carefully. When it comes to investing for a child, a little bit can go a long way, which means you don’t have to save a lot in the beginning. If you can save consistently from when your child is born, you will be amazed at the power of compounding, which is where growth takes on the snowball effect, and you earn growth on the growth and so on. Those small amounts invested today will grow into significant savings.
As your child grows older, from an infant into a toddler, instead of an additional toy at birthdays a greater gift to your child would be to invest in his or her future. Saving a small amount now will have a much greater impact on their life in the future.
The investment may be earmarked to fund tertiary education or potentially as a ‘coming of age’ 18th birthday present. Whatever the intention, the time horizon is long-term. This means you should choose a high equity portfolio, which will give the best growth over the long term. High equity is often equated with high risk, but this isn’t the case over the long term. Over periods of five years and longer, a high equity portfolio consistently delivers superior returns, with similar risk to medium or low equity portfolios. The downturns over any short-term period will look insignificant over a long-term time horizon.
Remember, though, that compounding works both ways. As your investment grows, you must take care to ensure that fees are not taking an ever-bigger slice of your savings.
Keep your fees below 1% to make sure that your savings are working for you and not for the industry. The industry average fee is around 3%; 10X Investments always charges less than 1%. The difference will be reinvested on your child’s behalf to compound over time.
As with all investments, it is important to scrutinise your options carefully. Try to understand the underlying terms and conditions. Often that will seem impossible and will require an advisor. If you can’t understand the policy wording and need to ask an advisor’s help with key choices, you should think carefully about whether this is the sort of policy you want to invest in.
