What is a good long-term investment for my HK$20,000?

Sheila Dickinson replies: When it comes to education planning and funding, there isn’t a rule of thumb. You should first look at the fundamentals such as where you are now, how many children you have, how old they are, how long it is before you need the education fund, what ambitions do you have for your children and what level of education you want to provide.

I recently closed an education/insurance policy I had at a bank because my financial situation changed. I got a payout of about HK$20,000. What would be a good long-term invest with this money for my child’s university education? She is 11 years old now.

You have to decide where you want your child to study, what you want them to study, how long will they be studying for and then what will be the amount needed. There are other important costs to consider depending on where your child will be studying, such as flights home, visa fees and health and travel insurance that you need to add to your target amount. You have to take into account the inflation factor as well because the price today may not be the price in 7 years time.

Once you have your target figure, you need to review your overall budgeting again and consider how much of your current disposable income you can now afford to set aside and how to get the best out of your savings. In this case, you may start with this HK$20,000 and put in place a regular savings or investment plan to tap the advantage of compound interest effect.

In terms of investment, there are two principles that can help – time and diversification. The longer your investment horizon, the more you can weather the short term swings in the markets. Your investment time horizon in this case is simply the number of years till the start of your child’s university education.

With diversification, your investment’s volatility is smoothed over time and will move less in tandem with those swings. Keep in mind that equities can potentially reap the highest returns in the long run and cash the lowest. With an investment time frame of five years or more, you can diversify you investment across the three main investment markets – cash, bonds and equities. The precise proportion is determined by what return you need on your investment, and the level of volatility you are willing to bear.

It is important to ensure that you have adequate Life Assurance cover to make sure that the funds are still available even in the event of early death of a parent. You may also want to consider similar protection against a parent being diagnosed with a critical illness.

Like any financial plan, it is important to remain flexible and review your education fund and its progress on a regular basis with a professional financial planner. There is a good chance you will need to update your plans as your child grows older and the goals you have as a parent may change because of their input in deciding the type of course they want to pursue. You also need to be aware of increased education costs and other issues that will have an impact on how much is needed.

This article was contributed by Sheila Dickinson. Sheila is the Senior Vice President and a SFC Licensed Representative (SFC CE no: ANS128) with ipac financial planning HK Ltd. Sheila is also a Technical Representative with the Professional Insurance Brokers Association, Registration Number PIBA-0428-007924. Sheila can be contacted at financial.planning@ipac.com.hk.

ipac is licensed with the Securities and Futures Commission of Hong Kong, CE No. AAN641. ipac is a member of Professional Insurance Brokers Association, member number 0428.

In preparing this information, we did not take into account the investment objectives, financial situation or particular needs of any person. Before making an investment decision, you should speak to a financial planner to consider whether this information is appropriate to your needs, objectives and circumstances.