Advise request for child’s education investment plan

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Topic Author
Spgold
Posts: 33
Joined: Fri May 10, 2019 4:52 am

Advise request for child’s education investment plan

Post by Spgold »

Hi all,

We are soon expecting our newborn to arrive and I would like to start researching my options for securing the after school educational expenses / fund.

There is no possibility for a lump sum amount, but instead there will be monthly deposits of € 400-500.

Since my time horizon would be 18 years, (once school is over and University time arrives) I was thinking between Vanguard all World Accumulating (0,22 TER) or perhaps Vanguard Life strategy 80 (0,25 TER).

Questions regarding strategy :

Should I opt for the Lifestrategy 80, or it does not make sense due to time horizon and constant monthly purchases ?

Is there another alternative strategy / investment approach that I am missing apart from UCITS ETFs ?

Assuming all goes well the capital that will be invested by the end of this time frame would be min €86.400 (18x12x400) and the withdraw rate would be about 20% annually for a 5 year time frame.

My main concern would be if by the time the 18th year arrives we have a market crash which takes too long to recover and perhaps the principal itself may be reduced, allowing less than the 20% of the original one to be withdrawn.

Any thoughts / suggestions ? If additional infos are required please do let me know.

Thanks

P.S. I am a European citizen , taxed in Europe with no connections to the US.
glorat
Posts: 905
Joined: Thu Apr 18, 2019 2:17 am

Re: Advise request for child’s education investment plan

Post by glorat »

Spgold wrote: Mon Jun 14, 2021 3:13 am by the end of this time frame would be min €86.400 (18x12x400) and the withdraw rate would be about 20% annually for a 5 year time frame.

My main concern would be if by the time the 18th year arrives we have a market crash which takes too long to recover and perhaps the principal itself may be reduced, allowing less than the 20% of the original one to be withdrawn.
Do you really care if the market crashes by 50% if you are still able to achieve your targetted investment amount? I would assume not

Next question - are you trying to maximise your chances of meeting your target eduction pot by 18 years? Or are you trying to strike a balance between maximising returns over 18 years while still being fairly sure of hitting your target?

If the latter, it is extremely likely over an 18 year period that 100% equities will be lower than any given choice of today. And obviously 100% equities would be high end returns. 80% would also be absolutely fine as that would increase your chances of hitting target (due to lower risk/volatility) without hurting returns much if any.

If the former, just put the whole thin in cash, and you're guaranteed to end up with exactly 86,400 after 18 years, which you can guarantee to spend 20% over 5 years

If somewhere in between, I would pretend you were managing a retirement pot for retiring in 18 years. You can pick a LifeStrategy 2040 retirement fund, which I think would 99.9% get you over your target while control your risk very nicely.

Note all options are good because you don't need to "assume all goes well" much. You apparently need to hit 0% net returns after 18 years, which is very very easy to hit.
Topic Author
Spgold
Posts: 33
Joined: Fri May 10, 2019 4:52 am

Re: Advise request for child’s education investment plan

Post by Spgold »

Hi Glorat,

Thank you for the input.

The € 86.400 refers to the capital that will have been invested by the 18th year, which by today’s standard is the minimum amount required.

With this in mind the “cash” solution is a no go due to inflation and the probability of tuitions having gone much higher by then.

On the other hand and as far as a market crash is concerned it would sting if we end up with less than € 86.400 when the 18th year arrives.

So, what I am actually trying to do is find a sweet spot between preserving the initial capital and at the same time beating or even matching the higher cost in 18 years from now.

Unfortunately I am not aware of Vanguard providing the LS 2040 fund in Europe , but rather the fixed LS 60/40 , LS 80/20 etc...

My initial thought was that since I am staring with low monthly contributions there is no point in not going 100% equities until my portfolio reached a considerable amount (say more than 20-30.000).

Hope this helps and clears things a bit.

Regards
glorat
Posts: 905
Joined: Thu Apr 18, 2019 2:17 am

Re: Advise request for child’s education investment plan

Post by glorat »

Spgold wrote: Wed Jun 16, 2021 1:44 am On the other hand and as far as a market crash is concerned it would sting if we end up with less than € 86.400 when the 18th year arrives.

So, what I am actually trying to do is find a sweet spot between preserving the initial capital and at the same time beating or even matching the higher cost in 18 years from now.
The odds of even a high risk portfolio like 100% global equities being lower in 18 years time is very very low. While past performance and correlation may not hold in future, https://portfoliocharts.com is an excellent resource to get a feel of how markets work

https://portfoliocharts.com/portfolio/my-portfolio/ specifically is educational, or play with one of the prebuilt portfolios
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