As a new father or mother, the joy and responsibilities of raising our children often take center stage in our lives. Amid the whirlwind of night feeds, diaper changes, and shuttling them to after-school activities and holiday camps, most of us tend to put long-term financial planning on the back burner.
However, the truth is that by harnessing the power of investing, we can lay the foundation for a brighter future for our children and ourselves. Investing isn’t just for the wealthy or experienced; it’s an important way to unlock a world of opportunities and provide financial security for your family.
Navigating Inflation and Rising Costs
In Singapore – and in most parts of the world in recent years – where the cost of living has been rising, families need to adopt a proactive financial strategy to safeguard their finances against the erosive effects of inflation. While higher interest rates have made savings accounts more attractive, the returns offered by such accounts are not able to keep pace with increasing prices. For example, while T-bill yields made headlines when it reached 4.4% in December 20221, the inflation rate experienced by Singapore families stood much higher at 6.1% in 20222.
This is where investing comes into play as a powerful tool to protect the purchasing power of your savings against inflation. When you invest in the markets, you benefit from the growth of various asset classes over time, ensuring that you can maintain your standard of living, meet future financial goals, and navigate the ever-changing economic landscape with confidence. You can read more on this in our earlier CIO Letter ‘Your Money May Be Worth Less Than You Think.’
How Investing Can Secure Your Child and Family’s Future
Every parent wants to provide the best for their child. Investing can be a powerful tool to help pave the way for a secure future for them. By starting early on your investment journey, you take advantage of the power of compounding by allowing your investments to grow exponentially over the long term. Even small contributions made consistently can grow into significant sums over time, creating a financial foundation for your child’s aspirations, whether to fund their tertiary education, help them start a business, or pay for the downpayment of their first home.
The chart below shows the value of $1,200 invested annually in the MSCI World Index – which captures large and mid-cap representation across 23 developed market countries – over 20 years. Based on actual annual returns of the index, a total of $24,000 invested over 20 years would have eventually grown two-fold to over $55,000, representing an annual compound growth rate of over 8% p.a..
The chart also shows that starting early not only maximises the potential returns but also allows you to weather short-term market fluctuations and benefit from the long-term upward trajectory of the markets. So seize the opportunity today and invest in your child’s future to provide them with a strong financial footing when they grow up.
Best-For-You Investment Solutions
Children bring along a list of additional expenses for most families. However, it should not be an obstacle preventing us from investing. In fact, investing offers an opportunity to maximise returns on limited resources and achieve long-term wealth accumulation. Contrary to the common misconception that investing is only for the wealthy or experienced investors, there are investment options suitable for individuals with modest budgets.
For example, MoneyOwl’s Dimensional portfolios which are based on an investment strategy grounded in Nobel Prize-winning economic theory, allow a minimum monthly contribution from just $50. When you invest in our Dimensional portfolios, you leave the thinking to the experts – these portfolios are invested in broadly diversified markets to capture long-term market returns and offer very low expense ratios of under 0.3% so that you can keep more of the returns. You can find out more about Dimensional’s investment strategy of tilting towards value, small caps and high profitability here.
With discipline and a commitment to consistent contributions, small amounts can accumulate into a substantial nest egg. By embracing investing as a tool for long-term wealth accumulation, young parents can pave the way for a financially secure future for themselves and their children, while making the most of their available resources.
Setting a Positive Financial Example
Beyond the above-mentioned financial benefits, when you invest, you also help shape your children’s financial mindset and set them up for success as financially savvy adults.
Investing demonstrates important values such as discipline, patience, and the significance of long-term planning to your children. When you invest, you require discipline in consistently setting aside funds and resisting impulsive decisions. You also learn to be patient by understanding that wealth accumulation takes time and that short-term fluctuations are part of the journey. Finally, investing emphasises the importance of long-term planning, as we align our investment goals with our family’s aspirations and milestones.
When your children are old enough, you can also involve them in discussions about investing to help lay the foundation for their financial education and empower them to make informed decisions in the future. Teaching them about the principles of investing helps equip them with valuable knowledge that can positively impact their financial future. Your children will appreciate the power of financial planning and hold with them the values of discipline, patience, and long-term thinking, which will help them have a better chance of achieving financial stability and success in their adult lives.
One way to get started is to open a joint investment account with your children. Read this article to find out how it works!
But before you take the leap into investing, make sure that your financial fundamentals are in place. Building a solid foundation begins with establishing an emergency fund of at least six months to provide a safety net for unexpected expenses or income disruptions.
Additionally, you should also first secure the necessary insurance coverage to protect your family’s financial well-being. Insurance is a critical safeguard against unforeseen circumstances such as in the event of a critical illness or the passing of a breadwinner. Evaluate your insurance needs carefully by obtaining coverage that adequately meets your needs while minimising costs. To strike the right balance, you can get in touch with our fully-salaried Client Advisers who can provide you with unbiased and conflict-free advice.
With your financial fundamentals in place, you can approach investing with confidence, knowing that you have a strong financial base to weather any storms that may come your way.
While every reasonable care is taken to ensure the accuracy of information provided, no responsibility can be accepted for any loss or inconvenience caused by any error or omission. The information and opinions expressed herein are made in good faith and are based on sources believed to be reliable but no representation or warranty, express or implied, is made as to their accuracy, completeness or correctness. Expressions of opinions or estimates should neither be relied upon nor used in any way as indication of the future performance of any financial products, as prices of assets and currencies may go down as well as up and past performance should not be taken as indication of future performance. All investments carry risk. The author and publisher shall have no liability for any loss or expense whatsoever relating to investment decisions made by the reader.