Last Updated on January 31, 2020 at 11:41 am
My son turned 10 a few days ago. I have been investing for his future since Dec 2009 – a month before he was born. Here are some lessons from this journey.
Many years ago, I asked a question in the Jagoinvestor forum, “if anyone has achieved their financial goals using mutual funds, please share your experience”. To this Manish responded, “it is unlikely that any forum member would have done this”. So I told myself, “let me be the first person I know to have done this”. I am not there yet, but let us just say that the asking rate is comfortably low.
When I started investing for this goal, money management basics were almost in place, except for term insurance which I got a few months later (March 2010). So from day one, investments were made with asset allocation in mind – 60% equity and 40% fixed income. Contrast this with how most of us (including me) plan for retirement: heavy on EPF/PPF and trying to catch on the equity exposure for several years.
Join 32,000+ readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! (Link takes you to our email sign-up form)
🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥
During the last trimester of my wife’s pregnancy, I started thinking about how to start investing for the child. We are victims of our own experience. It took me a good 14 years after school to land in a “permanent position”. Although my father retired in 1997, and my mother in 2002, both with meagre salaries, they never pushed me to get a job,
So I wish the same for my son. Hence this post: What if our children never had to work! Very few people (Subra being one of them) understood what I wanted to say there. I believe parents should provide a strong, wide platform for children to blossom, find themselves and even experiment after school.
So, after a rough estimate of UG + PG education, I decided on a target corpus of close to one crore when my son finishes school. Ten years on, this has not changed much (and my actual corpus is not anywhere near). As of now, my son would like to explore (surprise, surprise!) a career in science ahem physics/astronomy. Let us see how this changes.
Exploiting the fungibility of my mother’s cashflow with mine, I opened a PPF account for her. This doubles as a tax-saving instrument for me and as the fixed income component for my son’s education goal.
As her health worsened, I had to consider the possibility of premature closure of the PPF account. So I opened one more in son’s name. I neither claim these as “good decisions”, nor do I recommend that. Just stating facts.
To this day, both PPF accounts have never been maxed. That is total investment per account, per financial years is nowhere near Rs. 1.5 Lakh. If I had done this, the first casualty would have been asset allocation. So I preferred to pay some tax for my mother.
For the equity, first, a SIP in HDFC Top 200 was started. A couple of years later I added HDFC Prudence and ICICI Dynamic Fund (now multi-asset). The Top 200 was shifted to Prudence and Mirae India Opportunities was added at some point. Again merely stating facts. Unlike what many think, no complex calculations were involved in these decisions. Initially, I was planning for his marriage expenses separately but later on merged it with the education goal.
Readers familiar with my yearly financial audits may recall the equity portfolio (updated Jan 30th 2020)
- HDFC Prudence. XIRR 12% Weight: 29%
- Mirae Large Cap Fund XIRR 12.5%. Weight 37%
- ICICI Dynamic (ICICI Multi-asset fund) XIRR 12% Weight: 36%
- Overall portfolio XIRR 11.6%
I have been able to keep the equity allocation close to 60% all through these years. Rebalancing a total of five times – three times into the PPF account and twice into an arbitrage fund (ICICI).
Lessons in this 10-year journey
- Time is crucial. I had a full 18 years before he finishes school (because he is Jan-born). Starting allows us to take significant portfolio risk. This applies not just to the initial phase of the investment, but also in the latter half.
- Luck is crucial. I have not seen a major market crash in this period.
- Goal-based rebalancing/re-alignment is crucial. I have been able to gradually allocate an amount equal to current PG expenses over the last few years. This allows me to have a high equity exposure in spite of sequence of returns risk.
- Increasing the amount invested each year is a huge factor. I am investing three times as much as what I did in 2010. That is a 11.6% year on year increase in the investment amount. This is the hardest. Luck plays a big role here. Any big expense or break in employment can make things difficult.
- Focus is important. Focus on inflation first. Even 10% is an underestimate here. In spite of that, we see people asking, “is X child plan good? The “where to invest” question should start here.
- investing each month based on a system is systematic investing. This investment can be manual or automated but must be based on a plan. Merely automating when money will be debited from a bank account is called SIP.
If you are looking to start systematically, consider these guides:
Want to invest right for your child? Do this simple calculation today with your spouse!!
Step-by-step guide to plan for your child’s education and marriage
🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 7000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! ⇐ More than 2,500 investors and advisors use this!
Track your mutual funds and stock investments with this Google Sheet!
We also publish monthly equity mutual funds, debt and hybrid mutual funds, index funds and ETF screeners and momentum, low-volatility stock screeners.
- Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
- Have a question? Subscribe to our newsletter using the form below.
- Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.
Join 32,000+ readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! (Link takes you to our email sign-up form)
About The Author
Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course! Increase your income by getting people to pay for your skills! ⇐ More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!
Our new book for kids: “Chinchu Gets a Superpower!” is now available!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Do you want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & its content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
- Twitter @freefincal
- Subscribe to our YouTube Videos
- Posts feed via Feedburner.
Our publications
You Can Be Rich Too with Goal-Based Investing
Published by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want
This book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.Your Ultimate Guide to Travel
This is an in-depth dive into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)