Dean and Jenny have a beautiful four week old baby daughter, Samantha. Dean and Jenny would like Samantha to attend a private high school when she turns eleven. They estimate that her private school tuition fees will be around $14,000 a year1. As they hope Samantha will complete Year 12, they will require six years of fees or around $84,0001. Right now that seems like a lot of money, but by starting early and sticking to a regular savings plan, Dean and Jenny realise that this is very achievable.
They start by putting $5,000 into a managed fund and decide to add $300 a month. If their managed fund were to grow by 7% a year2 and allowing for inflation of 2.5% a year, by the time Samantha starts private school in eleven years time they will have around $58,0003 – that’s more than enough to pay for the first three years of fees! In addition, their savings plan will continue after Samantha starts high school, adding another 6 years of savings.
By investing regularly and resisting the temptation to make withdrawals, Dean and Jenny can benefit from compound returns – earning further investment returns on their re-investments. And as they invest the same amount each month to buy units in the fund, they can also take advantage of dollar cost averaging. This means that they can benefit when the fund’s unit price is low, as they are able to buy more units with the same amount of money i.e. $300 per month.
Because Dean and Jenny are investing for the long-term, they are considering investing in funds with higher levels of risk for greater potential returns. Your financial adviser is best placed to know exactly which investments are right for you. However, to find out general information as to what type of investments may suit your particular risk profile click ‘What investments suit your risk profile?’.
Whatever you are saving for, budgeting is essential for working out how much you can afford to put aside for investment. Our can help you get started.
To work out an estimate of how much you could save over time with a regular investment plan and how beneficial compound returns can be, try our .
1 In today’s dollars.
2 Before fees and taxes. Please remember fees and taxes have an impact on long-term returns.
3 No allowance has been made for taxation, including capital gains tax on investment earnings. For more information on things to watch for when selling some or all of your investment, please refer to our flyer titled, “”.
Note: This example is for illustration purposes only and does not represent actual or expected returns for any Colonial First State funds. A change to one or more of the variables and assumptions listed will produce different results.
These case studies are for illustration only and are not personal advice. Your individual circumstances, needs or objectives have not been taken into account. You should speak to a licensed financial adviser to determine what is suitable for you. The information contained in this document is based on the understanding Colonial First State Investments Limited ABN 98 002 348 352 AFS Licence 232468 has of the relevant Australian laws as at 1 July 2009. This document is not advice and is intended to provide general information only. It does not take into account your individual needs, objectives or personal circumstances. You should assess whether the information is appropriate for you and consider talking to a financial adviser before making an investment decision. Product Disclosure Statements (PDS) for products offered by Colonial First State are available from colonialfirststate.com.au or by contacting us on 13 13 36. You should read the relevant PDS and consider whether the product is right for you. Past performance and awards are no indication of future performance.