Kids Education Revisited - Back to the Future

Kids education - it's such an important part of the early pangs for parents. I had previously shared about my own misadventures on this (Misadventures of the Education Savings Fund). I thought I might do a theoretic study of this and rewind the clock. Were I to start this journey from the birth of my child, how would it have looked like instead?

Below table illustrates the whole plan. Assuming birth in 1999, I would place $2,000 per year for the first 4 years. That gives me 8 blocks of $1,000 which I could invest into a diversified portfolio of unit trust in various regional markets. In particular, equity unit trusts covering (1) US, (2) Europe, (3) Asia Pacific ex-Japan, (4) Global Emerging Markets, (5) Singapore, (6) Asia Pacific Small Caps, as well as (7) Global Bonds and (8) Money Market Fund. That would have given a good diversification.

In subsequent years, I would then top up annually with $500. Basically, the 'ang pow' money. And then top this up with a monthly RSP of $200 per month. Assuming an annualised investment return (ROI) of 6.5%, we should have a tidy sum of well over $100,000 for the varsity funds, assuming $25,000 needed per year for 4-years at a local university.  Rebalance the unit trusts with equal amount in each.

Below profile is based my girl's. Guys would have a further two years to work with. Even if on the eve of year 19, the market were to collapse by (no more than) 30%, the portfolio would still suffice.

Age	Year	Ad-hoc	RSP (mthly)	ROI	Extracted	Portfolio
1	1999	$2,000	$ 200	6.5%		$    4,400
2	2000	$2,000	$ 200	6.5%		$    9,086
3	2001	$2,000	$ 200	6.5%		$  14,077
4	2002	$2,000	$ 200	6.5%		$  19,392
5	2003	$   500	$ 200	6.5%		$  23,552
6	2004	$   500	$ 200	6.5%		$  27,983
7	2005	$   500	$ 200	6.5%		$  32,702
8	2006	$   500	$ 200	6.5%		$  37,727
9	2007	$   500	$ 200	6.5%		$  43,080
10	2008	$   500	$ 200	6.5%		$  48,780
11	2009	$   500	$ 200	6.5%		$  54,851
12	2010	$   500	$ 200	6.5%		$  61,316
13	2011	$   500	$ 200	6.5%		$  68,201
14	2012	$   500	$ 200	6.5%		$  75,534
15	2013	$   500	$ 200	6.5%		$  83,344
16	2014	$   500	$ 200	6.5%		$  91,662
17	2015	$   500	$ 200	6.5%		$100,520
18	2016	$   500	$ 200	6.5%		$109,953
19	2017	$   500	$ 200	6.5%	$  25,000	$  95,000
20	2018	$   500	$ 200	6.5%	$  25,000	$  79,075
21	2019	$   500	$ 200	6.5%	$  25,000	$  62,115
22	2020	$   500	$ 200	6.5%	$  20,000	$  49,053

I guess one adjustment to the above plan would be to keep the contributions from year 16 onwards in bonds and money market funds to mitigate the risk further. And with each passing year thereafter, to shift the contributions to cash-only in preparation for the annual draw down for the 4 years.

If the market does well, there would still be a tidy balance for my little one to get started on her journey to retirement as well.