Case Studies: Investing

What the right strategy can achieve

There are a number of investment strategies that can help you achieve your goals. The following case studies provide just two examples.

Case study 1: Funding a child’s education

Dean and Jenny are in their 30s and have a four-month-old baby, Alice. To ensure they’ll be able to afford Alice’s education, Dean and Jenny decide to start a dedicated savings plan. They estimate that by the time Alice is 11 they will need to have saved $84,000 (in today’s dollars) to meet her annual private high school fees of around $14,000 for six years.

Dean and Jenny choose a managed fund with a regular savings plan option. They kick off their savings with a lump sum of $5,000 and decide to invest a further $460 every month. Based on projected earnings of 7.7% pa and taking inflation of 3.0% pa into consideration, this means they should accumulate around $86,000 in 11 years.

If Dean and Jenny keep the savings plan going for the entire 11 years, they will be well placed to fund Alice’s private high school education when the time comes.

By maintaining the discipline of making monthly investments without touching these savings, Dean and Jenny will reap a great reward from compounding interest. This occurs when you leave the interest you earn in the account, so that you begin earning interest on your interest. The effect may be small at first, but if you leave the interest to accumulate in the account it can gradually snowball over time and significantly boost your savings.

Notes

The estimated balance required and estimated school fees are in today’s dollars.
The projected earnings of 7.7% are after fees and before taxes have been taken into account. No allowance has been made for taxation, including capital gains tax on investment earnings. Please remember fees and taxes have an impact on long-term returns.

Case Study 2: A couple looking to save for the future cost of education for their family

Juan and Julia have one daughter Mia, aged 3, and plan to have a second child. They intend sending their children to government primary school and catholic secondary school. Based on current school fees, this will cost ~$130,000 per child. They would also like to relocate overseas for a couple of years. Julia is self-employed and Juan is a salaried worker. They are both on a marginal tax rate (MTR) of 30%.

They have $10,000 to invest as a lump sum and can afford $250 per month as a savings plan.

How an Education Bond can help:

Juan and Julia can set up a regular saving plan and apply an escalation rate so that their contributions keep up with
Mia’s grandparents (or any other family or friends) can contribute to the Education Bond, which will help secure education funding and provide for other significant life
Juan and Julia can utilise the valuable Education Tax Benefit whenever they make Education Benefit claims, which amounts to an additional $30 for every $70 withdrawn from the earnings
If they move overseas for a period time, they can still make Education Benefit Claims as Australian or international Education Expenses are
Education Bonds can have valuable tax rate ‘arbitrage’ benefits for Bond Owners on middle to high Marginal Tax Rates (MTR’s). This is because Effective Fund tax rates (that Futurity pays) on the Bond’s Investment Options are generally lower than the ongoing personal
As Juan and Julia’s lives change, Education Bonds are flexible and can adapt to their changing needs and For example, they can add children to the Bond, fund their own education expenses, or withdraw money for other family needs such as a holiday.
Education Bonds provide asset protection from creditors and as Julia is self-employed, this may provide additional peace of mind.

Disclaimer

These case studies are for illustrative purposes only and are based on specific assumptions. Outcomes will vary depending on individual circumstances and assumptions used. They are not to be taken as personal advice and are intended to provide general information only. They do not take into account your individual needs, objectives or personal circumstances.

This web page may contain general advice. You should consider talking to a financial adviser before making a financial decision.

Sound advice is the key to success

As you can see from these case studies, an experienced financial adviser can help you identify the areas of greatest risk to your situation. John Bellas Financial Services Pty Ltd offers knowledge, expertise and experience in this area. We’ll take the time to understand your individual circumstances and then recommend appropriate insurance strategies to help protect your family and assets.