University fund products

Bobziz

Hi, Im looking to establish a university fund for my two kids. I'd like to invest a £10k lump sum to which I will add £100/month for 10 years. I'm aiming for an average yearly return of around 5%. Is this realistic, and if so, what products would people recommend ? Ideally I'd like something that I can stick in the bottom drawer and forget about. Many thanks.

Albermarle

I'm aiming for an average yearly return of around 5%. Is this realistic, and if so, what products would people recommend ?

It's realistic but not guaranteed. However you have to take inflation into account . Usually a figure of around 2.5% is used as an estimate , so 5% growth = in fact only 2.5% real growth . To get 5% in addition to inflation means moving significantly up the risk scale and will be difficult to achieve over he next few years ( probably) 

On the forum we try to avoid recommending specific products , especially as we do not know your full circumstances, attitude to risk etc .

However for sums like you mention and a 'fire and forget ' strategy you can do worse than invest in a low cost multi asset fund .

Some popular ones are Legal and General Multi Index ; Vanguard Life Strategy: Blackrock Consensus + other similar ones. They all have a range of products with a range of risk . The higher the equity ( share) % the higher the risk/volatility but the potential greater rewards.

Bobziz

Albermarle said:

I'm aiming for an average yearly return of around 5%. Is this realistic, and if so, what products would people recommend ?

It's realistic but not guaranteed. However you have to take inflation into account . Usually a figure of around 2.5% is used as an estimate , so 5% growth = in fact only 2.5% real growth . To get 5% in addition to inflation means moving significantly up the risk scale and will be difficult to achieve over he next few years ( probably) 

On the forum we try to avoid recommending specific products , especially as we do not know your full circumstances, attitude to risk etc .

However for sums like you mention and a 'fire and forget ' strategy you can do worse than invest in a low cost multi asset fund .

Some popular ones are Legal and General Multi Index ; Vanguard Life Strategy: Blackrock Consensus + other similar ones. They all have a range of products with a range of risk . The higher the equity ( share) % the higher the risk/volatility but the potential greater rewards.

Many thanks, that's helpful. As most probably say, my attitude to risk is middle of the road. If I lost the entire investment it wouldn't be life changing, and I'm not worried about peaks and troughs over the years. Would something like a LS60 for a few years, followed, in theory, by 4 years in LS80 and then reverting to LS40 for the final 3 years sounds like a sensible strategy ? If I beat inflation and savings rates then I'll be happy. Any thoughts on feeding the 10k in by instalments over the coming 12 months or so, rather than a one off lump sump ? I know the usual adage is time in the market etc, but the current situation feels slightly different.

masonic

Bobziz said:

Would something like a LS60 for a few years, followed, in theory, by 4 years in LS80 and then reverting to LS40 for the final 3 years sounds like a sensible strategy ? If I beat inflation and savings rates then I'll be happy. Any thoughts on feeding the 10k in by instalments over the coming 12 months or so, rather than a one off lump sump ? I know the usual adage is time in the market etc, but the current situation feels slightly different.

I'd question why you'd want to switch between the funds in that manner. I can appreciate, and would support, reducing the risk in the years leading up to when the money is needed, but starting with VLS60 and switching to VLS80 after a few years seems an odd thing to do.

As for the decision to drip-feed, this is a personal choice, not a rational one. Some people have an aversion to seeing markets drop soon after investing a lump sum and would rather lose out on gains than be fully exposed to losses at the outset.

torrence

If you are investing for children, use their JISA annual allowance. Don't invest in a taxable account if you haven't already used the tax sheltered allowances. Also a JISA can convert to an ISA later. The JISA will be legally theirs, so they can't be forced to use it for University.

Bobziz

masonic said:

starting with VLS60 and switching to VLS80 after a few years seems an odd thing to do.

As for the decision to drip-feed, this is a personal choice, not a rational one. Some people have an aversion to seeing markets drop soon after investing a lump sum and would rather lose out on gains than be fully exposed to losses at the outset.

Thanks for your response. I guess both of these ideas are trying to mitigate the risk of a w shaped recovery, with the aim of shifting to LS80 once we're in calmer waters. 

Bobziz

torrence said:

The JISA will be legally theirs, so they can't be forced to use it for University.

Thanks, yes, this is the bit that worries me. I'm inclined to use my own ISA rather than see the money squandered on goodness knows what.

masonic

Bobziz said:

masonic said:

starting with VLS60 and switching to VLS80 after a few years seems an odd thing to do.

As for the decision to drip-feed, this is a personal choice, not a rational one. Some people have an aversion to seeing markets drop soon after investing a lump sum and would rather lose out on gains than be fully exposed to losses at the outset.

Thanks for your response. I guess both of these ideas are trying to mitigate the risk of a w shaped recovery, with the aim of shifting to LS80 once we're in calmer waters. 

Rather than trying to time the market, which you are very unlikely to achieve, it would be better to choose an appropriate level of risk from the outset. There is always another stockmarket crash on the way, and you won't know when it will arrive. It could happen right after you make the switch from VLS60 to VLS80, in which case you would miss out on a few years of higher growth that would offset some of the falls.

Albermarle

If I lost the entire investment it wouldn't be life changing,

If you stick to mainstream investments ( like the ones discussed) the only way you would lose the lot would be a global catastrophe on a scale never seen so far ( like an all out nuclear war). In the recent market drop , something like LS60 dropped less than 15% I think at the worst point and currently is now just a few % down ( depending on the start point you use ).

As pointed out above the sequence of LS60/80/40 is not very logical . 

I guess both of these ideas are trying to mitigate the risk of a w shaped recovery, with the aim of shifting to LS80 once we're in calmer waters.  

You are trying to predict the future , something very difficult to do !

Notepad_Phil

If I was using the LS funds then personally I'd start off at LS100 and then move down the equity component as I got closer to the 10 year target rather than starting at LS60 then moving up to LS80 and then down to LS40.