Setting up a savings plan towards an educational goal (for yourself or someone else) might be easier than you thought.
- You only need R500 a month — You decide how much to invest, anything from R500 a month. If you don’t want to invest monthly, you can also invest via lump sums.
- You have control and flexibility — You can make changes to your investment and withdraw as you need to, no transaction fees and no penalties.
- You see your investment grow — Unit trusts give you the transparency of knowing how your money is invested and seeing how it is growing.
Frequently asked questions about saving towards an education for yourself or someone else.
How do I plan for my child’s education?
The optimal way to approach planning for education costs is to invest as much as you can for the later schooling years (high school and tertiary education), giving your investment time to grow. With more time to invest, you can choose a longer-term investment option that is likely to deliver higher return over time.
But investing helps in the shorter term too. You can ease the pressure on your salary during your child’s pre- and primary school years by investing in a more stable short-term investment for the following year, or the next few years.
How much should I save and when should I start?
According to our research, investing R3500 from the birth of your child makes it likely that you would be able to pay all fees from your investment and the financial impact on you would be 29% lower than paying from your salary.
However, since education costs are extremely variable and depend on your personal priorities and circumstances, there is no set amount you need to save up, and therefore no set amount you need to contribute.
With education, the point of investing isn’t to meet a goal but to relieve this burden on your income. This means that instead of trying to find out exactly how much you should be saving, you just need to allocate as much of your budget as you can, as soon as you can.
How do I choose unit trusts for my education savings plan?
We have a simple range of four unit trusts to choose from. You can save some money in a short-term option for fees in the near future, to relieve the pressure on your salary, and some into a longer-term option aiming to grow your investment so that it covers the costs of those schooling years.
We have two options suitable for the short term:
- The Allan Gray Money Market Fund is suitable for investing for about one year. This means it can be used to save money in one year to pay fees in the next. It aims to deliver higher return than bank accounts.
- The Allan Gray Stable Fund aims to beat inflation and is a good option for investing for two to three years. There may be some fluctuation within a two-year period.
We also have two longer-term options:
- The Allan Gray Balanced Fund is our flagship unit trust for long-term growth. It is suitable for investing for three or more years.
- The Allan Gray Equity Fund offers the highest potential return but is only suitable if you know you won’t need access to the money you invest in it for at least five years, and you are comfortable with significant fluctuation that may last for a few years.
Many people choose the Balanced Fund to grow their money over time, while also saving some money in the Stable Fund for use in the shorter term. Your choice depends on your needs and what level of fluctuation you are comfortable with
What is the difference between education policies and a unit trust investment?
When you invest in a unit trust you buy units. You can see how many units you own at any time via your secure online account or on your statements. You decide how many units to buy and you can buy more and sell them as you choose to. There are no set premiums and no penalties for making changes, stopping your debit order or withdrawing from your investment. In a basic unit trust investment there are also no withdrawal restriction periods. On the other hand, education policies may have specified premiums and set investment periods that may not be flexible.
These products also often have additional features such as built-in life insurance and guaranteed payments. While these features may be convenient, they add additional costs that reduce the amount available for investment. With a unit trust investment, the focus is on delivering investment return. You should think about your risk protection separately as part of your insurance cover. This is likely to be more cost effective. In terms of guaranteed return, the benefit of the guarantee often doesn’t justify the costs and when you are investing for the long term, if you can wait out the ups and downs you can benefit from higher return over time. If you are not able to wait, there are shorter-term options that offer higher stability, without the need to pay for a guarantee.
What happens to my investment if my child doesn’t go to university?
Sometimes things don’t go as planned. If you decide not to use the money in your investment to pay school fees, you can use it to finance a gap year, fund a business venture or for anything you choose to. With no restrictions on usage, a unit trust investment gives you more control than many specialised education products.