Recently I spoke to you about my journey in discovering goals based investing and how this is an approach that can work for everybody, but works particularly well for people with multiple goals – such a father who wants to maintain his lifestyle while also investing for the kids. At the moment I only have one goal (retirement) but I expect at some point in the near future to need to set something up for my kids (when I have them ). But as I said, now your priority must be yourself. Once you have your needs taken care of, you can move to the next level of your goals pyramid – your kids – and start investing for them.
So how does this work? Well the steps are as follows:
- Decide the specific goal that you have in mind for your kids (say education paid for)
- Determine how much that would cost ($25K per year in the USA but the logic is the same no matter the goal) and lets say you’re going to cover the first year of college
- Figure when you need to pay this (say in 15 years)
- Adjust the $25K for inflation (not difficult – you can find an inflation calculator here!) and now you have the future value of your investment
- Determine a reasonable rate at which you can invest (let’s say the long term average return on the S&P 500 – a stock index, which is 10%)
- You can then calculate how much you need to put aside per week using a financial calculator or a spreadsheet. You can also find calculators online that will do this
- Using my calculator, I find that you need to make annual payments of $1,225.87 – not an unachievable goal once you’ve taken care of your immediate needs.
Now I have used the S&P 500 index as a basis since it you can invest in it via an Exchange Traded Fund (which for example are issued by companies such as State Street Global Advisors, Vanguard, BlackRock, etc.) and as investing for the kids is a secondary goal (besides maintaining your lifestyle into retirement) you can afford a little more risk.
But what if you decide that you don’t want to take any risk here at all? That is entirely up to you. There are no safeguarded guaranteed investments in truth but if you are very risk adverse you can invest in government bonds (the US government bonds have a great reputation for being as close to risk free as you can get). However, the returns will be lower so you will likely have to put aside more money each year. Risk and return have a trade-off relationship when it comes to lowering your risk.
Now I appreciate that this isn’t everything you need to know before you can begin investing for the kids so keep a look out for my next post in which I describe how one of my clients was able to implement these concepts.
P.S. If you can’t wait for the email and you want to know more, now, I provide one-to-one coaching on this topic and more and can get you started right now. A full session is $197, three sessions are $497 or you can have a free 15-minute consultation. Additionally, if you have one session and you’re not happy I’ll refund all of your money. I take all the risk in this particular investment!
In the meantime, if you have any questions or if I haven’t explained anything well enough please feel free to shoot me an email and let me know.
This is great information, but how do I start? I don’t know an S&P from the Dow, they’re just things I hear on the radio. How do I learn the basics and actually start trading and investing? I read all your blogs in 20 minutes, I definitely want to learn more. Thanks.
Hi Rebekah, the place to start is to decide what your investment goals are. For most people its retirement, kids, charity and emergency funds. Once you can put a dollar value on these things, you can work backwards to determine the interest rate you need to earn, the amount that you need to invest each month and the precise investments that you need to make. You raise a good point about the difference between the S&P and the Dow. I will make this the subject of a future blog post so thanks for that. To get access to more resources please go through this quiz: https://go.bucketforms.com/sf/d753b084