Kids Education

By Francisco J. Colayco, Ph.D

ANOTHER OPTION TO SAVE FOR YOUR CHILD'S EDUCATION

Noemi wrote: I frequently watch you on TV and read your articles in newspapers. You mentioned that it is no longer as good to invest in pre-need plans. Where do you suggest I invest my P20,000 for my second child. I am 6 months pregnant.

My reply:

Thank you for your email and this chance to clarify what I said about the pre-need plans. There are serious difficulties in the pre-need industry because of changes in the government rules and regulations. This is why today, the gains or annual yields of pre-need plans are no longer attractive. Apart from low returns (estimated at only 5%), the investment in pre-need plans is not liquid. And, if you need to redeem your payments, you will not be able to get back what you have paid specially if your plan is not yet mature.

You are better off, investing your savings in other pooled funds such as UITFs or Mutual Funds run by respectable companies. While it is true there are no guaranteed returns in these instruments, keeping your savings invested for three to five years reduces your risks of incurring significant losses. Based on current Mutual Funds performance, the average annual returns on equity funds are a high of 22% while balanced funds are 18%. These returns are three to four times higher than the promised returns of pre-need plans.

In reality, a good portion of pre-need trust funds are invested in these same instruments. It would therefore be more practical to invest your monthly premiums directly into these pooled funds. The minimum investment is only P5,000 for your first placement and thereafter P1,000 each time you want to put in more money. Since you have much more than P5,000, you could spread your risks and invest in the two or three top performing funds instead of putting the entire P20,000 that you said you have in only one fund.