why look beyond traditional investment

Why do you need to look beyond traditional investment options for your child’s education?

In the previous article, we discussed how to finance your child’s education post-pandemic?. In this article, we will discuss why do you need to look beyond traditional investment options for your child’s education?

Investment is an age-old concept. People have been investing for many years in various asset classes. Traditional investments like Fixed Deposits, government bonds, gold, silver, etc continue to be cherished areas of investment. However, the world of finance is evolving rapidly. 

People are becoming adaptable to diversity in their portfolios. 

Today, personal finance is a valued concept amongst people of all age groups. The awareness about investing is increasing. The youth especially is very enthusiastic about the diversification in the world of finances. People are switching to Modern Investment options like Debt Funds, Equity Funds, Hedge Funds, etc. 

But, the concept of personal finance changes dramatically if you are a parent. As a parent, your portfolio demands a strategic redesign, to accommodate your child’s requirements.

To ensure that your child receives the best academic exposure, you need to plan your investment journey in advance. Both traditional and modern investments come with their own set of merits and demerits. The catch is to attain an ideal mix of both, that minimizes the risk and maximizes the return. 

6 reasons to go beyond the traditional investments

Wealth Generation

When you are planning for your child’s education, you can not ignore education inflation. Traditional investments like fixed deposits offer a very low rate of return. They might keep your money safe, but they make little to no contribution to your wealth generation. 

To meet your child’s education needs, you need to look beyond these investments. There is no dearth of investment opportunities in the market today. Based on your risk appetite, you can consider investing in equity funds, debt funds, bonds, etc. These investment options will allow you to grow your money substantially. Moreover,  playing long-term reaps the most out of compounding.

Just remember, making money will not help you generate wealth, managing your money will. Diversifying your portfolio helps!

Risk Mitigation

Going beyond traditional investment can help you mitigate the risk of uncertainty. You can not anticipate what happens with the economy tomorrow. Neither can you foresee its impact on your assets,  Can you?  But, you can always plan for the uncertainties and make room for damage control. Distributing your money into various asset classes instead of one would help mitigate the risk of uncertainty. 

Inflation adjustment

Inflation is a real threat to your investments, especially the traditional ones like fixed deposits.

If you are someone hoping to see your money double over the period through fixed deposits, it is time for a reality check!

Fixed deposits offer a very low rate of return somewhere between 7-8%. Whereas, the Inflation rate in India is recorded at 4-6% in recent years. Hence, the true inflation-adjusted return that you receive by the end can go as low as 1-2%. Now, just imagine the implications when the inflation goes higher than the rate of return. 

This is why it is important to have investments that can beat inflation. Modern investments like debt funds, equity funds, and hedge funds are potent to beat inflation. 

beyond traditional investment for child’s education
Source: Pexels

Diversification 

If you stash all your money into one asset class, you are missing out on some wonderful opportunities. Investments come with a low-risk low-return rule. Investing only in risk-free traditional investments, unfortunately, can not suffice to fund your child’s education.

Therefore, for a  higher return, you need to make room for some risk. Modern investments like Mutual Funds allow you earn good returns as per your risk appetite. Strategic diversification enables you to maximize the return of your portfolio.

Professional Portfolio Management

Equity is a risky but rewarding asset in the long run.  But, if you are a beginner not yet friendly with equity stocks, Mutual funds are the best way to begin. Here, you have a professional portfolio manager, who invests your money into stocks.

They are skilled people well-versed with the knowledge of the stock market, taking care of your risk appetite throughout. This way, you avail the benefits of equity without risking your money in the dark spots. 

Liquidity

Traditional investment options like Fixed Deposits have a lock-in period. Also, the investments in these options call out for a lump sum amount. So, when you put your money in an FD, you cannot withdraw your money except at a cost. 

As far as your child’s education is concerned, you can not predict when and how the fund requirement arises. So, it is wiser to have some relatively liquid assets like Mutual funds in your portfolio. 

Traditional Investments have been favored by Indian households for a reason. These investments offer security and assured returns

With the soaring inflation, these assets are likely to fall short and force you to rely on education loans to fund your child’s education dreams. To ensure your savings are enough, looking beyond traditional investments and storing your wealth in different asset classes can help in the long run

Consult an expert advisor to get the right plan for you

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