Invest in US index funds to save for your child’s foreign education. All you need to know

Investing in US index funds is a great way to save for your child’s foreign education. Index funds like the S&P 500, an index of the top 500 publicly traded US companies, have yielded great returns. From 2001 to 2020, the average US stock market return was 7.45 percent. 

Suppose you are a young parent and you decided to invest $100 in the S&P 500 at the beginning of 2000, you would have about $421 in 2021. Your investment would have doubled over these years! 

With thousands of Indians moving abroad and sending their children to study in dollar-driven countries like the USA, Canada, and Singapore, investing in the US market for good and stable returns can boost their child’s education fund.

Another benefit of investing in the US market via USA index funds is the opportunity to save in dollars.  

If you are planning to send your child abroad in a couple of years, you will be required to pay for their tuition fees, accommodation fees, and living expenses in dollars.

Thus, it only makes sense that you gain stable returns from your investments in dollars to maintain your purchasing power in the country. 

Rupee depreciation  

The Indian rupee stands at a disadvantage against foreign currencies like the USA dollar, the British pound, and the Euro. This makes foreign education given more expensive for Indian parents making money in rupees.

For instance, if your child wants to study MBA from Harvard University then the cost for the year will be $81,272 for a year, this means spending Rs 60 lakh in 2021 (1 USD = 74.96 INR). If your child had gone off to study at Harvard ten years back, it would have cost you Rs 50 lakh in 2015 (1 USD = 64.13 INR).

This huge gap is a result of rupee depreciation as well as education inflation. To ensure you don’t have to spend an extra Rs. 10 lakhs on your child’s education, you can invest in US index funds and stocks. 

Investing in the US market not only helps you save money for your child’s education, but it can also benefit you if the currency appreciates. This is because the additional return on your holding period return becomes an asset.

For example, if you invest in the S&P 500 index, for example, a 5% appreciation in the S&P 500 and a 2% in dollar appreciation against the rupee in the same year can double your returns! 

To make the most of the US market, it’s best to contact a financial advisor who can help you pick stocks and funds based on your personalized goals, risk level as well as time frame.

Read more: Are scholarships in the USA enough to cover your child’s college costs?

Inflation and the rupee’s impact on the American dream  

The fall of the rupee and growing inflation directly impact your American dream. It not only affects parents whose children are enrolled at universities in the US but also those who are planning to send their children abroad. Visa costs, accommodation, tuition fees, exam fees as well as living costs are affected by these two events.  

So that your child’s American dream stays strong – geographical diversification is highly important. It requires you to save and invest in US index funds and dollars so that you can get capital appreciation, dividends, and benefit from dollar appreciation and not rupee depreciation. 

The average cost of college in the US has increased manifold. This cost will rise further due to the growing demand for international students to their universities as well as to adjust to the inflationary rates.

As a parent, you have the freedom to choose your weapons against the rising cost and determine a financial plan to fund your child’s future education.  

Saving today for your child’s tomorrow is a must and your #1 priority! If you are confused about how to start then reach out to experts and financial advisors, use the college cost calculator to determine the future cost of your child’s education, and based on the amount, explore funds that will help you get closer to that goal! 

 Consult an expert advisor to get the right plan

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