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Tuesday, January 16, 2007

Letter to a cousin......


I hope you are in great health. You mentioned that you are interested in investing in the unit trust for your children education fund.

You also mentioned that you do your savings at Lembaga Tabung Haji(LTH). I would like to suggest that you open two unit trust accounts. One for your children education fund, and another to maximized the return that you get from your LTH savings. Considering LTH did not give a high dividend, merely around 4.5%. The latest I heard, our inflation rate stand at 3.6% per year. With the dividend that you get from LTH you merely gain a value of 0.9% to your money.

So it is a waste if you keep a large amount of money in your LTH account. I suggest that you save only the amount that equal to your three months cost of living in LTH. This is your emergency fund or short term investment. The rest should be invested in a higher-yield investment. When you are ready to go for your Haj, you can transfer back the amount for your Haj back into the LTH savings. When you invest in the unit trust you can gain more than 10% a year. Below is a table to show you the difference of return that you can get when your initial investment is RM10,000 and additional investment is RM100 per month.


Lembaga Tabung Haji

Unit Trust Fund


RM 19,186.00

RM 23,822.00


RM 30,633.00

RM 46,083.00


RM 44,898.00

RM 81,935.00


RM 62,674.00

RM 139,674.00

Going back to inflation, inflation also will increase the three years local university cost for your first born who is 3 years old from the current RM40,500 (local university fees including living cost) to RM 68,842.00 when he is 18 years old. For your second child who is 2 years old, it will be RM71,320.00.

Now days, it is hard to get any scholarship or education loan. In the future PTPTN may also be abolished as there are a lot of students who did not pay the loan after finishing their study. So it is important that you start a monthly saving for your children tertiary education. With a return rate of 10% a year you should put aside RM172 per month for your first born and RM 157.00 for your second child. As you can see here, the earlier you start the lesser amount that you have to set aside.

It is okay if you cannot afford to save the total of RM329 per month immediately, what is important is to start saving any amount that you can afford now. Who knows, you may get a big raise or receive an unexpected windfall in the future. Then you can top up your children fund investment.

So, good luck with your education fund savings and I hope all your dream and financial goals will be achieved.

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