The Boss turns 4 – saving for her future!

The Boss turned 4 last week and apart from the never-ending stream of toys and educational gifts that she received during her birthday parties (school, family x 2), she also received money. Saving that money is an important less.

We always make it a point that she understands that, although she cannot play with money, it is useful to pay and buy for items in the future.  She is growing to be very aware that she needs money to buy something and she enjoys joining me on our late evening shopping trips to the local supermarket.  We also make it a point that, any money that she receives, she puts in her little red owl money box.

saving piggy bankPhoto by Sabine Peters on Unsplash

As I had mentioned in an earlier Passive Income post, when my daughter was born, I had made it a point to start a savings account in her name.  Although the one we originally opened is pointless now (close to 0% interest rate), I have opened another account but I also save and invest some money for her (on her behalf) in separately managed accounts.

The Boss Savings & Investment Fund

In this post, I will briefly describe what how I plan and manage the Boss Savings & Investment Fund (as we jokingly refer to it).  Compared to other plans that I manage, the funds being managed are not intended for short term use. I am not expecting her to withdraw these funds before The Boss is at least, 16, maybe even 18. That gives her a good 14 to 16 year saving/investment period.

We have therefore decided to split and save/invest the money that she has saved from birthdays, allowances and one-off gifts. The ideal allocation is:

  • 25% in the Bank;
  • 25% in a Balanced Managed Investment Fund and;
  • 50% is invested in a diverse P2P Investment portfolio.

The current situation is slightly different and I need to make adjustments to reflect the above preferred percentages:

Currently, she has 30% saved in a Bank Child Savings Account.  I invest 25% are into a balanced (50% equities, 50% bonds) managed investment fund. The remaining 45% are invested into a P2P investment portfolio (spread over three P2P lending providers.  At the moment, the three providers are Mintos, Estateguru and Twino).  Clearly, the highest yielding portion is the P2P investment portfolio since this returns an average of 7-8% annually.

Saving money – how do I do this in practice?

As I mentioned above, all money goes to her Red Own money box.  Every now and then, we deposit that money into her Bank Child Savings Account.

On a monthly basis, I have set up a fixed amount automated bank transfer to her Managed Investment fund.  I have also transferred (manually) funds to her three P2P investment accounts to align to the ideal allocation target.  Once I reach that allocation target, I will stop the automated transfers unless additional funds are received in her Bank Account.

Why not just put everything into a bank account?

Of course I could have easily just created the Bank Child Savings Account and stopped there – after all, I have enough on my plate to handle.  I wanted to do something about my daughter’s savings when I realised that (at the time) her savings bank account interest rate was reduced to a sub-1% interest.  Although it is at least 1% in this new savings account, I still think that ‘saving’ that money there for a good 14-16 years is a waste!

Why not put everything into a P2P investment portfolio and get decent returns?

I could do that as well.  However, I wanted to diversify her saving/investment plan as much as possible.  I wanted to take advantage of the P2P high yield investment opportunity but did not want to put all the eggs in one basket. The decision was to split three-way (bank, fund, P2P). I also diversified my risk in P2P lending by choosing three different platforms (with buyback guarantees).

Is that it?

Yes – I don’t have much time to dedicate to this. I simply transfer the money to maintain the preferred allocation target and monitor the providers at a general level.  I check that they are still performing well and there are no indications of these providers going bust!

Then, I just let the power of compound interest do its magic.

– Busy Husband

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