Parents who want to send their children to private schools need to start saving while they are in nappies. Around 7% of children – more than 600,000 pupils – now attend independent schools and that figure is rising in spite of the fact that fees have increased by three times the rate of inflation over the past 20 years. While average earnings have increased by 48% during that time, school fees have shot up by 129%. The average cost of sending a child to day school is almost £8,000, while a boarding school will cost almost £18,000 – and that’s without any of the extras such as uniform and extra-curricular activities.
Only the very well-heeled will be able to meet the cost out of their disposable income, says Emma Simon in The Sunday Telegraph. The rest are faced with a serious problem. If you have a longer time-frame you will be able to take more of a gamble and still have plenty of time to ease into safer investments. But even then the whole thing will take a lot of thought. Don’t be seduced by specifically tailored products, and make sure you use your annual Isa allowance so that returns are tax-free, says Clare Francis in The Sunday Times.
Anna Bowes at Chase de Vere says a medium-risk portfolio should have about 20% invested in fixed-interest (she likes Standard Life Higher Income and Old Mutual Corporate Bond Fund), 24% in property funds (such as New Star Property and Morley High Income Property Trust) and 28% in UK equities (she suggests Invesco Perpetual High Income and M&G Capital). The remainder should go into overseas investments – about 18% in US equities, 6% in Europe and 4% in the Far East. Funds worth considering here include Franklin US Equity, Investec American, Fidelity European Growth and Aberdeen Asia Pacific.
And don’t forget less conventional tactics, says Isabel Berwick in the FT. Grandparents may willingly contribute to save on inheritance tax, and if you have already chosen a school, ask how much of a discount you will get if you pay five years in advance. Schools can then invest the money upfront, and by offering you a discount of, say, 5%, you are getting 5% net on your money. This way, you benefit from the school’s ability to invest tax-free because of its charitable status: of course, you could save the sum at 5% gross a year, but unlike the school, you will be taxed.
If you send more than one child to the same school, you should get a discount. If it isn’t offered, ask. Ditto with bursaries and scholarships. Find out what is on offer and whether you are eligible. If time is short, you may have to consider remortgaging, provided you have sufficient equity in your home. Since this can be expensive and it is impractical to remortage every year, you should consider either taking out a larger sum initially or going for a flexible mortgage which allows you to draw down equity as and when you need it.