Author Topic: education bonds in Australia  (Read 2740 times)

kiwiozearlyretirement

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education bonds in Australia
« on: July 19, 2016, 03:56:15 AM »
Hi there

Does anyone have a handle on the benefits of education bonds? I have seen Scott Pape recommend them sometimes and then at other times he says just buy AFIC or ARGO (his favourites) and give them to the kids when they come of age. Apparently the Australian scholarships trust was pretty bad and sunk these investments due to high fees. But I believe there are other companies out there that are ok. The major benefits is the no tax if you keep them for 10 years.

Happy to hear anyone's thoughts

marty998

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Re: education bonds in Australia
« Reply #1 on: July 19, 2016, 06:08:13 AM »
I read that the best thing to do if you want to save for your kids education is just dump cash in your mortgage offset account.

- You save interest
- Pays a better rate then a savings bond
- It's tax free
- It's simple, and one less investment/thing to keep track of
- The kids never need to know that the money is 'theirs'

Win Win Win Win Win?

kiwiozearlyretirement

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Re: education bonds in Australia
« Reply #2 on: July 19, 2016, 06:48:59 AM »
Fair enough but what is the plan once you need the money for their education - draw down the mortgage again. Or are you assuming you are investing the surplus elsewhere. We are mortgage free so are keen to find a tax advantaged investment in addition to super.

Eucalyptus

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Re: education bonds in Australia
« Reply #3 on: July 19, 2016, 06:51:11 PM »
I started up an ASG scholarship fund for my daughter (she's a toddler). I was pressured into this by my ex-wife, though I did also think it was a good idea. She pressured me into making one in Hannah's name (despite it being with my own money, she didn't trust that I would invest for her in other ways and set aside money in the future for my daughter...).

Anyway, I'm torn as to whether to put much into it once it gets past a few thousand. Advantage of it is that its tax free-unlike even Super which has 15% tax on the inputs. No tax on positive earnings.

Disadvantage is that its vague on where and how they invest. The best I can get out of them is that they get a selection of things...I think some is "fund manager" stuff, some might be index funds. Really not sure at all!!!

There are also annual fees, I can't remember how much. But significant enough that the agent told me to make sure I have at least $2000 in it in the first two years, otherwise if I don't put anything else in it will just disappear in the fees...

Honestly its probably better for my daughter's future if I concentrate on owning a PPOR in a good location for future work/studies for her (eg close to good high schools and also easy to get to the Uni campuses), and get myself in a good financial position. My Super preservation age would be when she is 31...if I put extra into my super, I could give her more money around then if she needed it. I won't let her starve or be homeless through her late teens and twenties, and tertiary education.

I also dislike the thought of her having a "trust fund" and other associated potential issues. I want her to learn some Stoic traits, frugal traits, moustache it up. Learn some work ethic, and experience a bit of grind. I think there's nothing wrong with a little suffering while you are at Uni.

Eucalyptus

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Re: education bonds in Australia
« Reply #4 on: July 21, 2016, 07:19:57 PM »
Got a partial response from ASG on my questions.

They told me the fund balance, ~$2k, which is about $1k short of what I've put into it since December!!! So even with the fees their investment performance stinks. Clearly not close to the indexes. They have a table that specifies their assett allocation into classes, BUT, its not set in stone! It has maximum and minimum allocations for each investment type! So clearly someone is messing around with timing the market, etc, and doing a terrible job.

Fees are $52 per year (deducted quarterly), plus 1.30%pa, which is calculated and deducted quarterly. Shocking...I had no idea on sign up it was that much.

There are various tax benefits, but some things are still taxed. I'd be surprised if they are really worth that much in fees and poor investment performance.


deborah

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Re: education bonds in Australia
« Reply #5 on: July 22, 2016, 12:44:49 AM »

Eucalyptus

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Re: education bonds in Australia
« Reply #6 on: July 22, 2016, 07:46:17 AM »
Noel Whittiker always recommends insurance bonds for this - see http://www.smh.com.au/money/investing/insurance-bonds-are-the-perfect-investment-for-grandchildren-20160512-gotd6p.html

I'm reading that I can't get one for a child until they are at least 10 years of age? Is that correct?

Eucalyptus

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Re: education bonds in Australia
« Reply #7 on: July 22, 2016, 08:17:36 AM »
Is there a good place to find these types of bonds? I just looked through the Commbank ones...they seem ok. Then I found the fees in the PDS...ergggh, like well over the 1% mark unless you want a single sector one like cash or global fixed interest.

kiwiozearlyretirement

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Re: education bonds in Australia
« Reply #8 on: July 22, 2016, 09:30:46 AM »
Yeah sorry Oysters I had read that the Australian scholarship funds were terrible as they had really high fees. But once you are in there for a few years you don't feel like getting out as you need to pay tax on the returns (if any). Maybe you should bit the bullet if they have only been running a short time.

I have not done enough research to find a good fund. But surely you would want one with less than 0.5% fees. We had a fund for 10 years from 2001 till 2010 and it stagnated as in good times and in bad they were gouging 1.5% management fees. At that time there were no low fee passive share funds in NZ so we didn't know any better.