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Intelligent Investing

Making cost of college education more affordable

Providing our children with the best education is every Filipino parent’s dream.

However, because of the soaring cost of college education, many Filipinos doubt they can fulfill that dream. Based on the data provided in eCompareMo.com’s article “Tuition Fee Guide: 2019 Cost of College Education in the Philippines,” the average tuition fee in private colleges and universities is already P145,000 a year. With the 7-percent average annual increase in tuition fees, children currently enrolled in grade one will have to pay some P365,000 a year by the time they enter college. This is equivalent to nearly 50 percent of the P740,000 average annual income of a dual income family living in Manila. The amount will even be much higher for children born today, at around P510,000 a year by the time they enter college 18 years later.

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Although many universities and colleges provide full tuition subsidies for students, thanks to Republic Act No. 10931 or the Universal Access to Quality Tertiary Education Act, these schools don’t always offer the courses that our children want to take. Moreover, these schools usually have an overwhelming number of applicants, making it difficult for even the best and the smartest children to get accepted.

The good news is, we can make saving for our children’s college education more affordable by regularly investing in the stock market. Stocks are the best investment vehicle to save for our children’s college tuition because they provide higher returns compared to bank deposits and bonds. Note that the average annual return of the PSEi based on rolling 10-year periods since 1987 is 11.7 percent, much higher than the average 10-year bond yield of 4.7 percent and the average time deposit rate of 2.3 percent during the past several years. Although stocks are considered riskier compared to bonds and bank deposits given stocks highly volatile nature, studies show that stocks volatility and likelihood of losses diminish over time. Consequently, while bank deposits and bonds are ideal for short-term goals, stocks are the best vehicle for our long-term goals such as saving for our children’s college tuition.

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Based on our computations, parents of grade one students today would only need to invest P3,800 per month in the stock market to accumulate enough for their children’s college education. This is equivalent to only P126 per day which is roughly the same as the cost of a cup of coffee at Starbucks and less than the cost of a full day parking in Ortigas, Makati or BGC. Although parents of newborns face a much higher cost of college education in the future, the amount they need to invest in the stock market is much lower at only P2,700 per month or P90 per day, thanks to the longer amount of time they have to invest (at 18 years for newborns versus 12 years for grade one students), and the power of compounding!

Investing in the stock market is also much easier now. There is currently an abundance of equity index mutual funds that are structured to replicate the performance of the PSEi index, eliminating the need for busy parents to pick stocks. These funds are also available online and can be bought for as little as P1,000.

Providing our children with the best education shouldn’t be an impossible dream for those who invest in the stock market. This is especially true for those who start early and invest regularly. Once we have saved enough for our children’s college education, the only thing our children will need to worry about is getting accepted in the school of their choice.

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