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Education saving funds vs ETFs

Discussion in 'Exchange Traded Funds (ETF)' started by Samnet, 20th Dec, 2019.

  1. Samnet

    Samnet New Member

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    Hi
    I will be dady soon and intend to save money for my daughter that she can use at the age of 18 ( might be education, running business, trip, marriage,...).So I have 18 years to save money.
    I was wondering what are the benefits of education saving plan over than ETFs? Which one is more tax effective? Which one has better outcome?
    If i invest in an ETF which has dividen reinvestment plan, at the end of 18 years, I only need to pay capital gain tax (with 50% discount on CGT) and management cost is less than education saving funds
    Can you please compare these two for me?

    Thanks
    Sam
     
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  2. twisted strategies

    twisted strategies Well-Known Member

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    welcome to InvestChat ,

    and congratulations on your ( expected ) daughter

    i have no idea about education savings plans ( and their tax implications )

    would some ETFs inside a trust for her be better , if the ETFs have franking credits ( and some do ) that might easily offset tax burdens .

    ETFs also add some flexibility on investment directions A LOT can change in 10 years ( so you could add different ETFs when wise )

    also don't ignore LICs the extra fees are sometimes worth it with the good managers running them ( again inside a trust structure you can add/mix and match when wise )

    cheers and best wishes
     
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  3. Samnet

    Samnet New Member

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    Thanks for your quick reply and kindness
    I have no idea of trust and don't have enough knowledge about it. I prefer something strait forward and less complicated.
    1-If I invest in ETF for her and go for dividend reinvestment, is it a good idea?
    2- As long as I don't sell the ETF, I don't need to pay tax for it. Correct?
    3- when I sell the ETF, let's say in 15 years from now, I should pay CGT which has 50% discount. Correct?

    Thanks
    Sam
     
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  4. twisted strategies

    twisted strategies Well-Known Member

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    ETFs ( and LICs ) ... yes you need to pay tax on the dividends ( that is where franking credits are useful ) so you still have to declare the income ( but then you get to claim the franking credits )

    franking credits are pre-paid tax paid by the fund muagers ( when they do )

    check what your daughter is allowed to earn as a child ( it is really low and the rates rather high ) tax wise

    next off , you might be able to 'gift ' some assets to your daughter , but you probably need financial advice to get the set-up correct ( so effectively you or your daughter's mother are in control of the funds and other pesky paperwork )

    ALSO would you ( or your daughter ) sell if the investments go well she might be earning a useful supplement to her income so she might cancel all ( or some ) of the DRP as receive the divs in cash

    i can tell you in my 9 years of investing BIG changes can happen ( even as an adult ) , so am i big fan of having flexibility in decisions

    i am a big fan of DRPs ( dividend reinvestment plans ) ( but i do not parcipate 100% in every plan offered )

    ALSO some DRP plans are suspended ( turned off ) from time to time ( various unsual events cause this )

    and yes it sounds so damn hard but someone has to keep all those damn public servants employed ( and out of the way of the real workers )

    so don't be amazed to discover our economy is broken ( it is entangled in red and green tape )
     
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  5. Samnet

    Samnet New Member

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    Thanks again
    My plan is to invest for her in the name of my wife which has less annual income than me, hence less tax
    I hope it works for my daughter
     
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  6. twisted strategies

    twisted strategies Well-Known Member

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    might be a good idea to get your wife , physically ( mentally ) involved as well

    the two minds ( and alternate decision-maker ) theory

    i suggest you can't be financially savvy enough

    giving advice ( even non-professionally ) is a minefield in the current scenario

    but PLEASE learn how to research your investment targets carefully ( and learn how those tiny details affect your plan )

    each ETF and LIC ( regardless of provider ) is their own individual beast ( they might LOOK the same , but can behave very differently )

    but heck you are learning about all this BEFORE your daughter is born that is a very nice way to start

    cheers

    here is a basic website that might help

    ETF & LIC GUIDE - ETF Watch
     
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