How to secure your children's future for the new tomorrow? 6 investment strategies for new parents

Being a parent is a transformative experience, accompanied by an overwhelming sense of love, responsibility, and a desire to provide the best possible future for the children. In today's rapidly changing economic landscape, traditional notions of financial security may no longer be sufficient, and navigating the investment landscape can be a daunting task, especially for those who may be unfamiliar with the intricacies of financial markets. Therefore, it is essential to re-evaluate your financial planning and take proactive steps to secure your children's future.

Evaluate your insurance policies

The first step towards successful financial planning is to evaluate your existing insurance policies, both health and life. There are many health insurance policies which cover not only the maternity expenses but also cover the newborn child from day 1 including early vaccination and post-natal care. There are some insurance providers who cover newborns only after 90 days since the first 90 days are considered risky. So, it is best to get in touch with your insurance provider to check all these details and if you are not getting the benefits, you have the option to switch the insurance provider or buy an additional policy which suits your immediate and future needs. Adequate Life Insurance will protect your family by making sure the financial resources are available for them even if you are not around.

Set clear financial goals

Setting clear financial goals as new parents involves identifying what you want to achieve with your money in the short and long term. Start with a detailed assessment of your current financial situation, including your income, expenses, debts, savings, and life goals. Be specific about the amount of money you want to save or the timeline in which you want to achieve these goals.

Education tops the priority for most new-age parents, while many of them plan for higher education, it is equally important to plan for elementary education too. It is crucial for your investment strategy to reflect the right balance of both short-term and long-term investment opportunities and do not forget to factor in an inflation rate of at least 6-8% per annum (pa) when building a corpus for future expenses.

Harness the power of early investing

By starting early, you give yourself a longer time horizon to grow your investments and potentially benefit from compounding returns. Compounding occurs when your investment returns get reinvested generating additional returns over time. As a result, even small investments can accumulate substantial wealth over years or decades. By starting early, you can take advantage of this compounding effect and potentially build a larger investment portfolio compared to someone who starts investing later in life.

Let us assume two individuals, A and B, both aspire to invest in their child’s higher education aiming for a lump sum amount of Rs. 75 Lac when they turn eighteen. A promptly began saving Rs. 10,000 per month in a SIP with a 12% annual return from the year their child was born. In contrast, B started saving five years later in a similar SIP with the same expected returns. Individual A successfully achieves the target amount, while B only reaches 50% of his desired total return due to the delayed start.

By allowing your investments to grow over time, you can potentially benefit from exponential growth and maximise your returns. Starting to invest early provides the opportunity to learn and gain valuable experience in the world of investing and understand how different asset classes, markets, and economic factors work.

The art of understanding risks and diversification

The art lies in understanding the potential risks associated with different investment options and finding ways to mitigate those risks through diversification. By diversifying a portfolio, one can spread their investments across various assets (equity or debt), industries, and non-market linked investments and reduce the impact of any single investment's performance on the overall portfolio.

Diversification can be achieved within the non-market linked investments via varied fixed income products such as government securities, corporate debt, asset backed leasing, venture debt, and also via investment maturity, risk, industries, and sectors.

This approach helps to cushion against unexpected downturns, as losses in one area may be offset by gains in another. A well-diversified portfolio can enhance potential returns while minimising the overall level of risk, offering investors a higher degree of stability and the opportunity for long-term growth.

Developing a smart spending mindset

As new parents, while it is important to have your investment strategies planned it is equally important to develop a smart spending mindset to ensure financial stability and provide the best future for your growing family. Begin by establishing a budget that accounts for essential expenses such as housing, food, and healthcare, while also leaving room for unexpected costs. Embrace a mindful approach to spending by distinguishing between needs and wants, making thoughtful purchase decisions, and avoiding impulsive buying. Practice comparing prices, researching discounts, and shopping smartly to maximise your purchasing power. By being proactive about financial planning and cultivating a smart spending mindset, you can create a solid foundation for your family's financial well-being and foster a more secure future.

Do not miss to update the will or nominees

While you can always have more than one nominee in your investments across the majority of the asset classes, it is always advisable to have a will to cover all your other assets like real estate and gold. It will not only give you peace of mind when you are there, but it also makes sure no one with malicious intent can take away your hard-earned money or assets from your loved ones when you are not around.

By implementing these simple strategies, along with taking well-informed financial decisions and embracing long-term thinking you can navigate the ever-changing economic landscape and provide a secure future for your children.

Expectations from the upcoming policy

Mahesh Agarwal, National - Head Wealth at AUM Capital: We expect the RBI to maintain a cautious and hawkish stance in its upcoming monetary policy meeting. The rise in inflation is also causing a rise in food prices, specifically in the price of vegetables in July. In June, the Consumer Price Index (CPI) showed an inflation rate of 4.81 percent. Similarly, core inflation in June was lower at 5.1 percent than 5.2 percent in May. As a result, CPI is likely to accelerate in the next few months because the erratic effects of the monsoon have affected the farmers. Floods in the northwest and insufficient precipitation in the south and east have slowed harvesting.

The market for cereals is actually on the rise, both domestically and internationally. In particular, the latter category is impacted by geopolitical developments such as the Black Sea grain trade agreement. Furthermore, El Nino-related weather uncertainties exist, elevating the possibility of a delayed start to the policy easing cycle. Subsequently, The surprise surge in retail inflation for June has pushed the rate cut possibilities to the next financial year. Hence, We expect RBI to keep the policy rates and stance unchanged in the forthcoming policy.

Sujan Hajra, Chief Economist and Executive Director, Anand Rathi Shares and Stock Brokers: Further rate hikes in India are unlikely, with current inflation 50 basis points lower than the long-term average and the country's existing policy rate 50 basis points higher than the 10-year average. Retail inflation in India, on the other hand, has been significantly higher than projected in the last month, and major price pressures are noticeable for certain categories, particularly in the food category. At the same time, India's economic statistics remain optimistic. As a result, another 25 basis point rate hike in India is not completely ruled out. We believe that the Monetary Policy Committee will conduct at least another review to evaluate whether the inflationary risk is much higher than previously expected. The repo rate remains unchanged at 6.5 percent since February and is likely to continue the same till the next calendar year.

Aditya Damani, Founder and CEO, Credit Fair: The RBI is expected to carry on with the current stance of 'withdrawal of accommodation, as CPI inflation has gone up to the higher than expected level. The repo rate is likely to remain unchanged. With the US Fed rate hike, the possibility of a rate cut remains distant. Having said that, MPC will definitely keep an eye on boosting consumer sentiment and capex momentum.

Umesh Mohanan, Executive Director and CEO, Indel Money: The RBI takes into account CPI data to assess the domestic inflation dynamics and CPI inflation is on the higher side and is showing a tendency to move out of the comfort zone of the RBI. Therefore, the central bank is likely to continue with the repo rate unchanged and continue with its current stance of 'withdrawal of accommodation.’ Overall, MPC is expected to adopt a hawkish stance.

Saurav Ghosh is the Co-Founder, Jiraaf