5 min read
Opinions expressed by Entrepreneur contributors are their own.
You’re reading Entrepreneur India, an international franchise of Entrepreneur Media.
COVID-19 and other economic complexities have left inflation and the economy at a place where we have all been forced to re-think the way we look at our financial journeys. Necessities such as education, home loans, etc., are becoming increasingly difficult to maintain or even afford, which is why it helps if parents start financial planning as early as they can. Wise investment decisions today can help your children achieve their dreams and help us collectively build a stronger, more capable India. Let’s take a look now at key investment strategies and themes that can help you save for your child’s bright future.
Be aware of the cost of professional courses and certifications
Whether your child wants to be a doctor, a journalist, an engineer, or an investment manager, professional qualifications are needed. However, in a country like India, with a rapidly growing population of young people, competition for the limited number of seats for professional courses is intense. This means that the cost of education, and supplementary costs like tuition, will likely be more than today. Over the past 5-10 years, costs in the higher education sector have ballooned by double-digit figures. Right now, MBA fees, for instance, can be as high as INR 20-40 lakh for a two-year program. We don’t expect this trend to reverse itself in the near future, meaning that quality education 10 years down the line will be a substantially costlier proposition than it is right now.
When preparing your investment strategy, it’s critical that you have an awareness of the current and projected costs of professional courses and certifications. That way, you will be able to afford a quality higher education experience for your child, when the time comes.
Monitor the medium to long-term inflation rate
High levels of inflation limit the utility of the gains you make from strategic investments. Over the past two decades, inflation rates have fluctuated dramatically, year-on-year, with a high of 12.3 per cent in 2008, and a low of 3.3 per cent last year. What does this entail when it comes to investing in your child’s future? Conventional assets might not generate a sufficient amount of interest to offset the rate of inflation in the long term. This means that you will want to rethink your risk appetite and incorporate a larger proportion of higher-return products into your portfolio. While this does have implications in terms of overall risk, high returns are the only way to combat a sustained, high level of inflation. Low returns from conventional assets could, in the long term, effectively erode the value of your savings.
What does your cash surplus look like?
On a given month, and across a given year, what does your cash surplus look like? Once you’ve accounted for expenses and discretionary spending, how much cash is left for savings and what are the long-term trends you’ve seen with regards to this amount? Having an adequate monthly and yearly cash surplus is critical to your long-term investment plan for your child’s future. You need to evaluate your current cash surplus situation to identify whether or not it aligns with your investment goals. If your plan is to save a certain amount every month, does your cash surplus actually allow you to do so? If not, you’ll want to take a look at your discretionary spending and pare things down to enable a greater, sustained cash surplus on a month-to-month basis.
What investment vehicles are available and how do you allocate your investments?
In these times of change and greater uncertainty, it’s important to be aware of all the potential investment vehicles available, as well as their ups and downsides. You also want to strategically allocate your investment between different vehicles to minimize risk and meet your target in terms of returns. Fixed deposits, bonds, mutual funds and even exotic instruments like crypto all have different plus and make sense in different contexts. For instance, investing a large proportion of your savings towards an FD will ensure stability. However, higher levels of inflation might mean that the actual value of your investment will either stagnate or even come down slightly over time. In general, FD rates of return range between 3.5 per cent and 7 per cent in India. Looking at historical inflation trends, a lower rate of return would cause your savings to erode in value. Other vehicles come with higher levels of return, but are accompanied by increased risk. You’ll need to sit with your financial advisor and draw up a plan that aligns your investments with your target return for enabling your child’s future.
Conclusion: Plan, monitor, and review your investment
Investing towards your child’s future isn’t a ‘fire-and-forget’ decision. You need to carefully plan your investment strategy, monitor its success and periodically iterate and realign to ensure long-term success. You need to take into account changes in the market and overall economy, as well as personal changes—as they grow older, your child’s interests may change, along with their higher education prospects. The best way to plan and follow through on your investment is to work closely with your financial advisor. Set a plan in action, identify long-term goals, then review the state of your investment on a regular basis with your advisor, allowing for changes, both in terms of allocation, and in terms of what you’re putting in each month. Your child’s future matters. Saving to make their dreams come true can be the greatest gift you can give. But in a volatile economy and environment, it’s important to do this strategically.
More China coal investments overseas cancelled than commissioned since 2017
More China-invested overseas coal-fired power capacity was cancelled than commissioned since 2017, research showed on Wednesday, highlighting the obstacles facing the industry as countries work to reduce carbon emissions.
The Centre for Research on Energy and Clean Air (CREA) said that the amount of capacity shelved or cancelled since 2017 was 4.5 times higher than the amount that went into construction over the period.
Coal-fired power is one of the biggest sources of climate-warming carbon dioxide emissions, and the wave of cancellations also reflects rising concerns about the sector’s long-term economic competitiveness.
Since 2016, the top 10 banks involved in global coal financing were all Chinese, and around 12% of all coal plants operating outside of China can be linked to Chinese banks, utilities, equipment manufacturers and construction firms, CREA said.
But although 80 gigawatts of China-backed capacity is still in the pipeline, many of the projects could face further setbacks as public opposition rises and financing becomes more difficult, it added.
China is currently drawing up policies that it says will allow it to bring greenhouse gas emissions to a peak by 2030 and to become carbon-neutral by 2060.
But it was responsible for more than half the world’s coal-fired power generation last year, and it will not start to cut coal consumption until 2026, President Xi Jinping said in April.
Environmental groups have called on China to stop financing coal-fired power entirely and to use the funds to invest in cleaner forms of energy, and there are already signs that it is cutting back on coal investments both at home and abroad.
Following rule changes implemented by the central bank earlier this year, “clean coal” is no longer eligible for green financing.
Industrial and Commercial Bank of China, the world’s biggest bank by assets and a major source of global coal financing, is also drawing up a “road map” to pull out of the sector, its chief economist Zhou Yueqiu said at the end of May.
(Reporting by David Stanway; Editing by Kenneth Maxwell)
Bank of Montreal CEO sees growth in U.S. share of earnings
Bank of Montreal expects its earnings contribution from the U.S. to keep growing, even without any mergers and acquisitions, driven by a much smaller market share than at home and nearly C$1 trillion ($823.38 billion) of assets, Chief Executive Officer Darryl White said on Monday.
“We do think we have plenty of scale,” and the ability to compete with both banks of similar as well as smaller size, White said at a Morgan Stanley conference, adding that the bank’s U.S. market share is between 1% and 5% based on the business line, versus 10% to 35% in Canada. “And we do it off the scale of our global balance sheet of C$950 billion.”
($1 = 1.2145 Canadian dollars)
(Reporting by Nichola Saminather; Editing by Leslie Adler)
GameStop falls 27% on potential share sale
Shares of GameStop Corp lost more than a quarter of their value on Thursday and other so-called meme stocks also declined in a sell-off that hit a broad range of names favored by retail investors.
The video game retailer’s shares closed down 27.16% at $220.39, their biggest one-day percentage loss in 11 weeks. The drop came a day after GameStop said in a quarterly report that it may sell up to 5 million new shares, sparking concerns of potential dilution for existing shareholders.
“The threat of dilution from the five million-share sale is the dagger in the hearts of GameStop shareholders,” said Jake Dollarhide, chief executive officer of Longbow Asset Management. “The meme trade is not working today, so logic for at least one day has returned.”
Soaring rallies in the shares of GameStop and AMC Entertainment Holdings over the past month have helped reinvigorate the meme stock frenzy that began earlier this year and fueled big moves in a fresh crop of names popular with investors on forums such as Reddit’s WallStreetBets.
Many of those names traded lower on Thursday, with shares of Clover Health Investments Corp down 15.2%, burger chain Wendy’s falling 3.1% and prison operator Geo Group Inc, one of the more recently minted meme stocks, down nearly 20% after surging more than 38% on Wednesday. AMC shares were off more than 13%.
Worries that other companies could leverage recent stock price gains by announcing share sales may be rippling out to the broader meme stock universe, said Jack Ablin, chief investment officer at Cresset Capital.
AMC last week took advantage of a 400% surge in its share price since mid-May to announce a pair of stock offerings.
“It appears that other companies, like GameStop, are hoping to follow AMC’s lead by issuing shares and otherwise profit from the meme stocks run-up,” Ablin said. “Investors are taking a dim view of that strategy.”
Wedbush Securities on Thursday raised its price target on GameStop to $50, from $39. GameStop will likely sell all 5 million new shares but that amount only represents a “modest” dilution of 7%, Wedbush analysts wrote.
GameStop on Wednesday reported stronger-than-expected earnings, and named the former head of Amazon.com Inc’s Australian business as its chief executive officer.
GameStop’s shares rallied more than 1,600% in January when a surge of buying forced bearish investors to unwind their bets in a phenomenon known as a short squeeze.
The company on Wednesday said the U.S. Securities and Exchange Commission had requested documents and information related to an investigation into that trading.
In the past two weeks, the so-called “meme stocks” have received $1.27 billion of retail inflows, Vanda Research said on Wednesday, matching their January peak.
(Reporting by Aaron Saldanha and Sagarika Jaisinghani in Bengaluru and Sinead Carew in New York; Additional reporting by Ira Iosebashvili; Editing by Sriraj Kalluvila, Shounak Dasgupta, Jonathan Oatis and Nick Zieminski)