Your son was born. Now what?
Learn how to ensure a healthy future for him.
Text by Tiago e Silva Couto, a certified CFP® (Certified Financial Planner) personal financial planner, granted by the Brazilian Institute for Certification of Financial Professionals. Tiago is a lawyer and economist, and a partner at Bahia Partners Independent Investment Agents.
Congratulations to all the parents! Children are one of the best things in life, the magic ingredient of our existence. I'm also a father; I have a boy and a girl who bring joy to my life: a 5-year-old boy and a 3-year-old girl.
In addition to all the concern that my wife and I have for the education and character development of our little ones, one of the topics I always discuss at home, and now share with you, is about building a savings account for my loved ones.
The vast majority of couples perform financial gymnastics to maintain their household, cover all expenses, and still manage to save for their children. And even as a financial planner, I confess it's a difficult task. But I believe I can share with you some experiences that have worked well for me.
As soon as my first child was born, I talked to my wife about the importance of setting aside a certain amount each month for our children. We agreed to open a separate savings account, independent of our own, to accumulate these payments – and it's free of bank fees and charges. Every six months, I transfer the accumulated amount to the brokerage firm, where I find better investment options.
With the funds now in the brokerage account, in a larger amount, what I envision, and continue to do to this day, is dividing my children's savings into three long-term investments.
I like products that generate regular income and are tax-free. I decided to allocate my children's resources as follows: real estate investment trusts (REITs), energy REITs, and dividend-paying equity funds. All three investments are publicly traded, which facilitates liquidity.
With this portfolio composition, every month their portfolio receives an amount that I can fully reinvest – I buy more shares of the same assets. The intention is that at the end of the allocation period (18 years), this investment will generate enough income to cover university tuition and expenses.
The idea behind real estate investment trusts (REITs) is to be able to buy more shares every month, and often I find myself hoping for a drop in their value, because that way I can buy more shares with the same amount of money received.
The same principle applies to FIP Energia – a fund that owns a wind and hydroelectric energy project, which has a yield exceeding IPCA+12% per annum, tax-free. With just R$ 84,00, I can buy a fraction of a large infrastructure project for my children, with an exceptional rate of return according to current prices.
And finally, I buy a dividend-paying equity fund, listed on the stock exchange. It's also exempt from income tax and has monthly payments. It has active management and focuses on stocks with dividend returns of 7% per year, excluding capital gains.
The advantage of this type of portfolio is that I do the calculation in reverse. I know how many shares I will need in my children's assets to cover future expenses, according to the current price. So, if I want a monthly income of R$ 3.030,00, tax-free, I need 3.000 shares of a real estate fund that pays R$ 1.01/month. The same reasoning applies to the other proposed alternatives.
With this allocation of resources, investments that don't have defined deadlines, and constant payment flows, I'm striving so that in 18 years, these flows can cover the living expenses of my children, who will unfortunately be adults by then.
I hope I was able to help by sharing my experience, and I am available to answer any questions you may have.
The text reflects the author's opinions. Infomoney is not responsible for the information above or for any losses of any kind resulting from the use of this information.
Did you like the explanations? Do you have more questions about investments and financial planning? Send an email to Tiago: tiago@bahiapartners.com.br