Monthly Investment for a Child

Hi, Brains,

I would like to invest a small amount frequently for my child which is 3 yrs. I can afford $300 per month to invest.

This money will be for future/higher education or whatever.

One option I came to know ASG but have heard some negative feedback about it.

Can you please suggest a good option?

Many Thanks

Comments

  • +1 vote

    Get a TFN for your kid (to avoid tax until the $ amount of shares go over the “No Tax” threshold) Put it into shares for your kid as a long term investment then cash it out when he needs it

    • +1 vote

      Also if your gonna go with buying shares I would recommend a CommSec CDIA account set up as a trust with yours and your child’s name on the trust

    •  

      ^This.
      Also, the earlier and more up-front you can start investing, then the more compounding interest will occur.

      So if you start with a newborn (<1 yo) and invest around $1 per day (or $30 per month), at a rate of 10%, until they're 65 years old/retirement, you would have saved over $20,000 total which would have compoundly-accumulated into over $1 Million. That rate should be about equivalent to investing around $50/month at the age of 10yo. Which should be about equal to investing $100/month for a 20yo. That's in turn equal to investing $250/month at age 30. And again equal to investing $800/month for a 40yo. And lastly for a 50yo they would need to be saving-investing about $2,500 per month to be equal.

      Here's an interesting video!

  • +2 votes

    SportsBet

  • +3 votes

    Member joined 3 years ago.
    First post today.
    We know who is really posting.
    I would usually doubt a 3 year old would know much about investing but considering your abilities perhaps you should just make your own decisions.

    •  

      What are you trying to say? Who do you think is posting.

      • +5 votes

        Isn't it clear? The post says it's for 3 year old and member joined 3 years ago. Moreover, who wouldn't join ozbargain right after birth these days.

  • +2 votes

    Create an offset account and transfer to that. On their X birthday transfer to them… But benefit until then.

  • +1 vote

    i have a vanguard managed fund (VDHG equiv) that we transfer $ to each month, thats just in our names
    makes it set and forget, tax is 'our problem' but easier than trying to deal with kid accounts and always gives us the option to 'not give it to them' if they grow up to be a-holes ;)

    •  

      how do you keep it separate from your own investment? Do you have two separate account?

      • +1 vote

        We only have their funds in that managed fund
        Currently all our extra $ is offsetting a mortgage.
        Plan is at some stage to add own funds to this and, if we do, I'll work out how to track percentages at that stage (hopefully by then it's at the point where it can be moved to the lower fee level)

  •  

    AMP Investment Bonds are also an option, they don’t need to be calculated in your tax return as they pay corporate tax rate on earnings (which might benefit you if in a higher tax bracket) and there is a 1% fee

    •  

      GenLife also offers Investment Bond options.

      They have the Child Builder and Life Builder options.

      You can invest into dozens of funds, including the Vanguard Diversified Growth and High Growth options (VDGR/VDHG). However, GenLife smack a 0.40% admin fee on top of the Vanguard annual MER of 0.29%, so your annual fees will be 0.69%, at least - possibly >1% if you go some of the other fund options.

      Definitely worth considering if OP is in a higher tax bracket.

      Also worth considering getting an LIC with DSSP/BSP (like AFI/WHF), in the child's name. No 'earnings' to worry about from a tax POV, but it will compound regardless. This option would involve brokerage fees, though. And is a little more involved than the IB option.

      Regards,
      A

  •  

    Agree with investment Bond, sometimes called a Superannuation Bond… We have ones setup via IOOF, called Wealthbuilder, the child ones can be setup in trust with a vesting date to automatically transfer into their name from, I think, ages 15 up to 25.

    Until then, funds are controlled under you. Tax free status after 10 years, but theres the ability to withdraw funds early and pay tax on a declining scale depending on Investment timeframe, so if an emergency comes up, you can access funds.

    With a super Bond, you can have a defined benefit member binding, meaning that if you pass away before vesting age, it is held in trust for them until then and does not form part of your estate and so can't be touched or claimed by other family members.

    There are rules though to achieve tax free status… You can deposit 125% of previous year contributions - compounded - but if you do more it in any year, it will reset the ten year rule. Not sure about other products, but the IOOF one allows you to specify not to breach the rule and funds are held in escrow until the following year cycle. The 125% rule also means that if you stop contributing in any one year, you will be unable to contribute again otherwise the ten year rule is reset.

    When funds vest, the tax status is preserved to the recipient, so as long as the 125% rule is not breached, they can contribute themselves and maintain tax free status.