Investing for Your Children's Future

I have a very young daughter <3 years old in which we have a high interest bearing account held in trust for her (current interest rate 0.85% p.a.) as I'm sure most parents have for their kids. Through birthdays and accumulation she has a small starting balance of ~$2,500.

I am thinking of alternative investments or ideas for the funds and interested to know your thoughts.

Being such a small investment would you consider investing into a manged fund or index fund on the ASX? (i.e. Argo Investments, Vanguard etc).

It would be a passive investment and funds would not be needed until she's 18 years.

What have other parents done for their children?

Comments

  • Buy and etf, or an education bond if you think they'll be smart.

  • +16

    What have other parents done for their children?

    Banked the money - saved money on my mortgage - keeps a roof over their head and paid for food & education.

    My kids will thank me when I help them buy their first car or gaurantor on their first property.

    • +5

      All of the above I agree with but never, ever go guarantor. Too many downsides, especially if they are in a relationship and it goes pear-shaped.

      • My parents went gaurantor for me. Got me where I am today to be honest. Admittedly I was single at the time.

        I think having a sense of awareness that it's an option is important - then a parents level of comfort based on individual circumstances is a seperate thing again.

  • Why don't you invest on yourself, it be theirs in future?

  • +7

    They'll get everything when I'm dead, they can wait until then.

    • Good advice. Also remember to tell your kids when shopping for birthday/Christmas gifts, make sure they buy something they like too. One day it will be theirs anyway.

  • +22

    When 0.85% is classed as high interest, what a time to be alive.

    • I was just thinking the same thing.

    • I think Josh will be printing -5.0% tonight.

    • I think back in 1964 with the commonwealth bank school passbook accounts we got 3 %

      • +1

        And a combination safe piggy bank!

        • I think mine was a tin one with the piccy of the building on it would be a collectors item now

  • +4

    high interest bearing account held in trust for her

    Does this lead to income under her name? If yes, do note that children pay a much higher tax rate.

    https://www.ato.gov.au/individuals/investing/in-detail/child...

    Income Tax rates for 2019–20 income year
    $417 – $1,307 Nil plus 66% of the excess over $416
    Over $1,307 45% of the total amount of income that is not excepted income

    Try to invest under a low income earning adult's name in a separate account if necessary.

    • +3

      i don't think the OP is going to be earning over $417 per year at 0.85% interest

  • +3

    They get nothing, I'm teaching them how to be self sufficient.

  • +7

    Use the money to let them pursue their interests. $50,000 at 18 isn't as useful as actual skills and interests.

    Skills > capital.

  • +1

    $2500 at 3yo damn.. i was making $1-2 as a kid doing chores.

  • All the "I want to leave a legacy for my kids and make sure they never feel like they made their own way in the world" folk in the FIRE group I'm in are doing family trusts. Apparently they are still effective.

    If you don't want to do that then an ETF that concentrates on capital gain rather than dividends would be another route. It won't add much to your current tax obligations but will need payment when you sell later.

    With my kids, I fed, clothed, housed, educated and gave them life experiences through travel and "doing things". I also paid or will pay for their first degree or trade training. I did/will do this through cash flow and my own investments.

  • +1

    get the barefoot families book. im setting up one of these

    https://sustainable-living.blog/2019/05/24/investment-bonds-...

  • We are investing for our 7 month old baby for his education and thats it. We want him to work hard for his money.

  • +11

    I'm going to offer a different take - save up for an early retirement so that you can spend more time with your children. This is coming from someone whose parents are getting older. My parents came to Australia without a dime, got an education, worked hard to make their way to a middle-class suburb so that I would be able to grow up and have a good future. I've never needed any help from them financially and even if they were to give me money, I would refuse it - I don't need it and I'd feel too ashamed to take their money.

    However, what I've regretted is that they worked hard until they were old and past retirement age. As I grew up, I didn't have much of a chance to spend time with them. They left at 7AM in the morning whilst I was getting ready for school and they got home at 7PM, after which I was busy with homework and other things. Even on weekends, they would be busy maintaining the house, doing the shopping, doing the gardening. Even as I grew up, we had little time to spend together. Never had much of a chance to travel, go on holidays or just sit and talk very much.

    As a parent in a double-income household, living comfortably, I wouldn't want to give my kid much more than a good education. Any more would be too privileged and would take away from his sense of achievement in fighting and earning his way through life, but I will try to save up so that I can retire early, or at least transition to part time work later on in my career, enjoy life a bit more and have more good memories with my kids.

    Anyway, to answer your direct question, stocks are a good investment - get a diversified ETF and just leave it. However, you can't really leverage stocks easily in Australia. I'd suggest looking at property as you can leverage your equity further. Basically the long and short of it is that for long run investments, just about anything will do, just don't take excessive risks and go bust. In the long run, all diversified investments go up. Don't leave it in a bank, your interest rate is not 0.85% or whatever you think it is. That's just the nominal rate, the real rate is lower. You're basically earning nothing at all.

    • Thank you for your insight.

  • -2

    Just buy Apple shares and forget about it, set a reminder on your phone to check the shares on her 18th birthday or graduation day or whatever.

    • +4

      I guess it's not always a sure thing. Let's hope Apple maintain their focus on innovation. Don't want to hold another stock like Kodak, Nokia, Blockbuster etc.

    • Equities is the way to go IMO. Maybe diversify a bit into AAPL, AMZN, GOOG, MSFT with a combination of ETFs.

      Something like Spaceship funds would be good too if OP is comfortable with a technology heavy portfolio.

      • Invest in children. Soylent Green futures.

  • +4

    If you have a mortgage why don't you just leave it in the offset account and allocate later if needed ? Return on your interest savings (tax free) is better than the return on the savings account.

    • Yes- this is a really good idea.

  • +1

    Just did it recently for my 3yo and 1yo…

    Vanguard ETFs, 40% VAS, 60% VGS.
    A few options to purchase - depends on how often you will purchase and how much $.
    - Vanguard Personal - no trade fee but 0.2% fee per annum
    - Selfwealth, $9.95 each trade.
    - Opentrader, $5 under $2500

    Can also use this calc to see which option will suit you best.
    https://investcalc.github.io/

    Turn on dividend reinvestment and they'll be set in a couple of decades!

    Better than sitting in an offset account when money is this cheap.

    • Curious. Did you open those accounts in your name? If so, won't you have to pay CGT at your marginal tax rate when you sell 15-20 years later?

      Investment bonds as linked in another comment seem to be tax-effective way.

      Edit: I agree that equity / ETF investments is the way to go. Just curious about the a tax-effective way of doing that.

      • Investment bond sounds good for a tax effective strategy, I'm (un)lucky enough to have significant capital losses from previous FYs to offset any gains…

    • Thank you

  • We set up a vanguard managed fund (vdhg equiv) and just make monthly BPay transfers

    It's in our name, so tax is our problem

    Slightly less efficient than buying the etf directly bit due to the regular small amount, the convenience outweighs that (plus vanguard just dropped their fees so the difference is less)

  • Hey guys would you rather receive 300k on adulthood or go to private school? Because that's how much I'll save if I don't send my kid (each) to private school for high school.

    • or middle ground, find a school you like that averages less than 50k/year..thats pretty up there for a private school

      But plenty of smart people come out of the public school system, and plenty of dumb ones come out of private, so its not necessarily the school (though if you're rich enough to send your kid to somewhere thats 50k/year its likely they'll already have a sizeable leg up in society regardless of academic grades )

      • Those middle ground private schools are usually trash, and I speak as a person with an education background. It's either selective school (top choice) or a good private school (2nd choice, 30k+ per year) or a good public school (3rd choice, need $$$ to buy into a good suburb)

  • Give them a real education outside the outdated school system we have.

    Get them to learn about money/finance from someone successful you personally know and trust.

    Having the right mindset will be much more beneficial than handing kids money and them not knowing what to do with it.