The most important decision you can make as a parent is Investing in your kids for their better future.
Whether to circumcise your baby boy, how to introduce solid foods into his diet, or even what clothes to buy him this season.
It’s how you choose to invest your hard-earned money that will have the greatest effect on your child’s future finances and happiness, so it’s important to do it right.
This article explores the pros and cons of different investment options and provides tips on what to do with the money you don’t need immediately so that your children can reap the benefits in years to come.
Inexpensive ways to invest in your child
There are numerous ways to invest in your child’s future without spending a lot of money. For example, you can engage them by allowing them to help make decisions or earn their own money.
But when it comes to formalized investment strategies, there are some things you may want to avoid if you’re aiming to save on fees.
If your goal is a higher rate of return, here are two options that won’t break your bank but will still provide ample opportunity for growth:
One option is to choose an age-based portfolio designed specifically for children.
These portfolios typically have lower fees than other mutual funds and automatically adjust their allocations as your child gets older, taking into account his or her changing needs and risk tolerance.
One drawback of these portfolios is that they may not be invested entirely in stocks; rather, they’ll hold a mix of stocks and bonds depending on how old your child is.
The importance of investing in children
Not only does good parenting provide children with security and a stable home environment, but it also sets them up for success later in life.
Financial education at an early age gives kids a better idea of how to manage their money and helps them gain financial confidence, which can give them an edge when they’re ready to launch their first business or buy a house.
Of course, there are many ways to invest in your kids’ future without breaking the bank.
Talk with your kids about setting up a savings account and starting to put away money every month and be sure you’re leading by example by making regular deposits into your savings account as well.
You could even turn your child’s allowance into a game, where he has to save a certain amount before he can spend any of his earnings.
And remember that teaching kids about smart spending habits is just as important as teaching them about smart saving habits; after all, if they don’t know how to spend wisely now, chances are they won’t learn until much later down the road—if ever.
Start small, like budgeting $5 a week on snacks or buying something new. This will help them understand what it means to live within their means.
When they grow older, talk with them about having more independence over how they spend their own money (maybe giving them some basic guidelines).
Teach children not only how to earn money, but also how to use credit cards responsibly (and avoid going into debt) so that when they do become adults, they have a solid understanding of personal finance and have access to resources such as credit cards if needed.
Parents who open up lines of credit for their young adult children often see increased self-confidence and maturity among those teens because teenagers feel more independent knowing they have access to some extra cash.
Common myths about investing in children
Myth #1 – They’re too young to think about that. This is like saying, You can’t start saving until you can afford to save enough, or you have to be tall enough before you start playing basketball.
When children are very young, it might not seem like they need your help with their finances. They’re still at home and don’t make many of their own decisions.
But by starting to teach them about money when they’re young, you’ll make sure that when it comes time for them to start earning and spending on their own, they know how to handle those responsibilities responsibly.
That means teaching them about budgeting, investing, credit cards, debt management, and more. It’s never too early to start talking about these things with your kids.
A parent’s guide to investing in kids;
Step 1: Set up a custodial account.
When your child is born, you can set up a custodial account (also called a UGMA or UTMA) at your bank or brokerage firm and start putting money into it.
For more information on How to Open a Custodial Account and How to Fund a Custodial Account.
Step 2: Make regular contributions.
If you want your child’s investment portfolio to grow as much as possible, but as much money into it as you can afford every month—ideally 10% of your annual income.
How does this apply to me?
When I was a kid, my dad used to tell me that money doesn’t grow on trees. That was true, but it was only part of the story. His point wasn’t about cash flow. It was about time and energy.
Looking back on it now, I realize he was trying to teach me that nothing you can buy has more value than your time or your energy if you channel them toward something positive and productive.
In other words, there’s no better investment you can make than in yourself and your kids.
Put simply, how much are you willing to pay for peace of mind? If it were up to me, every parent would get their child a high-interest savings account (maybe with compound interest) when they’re born.
After all, most parents have little trouble coming up with the money for things like braces or private school tuition when their children are young.
But once they reach adulthood? Too often we see our offspring squander opportunities or even ruin their lives because they didn’t learn how to manage their finances well enough as teens.
That doesn’t mean parents should give out allowances without strings attached or not teach financial responsibility along with good study habits.
Questions to consider before investing
Make sure that you have your children’s best interests at heart when deciding where to invest.
Certain investing strategies, like income-based portfolios, might make sense for some parents but not others.
Additionally, certain asset classes (cash, fixed income, and domestic stocks) might be better suited to a parent’s current financial picture. Parents should also consider what effect their investments will have on their overall net worth and retirement savings plan.
For example, if a parent is nearing retirement age or has already retired, he or she may want to focus more heavily on preserving capital through cash or fixed-income investments.
If an investor is still working full time and has many years until retirement, he or she may want to take more risk with his or her portfolio including equity investments in companies with growth potential to maximize future returns.
When choosing which investment vehicles are right for your child’s college fund, it’s important to do your homework first. Take into account things like fees and tax implications before making any decisions about how you’ll invest.
This will help ensure that you’re getting the most out of your money while also staying within your comfort zone. And don’t forget to ask questions!
Finding a trustworthy advisor who can help guide you through these tough choices is crucial. If something doesn’t feel right, walk away from it and find someone else who can give you answers.
It’s worth it in the long run! After all, planning for college shouldn’t just be about building up a big pile of money; it should be about setting up your kids for success after they graduate from school as well.
Consider talking with them as well they’ll likely have great insight into their own goals and plans once they’re out of school. And remember: there’s no one right way to invest!
If you’re looking to start saving early on and investing in your children, it’s important to ensure you keep costs low. Look for low-cost options, such as index funds or ETFs that don’t require high minimum investments or trade fees.
But even better is using a robot advisor who can help manage your kids’ money, manage risk, and keep things relatively hands-off while they do it. A robot-advisor won’t replace human advice, but it can provide a good baseline of human help at an affordable price.
Most importantly? Start early with investing—and continue until college rolls around to make sure your kids get a good head start on their financial future.
For additional tips, check out our recent post 10 Tips for Investing in Your Children’s Future. For additional tips, check out our recent post: 10 Tips for Investing in Your Children’s Future.