I have 3 pre-teen children and would like to start an investment portfolio for them. How much do I need, and what would be the best way to do this?
Simon, in Richmond, Vic
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Thank you for your enquiry.
How may your children use the outcome and value of these investment for when they come fruition and what purpose – are you planning to pay for say their education later, are they meant to benefit from these investments by way of gifting it to them? Will they can be cashed out at a point in time in the future before passed onto them?
It is a common saying as you may have heard ‘ the best time to invest was yesterday’. However, there are other elements which needs to be considered when it comes to a multifactorial decision like this.
I would start answering your question by asking you some questions
- Can your current capital (savings) and cash-flow being used for a purpose that may in the medium term, serve a more effective and perhaps clever purpose. i.e. is the money that you planning to invest in an offset account against your home loan
- And if you the spare money set aside for that purpose, will you need it any time soon?
- Supposedly, if you are to investment these monies yourself and have your children benefit from them, have we considered your tax position and elements such as capital gains tax
- Would you need a tax effective structure to hold these investment? Can the structure also permit your children benefit from these investments when they are adults?
- And this one is a repeat of what I said earlier again, but perhaps a very important one, what are these investments going to do, what would the benefit look like to you for them? And in what time frame
My very simple answer to how much you will need to start investing is, you can really start with any amount. But again I take you back to point 1, is the amount you have available have a better opportunity cost elsewhere?
What I mean by this is:
If you have home loan at 3% rate with your savings offsetting that loan, that you invest in a portfolio that does CPI + % (that is consumer price index) and investments are held in your name with the view of selling them in 5 years whilst your marginal tax rate is 32.5% , will the money you make worth the risk and is your investment time frame long enough to ride out volatility?
I can somewhat confidently say the conviction and quality of most of the financial decisions that we make are determined by the quality of the questions we ask ourselves.
There are significant tax implications to children holding shares or structure investments in their own names and therefore perhaps one of the other considerations I would give when it comes putting to together that portfolio is if any components of those investment will pay dividends whilst the kids are not adults and “if” these investment are going to be held in their names.
Otherwise, there are much better and effective structures and strategies.
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