I have 3 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?
Bernie in Kingscliff, NSW
Top answer provided by:
Thanks for sending through the question Bernie.
We are often asked this question by the people that we help and it’s a great idea regardless of your children’s ages or stage of life. As a starting point, there are four main factors that we always encourage parents to consider before we help them determine the most effective investment strategy.
Firstly, do you have a dollar amount that you would like the investment portfolio to achieve for each child? If so, you will need to consider how long you have to reach that target and then develop your strategy from there. This will often depend on your child’s age or stage in life. If they are of primary school age then the strategy will be long term and look very different to an investment portfolio built for children that are young adults and, for example, looking to buy their first home within the next 5 years.
Secondly, how much are you looking to invest, and will it be a once-off transaction or will there be ongoing contributions? The ongoing contributions maybe once per year, or as frequently as each month, but it’s important to give some consideration to the amount you will invest so that the cost of investing is kept to a minimum.
Another important consideration is how the investment portfolio will be held. Will it be held in your name or will you establish a trust in the child’s name? There may be tax implications for both that need to be taken into account.
Finally, will other people be making contributions? For example, will grandparents be able to add birthday money to the fund? Many people would find this appealing to add to their grandchild’s financial future rather than purchase a gift.
Once you have determined the answers to these questions, you can then evaluate your options, such as:
- Establish a broking account for each child and make investments on their behalf. This takes some time, but it then allows you to buy and sell any shares of publicly listed companies.
- Exchange-traded Fund (ETF) whereby you invest with one of the various providers who do the work for you with regards to trading assets on the stock exchange,
- Managed funds whereby your money is pooled with other investors and managed by the provider and you own units of that fund rather than the asset as a whole.
There is a lot to consider but with time and research or seeking advice it is achievable and will provide great benefit to your children, not only financially but from an education point too. They can be included in the experience and will therefore learn about investing and how contributing a small amount will ultimately grow over time. It can a very rewarding experience and allow you to pass on your investment knowledge to your children in a practical way.
Best of luck and enjoy the journey! It’s great to see people with the desire to achieve in this area.
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