Wealth Management

Five considerations when investing for your kids and grandkids  

Matthew Swieconek
8 March 2023
6 min read

8 March 2023

Investing for your kids and grandkids can be a great way to ensure their financial future is secure. Whether you're looking to save for their university education or provide them with a nest egg for when they're older, there are many reasons why investing on behalf of your children can be a wise move.

However, before you dive in, there are a few investment considerations to keep in mind. In this article, we'll explore five things to think about before investing for your kids and grandkids and offer some tips on how to empower them to make smart investments of their own.

Is it a good idea to invest on behalf of your kids?

The short answer is... it depends. Investing on behalf of your kids can be a great way to set them up for financial success in the future. However, if you're still working to pay off debt or save for your own retirement, it may not be the best idea to start investing for your kids just yet.

If you're in a stable financial position and looking for ways to provide for your kids' future, investing can be a great option. It's important to remember that the earlier you start investing, the more time your money has to grow. By starting to invest for your kids while they're young, you can take advantage of the power of compound earnings and give them a head start on building wealth.

Pre-retirees chattingFive investment considerations to keep in mind

Before you invest on behalf of your children or grandchildren, be sure to keep the following top five investment considerations by AFR, 2022 [1] in mind.

  1. Make sure you've got yourself sorted first. This means paying off any high-interest debt, building an emergency fund, and saving for your own retirement. By taking care of your own financial needs first, you'll be in a better position to provide for your kids in the long run.

  2. Think about your goals. Before you start investing, it's important to think about what your goals are for your kids. Are you saving for their education? Or are you looking to provide them with a nest egg for when they're older? Knowing your goals will help you choose the right investments to meet them.

  3. Remember tax. Some investment options, like Education Bonds or Investment Bonds can be a great long-term option for your kids as these investments offer tax concessions. Other options, like shares or managed funds may also be a suitable option, however, these investments won’t necessarily carry the same tax advantages. Bottom line, be sure to research the tax implications of different investment options before you start, particularly as there can be some onerous tax implications on income earned by children under 18.

  4. Make sure it's actually a good investment. Just because you're investing on behalf of your kids doesn't mean you should blindly throw your money into any investment. It's important to do your research and make sure you're investing in something that has a good chance of providing a healthy long-term return. This means looking at things like the long-term performance record of the investment, research ratings and testimonials from other investors.

  5. Think outside the box. Investing for your kids doesn't have to mean putting your money into traditional investments like managed funds or shares in a specific company. There are many other options available, such as Exchange Traded Funds (ETFs), that can offer a diversified portfolio with solid long-term growth prospects. Another option may be real estate, but this will clearly involve a much larger capital outlay. Be sure to explore all your options and choose the one that best aligns with your goals.

parent and child talking Empowering your kids to make smart investments

While investing on behalf of your kids can be a great way to set them up for financial success, it's also important to empower them to make smart investments of their own. Getting them interested and providing them with financial education resources at a young age can help them understand the importance of saving and investing for their future. It can also help them develop good financial habits that will serve them well throughout their lives.

Helping your kids understand the main principles of investing

The main principles of investing include understanding risk and reward, diversifying your portfolio, and understanding the importance of time in growing wealth. It’s important to teach your kids about these principles so they can make informed decisions about their own investments.

One way to help your kids understand the principles of investing is to involve them in your own investment consideration and decisions. For example, you could ask them to help research different investment options or explain the performance of a stock you're considering. You could also set up a mock portfolio for them to manage and track or give them a small amount of money to invest on their own.

Enlisting the help of a financial adviser

Working with a financial adviser can be a great way to help build a secure financial future for your family. Not only can a financial adviser assist in making investment decisions, but having access to wealth management for families could also ensure your children develop good financial literacy down the track. This, in turn, could help to prepare and protect any legacy you hope to pass down to them in the future.

At Findex, we offer wealth management for families along with business advisory and corporate finance. To learn more about our extensive range of professional services get in touch with us today.

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[1] How to invest for your kids or grandkids this Christmas, AFR, December 2022

Author: Matthew Swieconek | Head of Investment Relations