There’s one thing that most financially savvy parents want to do, but seem to consistently lack knowledge in: How to invest some money for their kids’ future.
People seem to have lots of ideas, and there are lots of options, but the tax rules, and age restrictions, are so different to adults, that most people either put it in the ‘too hard’ basket and give up, or just pick a randomly recommended (and most likely poor) idea like INVESTMENT BONDS.
I spent the last 2 years procrastinating to the point where I almost didn’t do anything, but finally decided to commit a whole day to doing as much research as possible until I could make a decision and act.
This is the write up of what I discovered, and the choices I made. Hopefully it saves someone the same boring day that I had!
Firsty: There is NO perfect solution. All financial decisions are contextual, so they depend on your circumstances, so if you really want to get the best advice, talk to a financial advisor. But…
Most people don’t want to spend several hundred dollars to pay a professional to invest a modest sum for their kids - doing this doesn’t make financial sense either, so this is what I did for my own set of circumstances and requirements.
I hope to communicate clearly:
- What my requirements are (so you can see if yours are similar)
- The final decision I made, and exactly how I did it (and why!)
- Some other options, and why I didn’t choose them (but they could be
suitable for you)
This is what I wanted:
- Put aside a modest amount for each of my kids (approx $10k AUD worth).
- Invest in diversified growth assets for approx 8-10 years.
- Take advantage of their own tax allowances (income and eventual capital
gains)
A secondary requirement was:
- Have a backup plan for if I want to invest more money for them (e.g.
they get inheritance money from grandparents).
Based on this I ended up doing this:
- Setup a Commsec Trading account for each of my kids, in their name, (trust a/c etc.)
- Buy $5k of VDHG for each child. Setup DRP.
- Apply for a TFN for each child, and register holdings in their name
Why? - Use tax efficient income - Growth vs income ( sell this at some point when they have low income)
- Ability to transfer into their name easily
How?
Other Options. - Investment bonds - LIC with DSSP