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Investing for Kids: How to Invest for Your Child

February 6, 2024
Read Time:
5 mins
Author:
Inovayt

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Having kids is undoubtedly one of the most significant decisions you can make emotionally, physically and financially. After your child is born, it’s only natural you’ll want the best for them as they grow. If you’re wondering how to invest for your child so they are set up as best as possible for the future, our Inovayt financial advisor team is here to help.  

How to invest for your child

Deciding that you want to invest in your child is a common choice for parents. Every parent’s investment journey will look slightly different, depending on your chosen investment strategy. Each approach differs based on where you’d like your money to go and when you want your child to be able to access it. 

This blog will look into investment options such as ETF platforms like Vanguard, micro-investing apps like Raiz, direct shares, high-interest savings accounts, and superannuation.  

Make a plan

The first step in the investment process is to make a realistic investment plan. Our team can put a plan in place to: 

  • Determine what you can afford to invest initially. 
  • Establish what you hope to contribute ongoing. 
  • Consider a plan that caters for a change in your financial situation. 

Decide on how

Investing for your child’s future can be done on their behalf (using a minor’s account), where the investment is held in an adult’s name as the trustee, and the child is listed as the beneficiary. 

This means that until the child turns 18, the parents will be the custodians of the investments. From here, they can be transferred to the adult child. It’s a great idea to seek professional advice before setting up your investments, as a financial advisor will assess your financial situation and help you decide what’s best for you. 

Pick a strategy

Each investment strategy will depend on the end goal you want for your child. These strategies include ETFs, micro-investing, direct shares, savings accounts and superannuation accounts. 

Each strategy has pros and cons, so it’s important to research thoroughly before choosing which suits you. 

What strategy should I use?

If you are still feeling overwhelmed about what strategy is right for you, here are some examples of strategies you can use. 

Exchange Traded Funds (ETFs)

Exchange Traded Funds (ETFs) are investments available to buy and sell on an exchange like the Australian Stock Exchange (ASX). If you choose this investment strategy, you can access two types of ETFs – active and passive. By investing in a diversified portfolio, you can earn higher long-term returns from income and capital growth. 

Sites like Vanguard, Betashares and iShares are all fantastic examples of ETF funds that can work as part of your investment strategy. 

Micro-investing

If picking out individual stocks and getting into the share market is a bit much for you, micro-investing might be the answer, and it’s a great way to invest for your kids. Micro-investing is about making small, irregular investments from everyday transactions. Most micro-investment apps allow you to set up a regular repayment but also will enable you to deposit lump sum payments. 

A great feature of most micro-investing apps is the ability to round up your purchases and invest your spare change. For example, if your cup of coffee costs $4.50, you can round it up to $5 and have the $0.50 invested. While this might seem insignificant at the time, compounding interest will benefit you in the long run. 

Some of the most common micro-investing platforms include Raiz, First Step, CommSec Pocket and Sharesies

Direct shares

If you want greater control over your child’s investment portfolio, entering the stock market allows you to grow wealth in areas in which you’d like to invest.

For example, if you’re passionate about a particular industry, you can choose to invest your money in one or more companies within this industry.

Things to keep in mind when it comes to creating a portfolio for yourself or your kids include:

  • Ensure you’re diversifying your portfolio
  • Only invest in businesses you understand
  • Avoid high-volatility stocks until you get the hang of investing
  • Tread carefully when it comes to ‘cheap’ stocks

Learn more about investing in the stock market here.

Savings account 

A high-interest savings account is an option for those hesitant to dive into the shares market. A high-interest savings account is a bank account that pays you more interest on the money you put into your account. 

While these can be more accessible options for investing in shares, there are some downsides to children’s high-interest savings accounts. If you’re looking to set one up, we recommend chatting with a finance professional first, as there are a few things to be wary of, including age limits, balance caps, and potential tax implications. 

Superannuation

Setting up a superannuation fund for your children isn’t very common. However, making voluntary contributions once they have started working is a great way to either build their nest egg or contribute to the First Home Super Saver Scheme, allowing them to save a deposit for their first home.

To learn more about buying a property with your super, read our blog.  

Avoiding tax implications

One last thing to consider when investing for your child is the potential tax implications you may incur. You can quote a tax file number (TFN) when you buy shares. If you don’t, pay as you go (PAYG) tax will be withheld at a rate of 47 per cent from any unfranked dividend income earned on the shares. 

Children can apply for a TFN as there is no minimum age, and they are not exempt from quoting it. However, specific rules apply to income earned by people under 18, as they may be taxed more than adults. For under-18s, non-excepted income is taxed at 0 per cent for the first $416 earned, then 66 per cent for amounts between $417 and $1,307, and 45 per cent for amounts above this.

If your child owns shares and earns more than $416, you must lodge a tax return on their behalf. If they earn less than $416, you may still want to house a tax return to claim any available refunds for franking credits.

How can an Inovayt financial advisor help you to invest for your children? 

At Inovayt, our team of expert financial advisors will work with you to create financial goals tailored to your situation. We understand that children are one of the most important things in a parent’s life, which means naturally, we’re driven to want to invest in their future so they can have a fulfilling and happy life. If you’re wondering how to invest for your children, get in touch today.

Ready to invest for your kids?

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Start your journey, contact Inovayt today

Start your journey, contact Inovayt today

Start your journey, contact Inovayt today

Start your journey, contact Inovayt today