Investing in your kids is as important as investing for them. While the former equips them for life’s journey, the later grant them financial security.
The kind of future you wish your children should have can be intentionally created by you. Abraham Lincoln in one of his popular quotes posits ” the best way to predict your future is to create it”.
This is applicable to the later years of your kids on earth. A speaker once said, ” there is nothing like a Future except one intentionally created by you.”
Investment for kids is a practical way to secure their financial stability. But, you should choose the right niche and best investment platforms.
So, this article on Investment for Kids 101 will proffer tips on how to invest for your kids, where to invest and how much you could start with.
You do not need to break a bank to invest for your children. However, you should achieve some level of financial stability to begin investing for your kids.
Just like other parents, I understand you really wish your children have a great future like get a diploma without incurring debt. But, how can you achieve this if you in debt with no fully-funded emergency fund?
You must put on your mask first before helping your kids adjust theirs. Scan through the table of contents below by taking a quick glance at the multiple ways you can make investment happen for your kids.
What is Investing For Kids?
Warren Buffet once said, “sound investment can make you very wealthy if you are not in a hurry”. Investment for kids is one sure way to secure your child’s financial status in later years.
One of the principles of wealth categorically states the power of savings and investment. It is advised that at least 10% of your daily or monthly income be set aside for investment.
This you can also do your kids even while still unborn. Investing for kids means setting aside a percentage of your income to buy shares, stock, and other investment dividends for your kids.
What this means for your children is they experience some level of financial stability even before they start working to earn money.
What Kinds of Investment for Kids Can I Do?
Depending on your resources, you can choose to invest in three aspect of life for your kids. Basically, investment for kids should cover their education, health, future expenses, and unforeseen circumstances. In all these, investing money for kids is important.
Other kinds of investment for kids will include investing for your child’s future retirement and most importantly, stock investing for kids.
Why Should I Invest for My Kids College Education?
Education is a basic requirement and fundamental right of every child. Especially, in the USA. In a bid to aid every citizen gain education, student loan platforms are set up across the states.
This allows a child to complete college with repayable loans from the Federal Government or private enterprises. What this means for your child is that in your demise, they might complete college but we will be saddled with student loan debt.
Unfortunately, very disturbing statistics released recently shows that 74% of Americans are saddled with student loan debt even after college. You can’t imagine having to work half your years on earth just to repay loans?
So, investing money for your kids’ college will save them this experience that culminates in frustration in their early years. With an Education Savings Account, you can invest a maximum of $2000 a year and this could save them the life os student loan repayment.
Why Should I Invest for My Kids Future Retirement?
You are probably wondering why investing for kids’ future retirement is important. Well, there is no too early time to start saving for retirement. Especially, if your kids are out of college or do have a full-time job.
Even if they are immersed in their part-time job, selling pizzas or mowing lawns, saving up for their future is still a great option. Basically, this act will teach your kids the importance of investment.
Whether you choose a traditional or Roth IRA, with Custodial IRA you will manage their account till they are 18 years or 21 depend on your state law.
Through their monthly contribution to their account, they will learn the importance of savings and the power of small contributions. Remember, little drops of water make a mighty ocean.
Below is what a retirement investment for kids through Custodial IRA looks like:
|Age||Money Invested||Account Balance|
|21–Contributions to the Custodial IRA stop when your child reaches age 21.||$0||$18,414|
|60||$0||$1,078,364–Your child could reach millionaire status at age 60!|
|Retirement||Total Amount Invested||Total Account Balance|
How Do I Invest for My Kids?
To invest money for your kids, you must first earn a stable financial status. If possible be free of any debt and to avoid depending on “investment for kids” for survival after retirements.
Then, you must select a niche. Niche here means the type of investment platform you should patronize? If your kids are of age, you can find out from them what they would love to invest in.
In the absence of this option, consider these investment options below, and decide the best investment account for your kids:
#-1. Custodial Brokerage Account
This investment for kids option works like your personal investment account. This investment option is best for parent who wish to invest for their children’s future expenses and experiences.
The custodial brokerage accounts allow you to choose either a traditional brokerage or pre-crafted diversified mixes like obtainable in Acorns’ portfolios. However, Gift tax rules apply to custodial accounts. So, your kids would not get more than $15,000 a year and $30, 000 with a spouse.
The investment is held irrevocably in your child’s name and they can assume legal control as soon as they reach the state’s age of majority.
This investment option is a great option to motivate your children about saving (such as creating a budget) and establishing good money habits.
#-2. Traditional Brokerage Account
Another means to invest for your kid is through a traditional brokerage account. This investment for kids option is best for parents who value ultimate flexibility and control.
Traditional brokerage account gives you an option to invest in stocks, bonds, mutual funds, and exchange-traded funds (ETFs). Also, you can choose to invest in predesigned diversified mixes such as Acorns account. Stock invest for kids seems to be one of the best options.
Interestingly, the money can be used for any form of expenses. Notable features of this account include:
- taxes on increases in your account value made through dividend payments
- taxes on sold shares to withdraw money
- investment held longer than a year may be taxed at lower capital gains tax.
- gift tax rules apply whenever you transfer assets to your child.
- you can only give $15,000 of the investments to them each year. Spouses can give up to $30, 000
#-3. Individual Retirement Account (IRA)
Generally, IRA is available to anyone with an earned income. This means kids who held a summer job or any other part-time job can open an account.
However, contributions will only be based on the amount a child earned in a given year. This investment for kids option provides decades of tax-advantaged growth for kids and positions them to benefit from years of compounding.
Investing for kids through this medium is best for parents who wishes to help their children understand that funds may not be accessible in the short term.
Notable features of this investment for kids option include:
- withdrawals from this account attract 10% penalty and tax
- it does not offer immediate versatility as traditional and custodial brokerage accounts.
- IRA for children is subject to the same rules as an Adult account
- How it Works: with $1, 000 investment each year beginning at 16, a child in 50 years might have $500, 000 if the percent rate of return is 7.5%.
Choose the Right Brooker
Once you decide the best account for your child, the next thing to do is select the right brooker. Bear in mind, that the best brokerage account can be totally messed with an inexperienced brooker.
So, look for a broker online that charges no account fees and has no minimum initial deposit. In choosing a broker, you must cost associated with the investment option your child chooses.
In addition, consider choosing a broker to teach your kids about investing. Many brokers as a tip offer educational content, with online investing tutorials and practice trading accounts inclusive.
How Do I Choose a Good Broker?
With the help of online brokerage comparisons, you can easily select the best broker. Below is what an online brokerage comparison tool looks like:
In selecting a broker or an investment pro for your child’s account, consider the following:
- decide what you wish to invest in
- select investment amount
- choose the best offer
- open an account with your best broker.
The next thing to do after you have found an investment platform and a broker is to start investing. Open the brokerage account you have chosen.
With brokerage account, you can invest in individual stocks, mutual funds, index funds and exchange-traded funds.
What is the Best Way to Invest for My Kids? Tips on Investment for Kids
Kids’ investment must be done carefully and intentionally if the aim must be achieved. To meet stipulated goals for your investment for kids, adhere to the tips below:
- Invest in your kids
- decide what type of investment
- Choose the right account
- let your kids decide what to invest in
- make investment fun with an index fund
Invest in your kids
It is glaring you have real plans for your children, hence opting to invest for them. However, investing in your kids is as important as investing for them. If they are of age, you sit them down and have clear cut communication with them.
Teach them to play a part by sacrificing a snack or a pleasure for some minutes or days as the case may be, to save some money. Investing in your kids will help them avoid lavishing your investment for them. And, your intentions and wishes for them will be met.
Decide What Type of Investment
Once there is a clear communication of your plans to invest for your kids, you should now decide what type of investment you wish to make.
Basically, choosing a type of investment will go a long way in determining what brokerage account is best for you. So, this is quite crucial. To decide what type of investment, try answering the following questions:
Would you want to invest for their college education?
Do you want take care of their Future expenses and Experiences?
Do you wish they have a stable financial life after retirement?
Choose the Right Account
Different brokerage accounts have been discussed in detail in this article. Each of them serves a specific purpose and best for some kinds of investment. Be certain, to read through them again and choose the best brokerage account for your kids’ investment.
Let your Kids Decide What to Invest In
One of your aims for investing for your kids should be to teach them about investment and power of little contributions. Give them an opportunity to list out the things they would love to invest in.
Help them select one or two stocks starting with familiar and household names. Finally, guide them through choosing the best investment platform.
Make Investment Fun with Index Fund
You should skip additional shares of individual stocks and focus on low-cost index funds or ETFs. This allows your kids invest in a lot of different companies in one transaction.
Aside from this portfolio bringing much-needed diversification, comparing smaller fluctuations to larger long-term charges will spark discussion among kids. This will, in turn, spur them to become informed investors in the future.
You can influence the type of life you wish for your children. One way of assuring your children of your love is by securing a future for them.
Investments are a long term mode of building wealth. Just like droplets of water forming an ocean, little contribution towards investment creates wealth.
This article from Wealth circle proffers different ways to invest for your kids. And, offers practical tips on how best to invest for your kids. Simply read through, to create and amass wealth for your kids through investment.
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