Investing for a child.

[Former]

I though this might be a good one to chew over, as many people would be thinking about this at some point in their lives.

As you may know I've recently become a father.

I'd like to put some money into long-term investments for my son's future. Say, a big surprise on his 21st birthday. Or just something to use when they start charging full-fees for Uni. Or maybe enough to shout a round of drinks at his 40th should I make the wrong choice...

No one can look 20 years into the future, but what would your advice be on the best place to put $5,000 as the start of a long-term investment which will be added to at a few thousand a year over the next 20 years (adjusting for inflation as time progresses)?

I'm aiming at shares as they are one of the more liquid classes of investment.

What would you do?

 

[peterh_oz]

I'd split it between 3 ... Never put everything in the same pot.

A managed fund (eg Perpetual's Investor Choice ) which can easily be added to, and you can spread your investments across different classes (even with a small balance) .

An online cash account (eg INGDirect) - check Yahoo! Finance for a list.

A "left field" high growth investment (eg Portfolio Wines or Art Equity).


Note - I have NO affiliation with any of these, but have looked at and/or used them the the past (or present).

 

[TheBloods]

If you are putting it away for that long you may be able to find a low tax investment vehicle (ADFs used to be good for that, but I don't think they are around any more). For a 20 year investment, I think mainly blue chip shares are a good idea.

 

[Frodo]

DON"T


Invest in making yourself happy. If you do then your wife and child will be happy. So have a great time now.

Raise your child well and your son will be well balanced and capable of looking after himself at 18+

 

[Former]

Well then, let's call it an investment to go towards Uni fees.

Putting some money into some investments for my son's future WILL make me happy and it won't detract from my own current quality of life so I'm happy to do it.

 

[lenny&carl]

buy land on the moon

Appleyard, I've actually got plenty of for-real ideas about your question if you feel like pm'ing me.

 

[Frodo]

Originally posted by Appleyard
Well then, let's call it an investment to go towards Uni fees.

Putting some money into some investments for my son's future WILL make me happy and it won't detract from my own current quality of life so I'm happy to do it.

Do you think a child benefits from free uni education or do you think he values it more if he has to pay HECS back?

 

[Vindaloo Mat]

I agree with Frodo.

Teach him how to think for him self, teach him about money, make sure he can get a good education....but you don't teach ids about money by givng it to them....in fact you teach them the opposite, that money just comes to you.

 

[dus]

Good idea Appleyard.

Personally for that time frame, id be looking at growth shares. 2 X $2500 parcels. Anything less than about $2000, brokerage becomes a factor. ie. if brokerage is $25, then the shares must rise 1% to cover brokerage. Assuming a $2500 investment. If investing, for instance, $1000 in 5 companies at $25 brokerage, then the shares must rise by 4% to cover brokerage.

Id prefer this to a managed fund. Have you considered a family trust which may also benefit your tax position also?

 

[Former]

Originally posted by Frodo
Do you think a child benefits from free uni education or do you think he values it more if he has to pay HECS back?

HECS? We're talking full fees or at least massively increased fees in the next decade or so. What child could possibly afford that?

Then you have books, transport, accommodation if he goes to a different city. A part-time job can only go so far until working to pay for the degree hinders your ability to actually complete the degree.

In any case, I know people who are STILL under the yoke of HECS fees. It has nothing to do with their appreciation of the value of the degree or ability to find a job - more with their ability to get by financially.

If a parent can invest now to assist their child's education in the future, they'd be mad not to considering the way things are headed.

 

[Former]

Originally posted by Vindaloo Mat
I agree with Frodo.

Teach him how to think for him self, teach him about money, make sure he can get a good education....but you don't teach ids about money by givng it to them....in fact you teach them the opposite, that money just comes to you.

Teaching him about investing by giving him a portfolio and seeing what he can do with it is effective. He can make his mistakes and move on. By the time he inherits my money he'll know what to do to preserve and grow it - don't think it will be a cheque on his 18th birthday with a note saying "Party hard, son".

You don't teach someone to drive a car by pointing at one on the road and explaining how the engine works. You get them behind the wheel and teach them how to avoid hitting things.

I agree that doling out cash on demand is bad practice. What I'm talking about here is investing for his future, maybe for things that I may have to pay for like education and house deposit. Maybe for a portfolio for him to practice with.

Is helping a person get into the property market at an earlier age than they may otherwise be able to a bad idea? Specially with housing affordability going the way it is? Is getting them into the share market a bad idea?

Anything can (and probably will) happen. He may end up being independently wealthy in which case I'll blow it all on a big bash for my 50th birthday.

So apart from the philosophical debate, let's hear your ideas on the best way to invest for the long term - i.e. 20 to 30 years.

 

[Former]

Originally posted by dus
If investing, for instance, $1000 in 5 companies at $25 brokerage, then the shares must rise by 4% to cover brokerage.

Only, 4% of $5000 is $200

Apart from my smart arse comment, I get your point.

 

[Frodo]

Originally posted by Appleyard
So apart from the philosophical debate, let's hear your ideas on the best way to invest for the long term - i.e. 20 to 30 years.

You seem to have all the answers.

 

[Former]

Thanks Frodo, great contribution! Keep it up fella!

 

[Vindaloo Mat]

Originally posted by Appleyard
Teaching him about investing by giving him a portfolio and seeing what he can do with it is effective. He can make his mistakes and move on. By the time he inherits my money he'll know what to do to preserve and grow it - don't think it will be a cheque on his 18th birthday with a note saying "Party hard, son".

You don't teach someone to drive a car by pointing at one on the road and explaining how the engine works. You get them behind the wheel and teach them how to avoid hitting things.

I agree that doling out cash on demand is bad practice. What I'm talking about here is investing for his future, maybe for things that I may have to pay for like education and house deposit. Maybe for a portfolio for him to practice with.

Is helping a person get into the property market at an earlier age than they may otherwise be able to a bad idea? Specially with housing affordability going the way it is? Is getting them into the share market a bad idea?

Anything can (and probably will) happen. He may end up being independently wealthy in which case I'll blow it all on a big bash for my 50th birthday.

So apart from the philosophical debate, let's hear your ideas on the best way to invest for the long term - i.e. 20 to 30 years.

Hey I agree ! What you do with your cash is your business. And besides it all depends on your own background I expect....I put myself through uni, got my own house deposit, started my own investments, even though my parents could have probably helped had I asked them. There is something about doing it yourself.

Investing for 25-30 years ? My advice would be to avoid "picking winners". "Picking Winners" can be buying a house, or specific blue chip shares. You level of confidence in a 30 year investment horizon can only be taken at a macro level.

I have all my investments in Index linked funds.

1. Because of the low fees
2. Because I do not believe that I have any chance of picking the "winners" and avoiding the "losers" and I have a Masters Degree in Commerce!
3. I have no faith that some spotty kid at HSBC is going to be able to pick the winners any more than a spotty kid a Citibank. Year by year they may, but over the course of the investment cycles managed mutual funds look average. Which of course is what you would expect. And they charge you HUGE fees for being average.
4. So, if you believe that economic growth will drive the sharemarket higher over the next 2-3 decades, and you don't belive you or anyone else can pick the winners and avoid the losers, then avoid the fees and invest in an index fund.

Anything else borders on speculation given the timeframe you are investing for.

VM

 

[lenny&carl]

Or, if you think the financial sytem is a house of cards run by coked-up super-villains who would sell their grandmother and will surely be the undoing of us all, then buy yourself 17 kilos of silver bullion, bury it in the garden, then swap it for a country estate or two in about 10 years time. Be sure to tell one fully-trusted non-family member where you put it.

 

[Angry Dragon]

Originally posted by lenny&carl
Or, if you think the financial sytem is a house of cards run by coked-up super-villains who would sell their grandmother and will surely be the undoing of us all, then buy yourself 17 kilos of silver bullion, bury it in the garden, then swap it for a country estate or two in about 10 years time. Be sure to tell one fully-trusted non-family member where you put it.

Not as whacky as it sounds.

If anyone thinks the current financial systems will still be in place in 20 years is kidding themselves. A train wreck is coming.

 

[Frodo]

Originally posted by Vindaloo Mat
Hey I agree ! What you do with your cash is your business. And besides it all depends on your own background I expect....I put myself through uni, got my own house deposit, started my own investments, even though my parents could have probably helped had I asked them. There is something about doing it yourself.

Investing for 25-30 years ? My advice would be to avoid "picking winners". "Picking Winners" can be buying a house, or specific blue chip shares. You level of confidence in a 30 year investment horizon can only be taken at a macro level.

I have all my investments in Index linked funds.

1. Because of the low fees
2. Because I do not believe that I have any chance of picking the "winners" and avoiding the "losers" and I have a Masters Degree in Commerce!
3. I have no faith that some spotty kid at HSBC is going to be able to pick the winners any more than a spotty kid a Citibank. Year by year they may, but over the course of the investment cycles managed mutual funds look average. Which of course is what you would expect. And they charge you HUGE fees for being average.
4. So, if you believe that economic growth will drive the sharemarket higher over the next 2-3 decades, and you don't belive you or anyone else can pick the winners and avoid the losers, then avoid the fees and invest in an index fund.

Anything else borders on speculation given the timeframe you are investing for.

VM

So why not invest in bluechips directly? Much better return than funds!!!

 

[ozzult]

Originally posted by Angry Dragon
Not as whacky as it sounds.

If anyone thinks the current financial systems will still be in place in 20 years is kidding themselves. A train wreck is coming.

So our economy will revolve around silver bullions in the next 20 years? Is that your point?

 

[Borscht Mat]

Originally posted by Frodo
So why not invest in bluechips directly? Much better return than funds!!!

Bollocks

a. bluechips make up the bulk of the index, so the blue chip return will generally reflect the index return. The index is nothing but the weighted average of all the returns....so how can blue chips outperform an index fund....it is a matter of fact.

b. OK then....which blue chips ? So lets go back 30 years....it is 1974.....which stocks are you going to invest in ???

Adelaide Steamship ?
BHP
NAB maybe
Burns Philp
Caltex
CUB


How can you predict which blue chips will out perform the market and which will not over 30 years when the "market" is simply the average of the blue chips anyway ??? You will get some right probably, and you will more than likely get some wrong. If you get more right than wrong then by definition there is someone else who used equally compelling logic and got more wrong than right....that is how an average works.

Index funds are boring
Index funds involve no ego (you cannot say "I got 27% return this year against the all ords of 15% and then go strangely silent when the all ords delivers 11% the next year and your portfolio loses value).

But they are very cost effective in the long run.

 

[Former]

A financial journalist I know has mentioned Mark Mobius ( http://www.franklintempleton.co.uk/uk/jsp_cm/bios/Mark_Mobius.jsp ) and the Templeton Emerging Markets Investment Trust he manages ( http://www.franklintempleton.co.uk/uk/jsp_cm/funds/investmenttrust.jsp ).

It seems that Mark Mobius is the name to follow at the moment. Chinese shares are apparently peaking after a couple of years of heavy investment so some profit-taking should ensue, though the actual outlook is the same as it was last year. The economy will continue to grow but the sharemarket will stagnate a little. Is what I hear. Feel free to add your two cents.

For only 250 pounds to get in I might start there. Though the fees seem hefty at 2.25%, but with average annual return of nearly 11% since 1989 I think he has the runs on the board to show he can give a good return over time.

YTD -2.02% ... hmmm...

 

[Frodo]

Originally posted by Borscht Mat
Bollocks

a. bluechips make up the bulk of the index, so the blue chip return will generally reflect the index return. The index is nothing but the weighted average of all the returns....so how can blue chips outperform an index fund....it is a matter of fact.

b. OK then....which blue chips ? So lets go back 30 years....it is 1974.....which stocks are you going to invest in ???

Adelaide Steamship ?
BHP
NAB maybe
Burns Philp
Caltex
CUB


How can you predict which blue chips will out perform the market and which will not over 30 years when the "market" is simply the average of the blue chips anyway ??? You will get some right probably, and you will more than likely get some wrong. If you get more right than wrong then by definition there is someone else who used equally compelling logic and got more wrong than right....that is how an average works.

Index funds are boring
Index funds involve no ego (you cannot say "I got 27% return this year against the all ords of 15% and then go strangely silent when the all ords delivers 11% the next year and your portfolio loses value).

But they are very cost effective in the long run.

I can't beat a strong opinion like that. Keep to your chosen strategy...and good luck.

 

[Borscht Mat]

Originally posted by Appleyard
A financial journalist I know has mentioned Mark Mobius ( http://www.franklintempleton.co.uk/uk/jsp_cm/bios/Mark_Mobius.jsp ) and the Templeton Emerging Markets Investment Trust he manages ( http://www.franklintempleton.co.uk/uk/jsp_cm/funds/investmenttrust.jsp ).

It seems that Mark Mobius is the name to follow at the moment. Chinese shares are apparently peaking after a couple of years of heavy investment so some profit-taking should ensue, though the actual outlook is the same as it was last year. The economy will continue to grow but the sharemarket will stagnate a little. Is what I hear. Feel free to add your two cents.

For only 250 pounds to get in I might start there. Though the fees seem hefty at 2.25%, but with average annual return of nearly 11% since 1989 I think he has the runs on the board to show he can give a good return over time.

YTD -2.02% ... hmmm...

one topic Mat here again.

The all ords accumualtion index has averaged 11% since 1951. Your return is 11%-2.25%....doesn't look too flash to me.

 

[Katthawk]

Oh for goodness sake!! It is the blue chip shares for the kiddies. Much easier to maintain than a house.

Just go up to a bloke who is called "Stock Broker" and ask "Can I have a few thousand dollars worth of Blue Chips please?

Not the ones on the big round table at the big round house , or the ones where Guiseppe says 'NO 49" but the ones where you have a nice piece of paper saying 'I own .....% of NAB". It'll make you feel really rich and the kid will thank you for it in fifteen years time.

Then once you have accumulated a bit of bank, a bit of gold, a bit of shopping centre, a bit of that ol hole in the middle of South Aus, and a bit of some great farming estate and maybe also a bit of the grand ol utility structure we call electricity/gas/phone/water then you are set.

Get the kid to do their own tax return and keep their own bits of paper in their own shoe box and you won't have any more worries about having to provide anything for the rest of your life.

Don't ask me how I know this..... I am just psychic. (or easily bored and amused)

 

[Former]

Are you drunk... ?