Investing for your kids

[Poetic Justice]

A couple of years ago my wife and I sold our house and with a small part of the equity we put away $10k for our two kids - 5k each essentially. As at now, the amount sits at $12k but it is quite literally sitting in a bank account doing nothing at all (it's in an offset account to benefit us from a mortgage interest perspective so not necessarily nothing).

I'd be keen on actually doing something with it but like anyone, highest reward with lowest risk.

Any suggestions?

 

[Nothing]

Depending on the tax rates of you, your partner and any other tax vehicles you may be best to invest in your own name. Otherwise, Education/Investment/Family Bonds might be worth investigating. If it is offsetting 4% mortgage, your after tax return needs to be better than that to do anything different.

 

[sabre_ac]

A couple of years ago my wife and I sold our house and with a small part of the equity we put away $10k for our two kids - 5k each essentially. As at now, the amount sits at $12k but it is quite literally sitting in a bank account doing nothing at all (it's in an offset account to benefit us from a mortgage interest perspective so not necessarily nothing).

I'd be keen on actually doing something with it but like anyone, highest reward with lowest risk.

Any suggestions?

The usual disclaimer, speak to an expert, I'm just some guy on the internet.

Assuming your investment timeline is 5-plus years, I'd be tipping money into EFTs, anything that is well diversified and or mirrors major
indices. I did a quick google and the below two look pretty good, again speak to someone you know and trust.

ETF

www.vanguard.com.au

Fund

www.vanguard.com.au

Risk is mainly correlated to when you need the money, if you don't need it for 5 years (10 if you want to be conservative) and you invest in (Australian banks) or with (Vanguard / Commsec etc) reputable companies, your risk is minimal. That said, if you watch your investment portfolio like a hawk, there is a risk to your mental health, not really your financial.

Definitely agree with not leaving it in the bank, with inflation it's losing value.

 

[Faz 2000]

The usual disclaimer, speak to an expert, I'm just some guy on the internet.

Assuming your investment timeline is 5-plus years, I'd be tipping money into EFTs, anything that is well diversified and or mirrors major
indices. I did a quick google and the below two look pretty good, again speak to someone you know and trust.

ETF

www.vanguard.com.au

Fund

www.vanguard.com.au

Risk is mainly correlated to when you need the money, if you don't need it for 5 years (10 if you want to be conservative) and you invest in (Australian banks) or with (Vanguard / Commsec etc) reputable companies, your risk is minimal. That said, if you watch your investment portfolio like a hawk, there is a risk to your mental health, not really your financial.

Definitely agree with not leaving it in the bank, with inflation it's losing value.

FWIW, this is exactly what we've done. On behalf of our son we've got a modest little chunk of money split across a few Vanguard ETFs (one Australian, one international). The initial funds came from various gifts and so on stacked up since he was very little. It's just putting along, with dividends re-invested. It's in my wife's name so we'll eat some CGT when it comes time to cash it out. Hopefully it'll for the nucleus of a house deposit or something like that in the future.

 

[Teagueeee15]

With investing on your kids behalf, you need to be careful of the tax consequences if you hold it in their name. Basically once they go past $416 income threshold for the year, you have to question if it is really worth it.

I would open up another mortgage offset account and just treat that as an investment nest egg for them, contributing whatever interest you save to that account in lieu of income.

 

[kickazz]

Depending on the age of the kids, and other aspects of your budget, putting it toward education might be a good idea. A good school can make a massive difference for the rest of a person's life.

 

[Frederico_WA]

With investing on your kids behalf, you need to be careful of the tax consequences if you hold it in their name. Basically once they go past $416 income threshold for the year, you have to question if it is really worth it.

I would open up another mortgage offset account and just treat that as an investment nest egg for them, contributing whatever interest you save to that account in lieu of income.

It would only be classed as income if the profit is realised.

Working from the $416 you mention, if that was a dividend payment you would need to hold over $32,000 in Vanguards high dividend yield ETF.

 

[Teagueeee15]

It would only be classed as income if the profit is realised.

Working from the $416 you mention, if that was a dividend payment you would need to hold over $32,000 in Vanguards high dividend yield ETF.

The OP is mentioning cash is a savings account though, which has probably grown from $6k each, to the point where the interest earned is greater than $416 over 1 year.

 

[Frederico_WA]

The OP is mentioning cash is a savings account though, which has probably grown from $6k each, to the point where the interest earned is greater than $416 over 1 year.

ah, righto. I skipped past that to the Vanguard point
Carry on!

 

[Eagle Of Destiny]

I'd write down a plan and put everything into your tax free mortgage. You can always access that money down the track with a lower loan and higher value property. It's not sexy though.

 

[juss]

We have a 1 year old and just put a bit of money into an ETF that tracks the top 200 on the ASX.

Plan is to keep topping it up a couple of times a year where we can and hopefully in 15-20 years it'll be a nice little gift to give.

 

[HirdyLannister]

We have a 1 year old and just put a bit of money into an ETF that tracks the top 200 on the ASX.

Plan is to keep topping it up a couple of times a year where we can and hopefully in 15-20 years it'll be a nice little gift to give.

Each week we put money away for our 1 year old and I want to put it into a ETF, can you make an account under their name so I don't get smashed with tax?

 

[00Stinger]

Each week we put money away for our 1 year old and I want to put it into a ETF, can you make an account under their name so I don't get smashed with tax?

tax rates on kids are higher

Plus you don't get a capital gain (tax hit) until cashing the asset out?

 

[juss]

Each week we put money away for our 1 year old and I want to put it into a ETF, can you make an account under their name so I don't get smashed with tax?

We did, it was like a minor trust I think, but I will probably check with an accountant next tax return, just to make sure I haven't missed anything

 

[sabre_ac]

I was thinking about this the other day.

I've started to realize that I'm often making a financial decision between investing in my children's future (EFT/savings) and spending money on extracurricular activities (sports/music/family/educational help, etc.). Initially, when the kids were young, I was investing, but as they're getting older, I'm spending more money on extracurriculars.

I've decided that Jui Jitsu lessons, tutoring, holidays, soccer, etc., have a better long-term payoff than pumping money into an EFT that'll mature when they're adults, and I have no control over how it's spent. Some people, I'm sure, do both and I might pivot back eventually.