How Can I Invest in My Child’s Future?

The world is awash with money with your child’s name on it.  By this we mean there are vast and numerous opportunities for investing in these young ones.  The magic word here is Compounding.  If you’re looking for the best long-term investment for a child, consider stocks.  You are literally getting onto the ground floor of potential stock growth explosion.

If you’re asking, how can I invest in my child’s future when mine seems uncertain?  The best way is to look for a holistic path without leaving any stone  unturned.  You will be covering all the bases.  Position your own personal finance, health, education, and the emotional needs of your family.

1.  Invest in Your Child’s Future with Your Own Brokerage Account

A standard brokerage account in your own name would do great.  You’re the sole owner of this account.  But you can bequeath the assets in the account to your kids upon your demise.  The brokerage company need not know about your motives of your investments – as this may change.

Get an online discount brokerage account

How can I invest in my child’s future through a standard brokerage account? This is how you will invest on your kids’ behalf in the stock market.  Open an online discount brokerage account with little to no deposit nowadays.  Find good brokers online who have little fees and commissions.

Invest without the limits that are placed on custodial investment accounts, such as the UGMA/UTMA.  Avoid the limitations on the deposits and contributions you want to make.  Unlike the Custodial Roth IRA, your child need not indicate a proof of income.  Taxes could be minimized by investing in the long-term with a fine mix of growth small cap stocks, dividend stocks, and undervalued equities.  You could always pick up more stocks along the way.

Transfer assets to your child at a later date

But how can I invest in my child’s future when I’m already caught up building my own nest egg? You could maintain your own brokerage account as is.  Just buy the extra stocks for your child.  Later, on they can be transferred.  Those special purchases could be gifted later.

From your brokerage account, you could transfer investments on to any child’s UGMA/UTMA account.  The ratios to be used are entirely up to you.  You’re free to give them these investments, or proceeds from the investments even while you’re still alive.  It’s your money and your choice.  Now this is one way you can invest in your child’s future.  You have the option of including the Custodial Roth IRA, UGMA/UTMA, 529 Education Savings Plan, and Cordell Education Savings.  This is how you build a strategic mix.

Sage Help: If you need some clarity on the these investment and savings accounts for kids mentioned above, click here.

2. Introduce Your Child to the World of Investing

After becoming a savvy custodian for their investments, it is time to give them a practical baptism into investing.  Pull out the full introduction to the stock market here.  You will give them a taste of capitalism in the confined micro environment of your home.  It is definitely time for your children to make their first investment.

Paper Trading for Kids

How can I invest in my child’s future with paper trading? This sounds like a genuine concern since paper trades are virtual investments made through a stock simulator.  But unlike other games out there, a trading simulator will provide real time data, analysis, and a comprehensive practice interface that are not taught at school.

Paper trading is the simulation of making investments with a practice brokerage account. This is done without the use of real money or taking the actual positions.  You can easily do this on a piece of paper – or better still using an app or web based stock simulator.

Your kids will love this game.  Determine for yourself if the age is right.  From 4 or 8 year olds who are already familiar with Apps could get the concept easily.  They will have real market data and feedback in real time.  This will invest in your child’s future the same foundation Warren Buffett had from his dad.  Buffett was allowed to mark the stock board at his dad’s brokerage office (Buffett-Falk & Co.) when he was a kid.

Make the Simulator Game Fun

So how can I invest in my child’s future through simulators that are web based? Does the child get an individual account? Although trading is easy and straight forward, the account creation and setups can be done by you – the adult.  You can supervise the web or mobile version of the simulator while they make virtual trades.  It’s basically a game that requires little supervision.

Give them the urge to try the real deal sometime down the line.  Let them start buying individual stocks of their favorite brands and toy company stocks.  As they watch the play money grow and dip, they will learn both determination and patience.

Investing Basics for Kids

As they kick start things off with the simulator, it’s time to invest some real money.  Make it dramatic if you want to.  Give them a $1,000 birthday gift as their stock market investment seed.  They’re allowed to use (or perhaps risk) $100 of this money to buy any stock they want.  But set $900 aside for trading the S&P 500 index ETF on their behalf for the long-term.

How can I invest in my child’s future using this unusual investing strategy? Well, read further for insights.  They may make mistakes with the individual stock picks.  They will also be able to purchase fractional stocks.  This will allow a simple $100 capital to go a long way.  Invest in your child’s future this way and watch them have all the fun they want.  Both the simulator and the $100 limit holdings would be a good start.

Investing Experiments

The other $900 sum you allocated to the S&P 500 will have a pivotal long-term outlook.  Add more to the positions and monitor this advanced game-play in the capital markets.  Can you make regular (annual birthday) contributions? Stick to the 10% vrs 90% ratio idea.  Each season or year, they’ll learn from mistakes and double-down on what worked previously.

Need implementation ideas? What if your child does all the trades using a simulator, then you mimic their stock picks and allocate accordingly with a standard brokerage account or even the Custodial Roth IRA, UGMA/UTMA.  This will set their appetites for creating wealth to the zenith level over time.

Other Investments

Stocks will create a passive approach to paper asset investing.  Explore also the entire universe of asset classes.  Without committing any capital, show them bonds, ETFs, money market instruments, and real estate investments.

How can I invest in my child’s future with investing activities without disrupting school work, family or play time?  You’re very likely filling the missing void that the formal school system isn’t teaching.  You might not necessarily be setting the child up to take up a career in the finance.  But they’ll grab the ideal habits of maximizing their income.  They’ll learn to avoid excessive debt and live within their means.

Sage Tip: Frugal tips for cash saving: Keep more of your income

Allow the kids to be whatever they want to be.  They’ll eventually be settled in their labor of love (hopefully).  But the idea is to find financial independence along the way.  They may aspire to retire early, or better yet, continue to create generational wealth.

Sage Topic Family:

• How Can I Invest in My Child’s Future?
• The Best Long-Term Investment for a Child
• What Does it Mean to Invest in Your Children?
• How Can I Invest In My Child?
• 4 Ways to Invest in Your Child’s Future
• Should Schools Teach Financial Literacy for Kids?

A Few Parting Words

We’ve answered the questions, how can I invest in my child’s future.  These numerous methods will become the game changer when adopted.  It takes years to nurture a child.  It would certainly be unfair to expect fast results if you’re just getting started.

For financial freedom plans that will compound for years, be sure to build the right portfolio.  Typically, if you want to invest long-term, you should select growth stocks.  Add a little bit of value stocks, and income stocks that pay dividends.  Pursue a systematic rollover plan that reinvests all profits and gains

Drop your comments below and join the dialogue if you’re in the process of investing in your child – or perhaps you might have a few tips to share.

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