How to invest for kids

Only have a few years to reach your financial goal? You don’t want to take on too much risk because you don’t have enough time to ride out any volatility (i.e. changes in the value of your money or investment). Opting for cash savings may be one less-risky option to consider.

Interest-bearing savings account 

A savings account with interest-bearing capabilities is an easy way to start investing for your child. Making regular contributions (and encouraging your child to put part of their pocket money in the bank) could see the money quickly multiply. If interest is on your side, the money should grow in value and bump up that dollar sign even more.

The key here is shopping around for the best interest rates or finding dedicated kid accounts that offer special or bonus interest. You also don’t want an account with too many fees that will eat away your savings.

Mortgage offset account

Another place you can save funds for your child is directly in your mortgage offset account. With this option, you’ll usually reap the benefits of lower home loan interest, and therefore lower mortgage repayments. By lowering your mortgage repayments, you can put aside the difference for your children, helping you get the best bang for your buck.

If you’ve got a longer amount of time to work with, there are other investment options you may want to consider. Having more time to ride out any market fluctuations means you can look at investments that offer higher returns in exchange for taking on more risk, such as the stock market.

Shares

Consider entering the stock market by setting up a share portfolio for your kids with an online trading platform. Some online trading platforms offer accounts tailored to children, while others allow you to act as a trustee for your child’s shares, which means you’ll manage the portfolio until they’re old enough to take over.

You can invest in whatever shares you like, including Exchange Traded Funds (ETFs), Listed Investment Companies (LICs) and Listed Investment Trusts (LITs) - all of which are all listed on an exchange like the Australian Securities Exchange (ASX).

If you’ve got a solid decade to invest, you have even more investment options to choose from. On top of shares, you could invest in bonds or property, which we get into below.

Insurance bonds

Like superannuation, an insurance bond is an investment structure that allows you to invest in a tax-effective manner. This means you may invest in the same or similar assets as mentioned above, but underneath an investment structure that may see you paying less tax.

Property

If you’ve got a significant chunk of change, and plenty of time before you need the funds, property might be a path you want to go down. Property can be a particularly good option if flexibility isn’t important and your goal directly links to property itself, like giving your kids a leg-up on entering the market when they’re older.

There are advantages and disadvantages to every kind of investment, not to mention tax implications. It’s imperative that you do your research and seek out professional financial advice that’s tailored to your situation before you invest in anything. Getting some help from a professional can help you be confident in your choices, knowing that you’re investing smartly in your child’s financial future.