Generally it has been seen that people invest their money for their retirement, to buy a house, to buy a car, or to fulfill their other dreams and aspirations.
One aspect is heavily ignored as far as money saving or investment is concerned and that is investing money for your kids.
As a parent, you have a responsibility to see that your children get the best education and best of everything in this world.
For this, you require to invest money for your kids.
Whether it is for their higher education, whether it is for their marriage or whether you want to buy them a car before they turn 18 years old.
All these things require you to invest money for your kids.
However the important thing to consider here is where to invest money for your kids. After all, you want to make sure that you have the required amount of funds with you so that you can adequately finance your kids’ requirements, aspirations and dreams.
So let us see where you can invest money for your kids.
Having a Savings Account can be seen as a smart strategy as far as investing money for your kids is concerned. You can open up a kid’s saving account, or you can have a saving account in your name. Although you may argue that savings account offer relatively low interest rates when compared to other investment instruments such as a mutual fund or stocks; however they have many other advantages that are equally important.
Savings Account helps to inculcate savings habit among children. Then your money is safe in a savings account. They can teach the children the importance of saving money on a regular basis. You can build a good amount of fund value on a long term basis if you happen to deposit money in it on a regular basis. Moreover, the interest on kid’s savings account is tax-free. Having said that, there are certain savings account that offer comparatively high interest rates than other traditional savings account. For example, Halifax Children’s Regular Saver offers 6% AER.
529 College Savings Account (U.S. only)
A 529 College Savings Account is one of the best ways to invest for your kid’s higher education. Parents can contribute after tax dollars into the account. Even grandparents and other family members can contribute to the 529 Plan at birthdays and Christmas. Moreover, Money in 529 Plan grows tax deferred. The earnings from 529 Plan can be withdrawn tax free as long as they are used for a qualified educational expense. The 529 Plan imparts full control to you as parents, and you can at any time change the name of the beneficiary. So if your first child does not need the funds, you can simply change the name of the beneficiary. There’s another feature of 529 Plan, and that is it sets no deadline to use the funds.
Invest in Stock Market
Although some may consider stock market as a high risk investment stream, but actually stock market can prove to be an effective medium of investing and saving money for your children if taken about in a sensible way. Here, one thing you should take into consideration and that is investment in the stock market should be done from a long term perspective. The period of investment should range from ten to twenty years or even more than that. Although the stock market may register frequent fluctuations, but overall the stock market tends to increase in the long term. So if you stay invested for a long term your fund is destined to grow. You should make a thorough analysis of the stocks before making investments in them and should invest in such stocks, which have a track record of high returns.
Invest in Mutual Funds and ETFs
Mutual Funds and ETFs (Exchange Traded Funds) are another viable option to consider for investment for your kids. As compared to saving bonds or savings account, Mutual Funds and ETFs offer a higher rate of return and that’s their biggest advantage. When compared to investment in stocks, Mutual Funds have relatively low risk of investment. They are managed by professionally qualified Fund Managers and, so you need not be an expert in financial matters and need not devote much of your time. They offer you flexibility in investment, in the sense that you can make one time investment, as well as can opt for regular investments in the form of SIPs (Systematic Investment Plans).
Invest in Gold
Gold has been traditionally considered as a safe avenue for investment. It is considered as an alternative currency which does not lose its value with time. When compared to paper currency, gold is not affected by inflation and is not a subject of devaluation either. Moreover, when you consider the returns generated by gold, you would be happy to know that in the recent years gold has given some excellent returns.
When you consider the data for the past five years, the value of Gold has risen by almost 115%, and that’s really remarkable when you take into account the returns generated by other streams of investment. Gold offers you store of value rather than interest or dividends. So if you are not satisfied with the interest rates of your saving account and are not willing to take the risks of investing in stocks, then gold comes out as a viable choice of investment for your kids. To know more about investing in gold, you can refer one of our earlier articles titled, “The Golden Route to Investment”.
Invest in Real Estate
As investing for your kids is usually a long term investment, in this perspective investing in Real Estate can be considered as an important and profitable stream of investment. It has been seen that, in the recent years, the prices of real estate are steadily on the increase and the trend is likely to continue in the future, as well. You can take advantage of this scenario and can invest in Real Estate. The investment time span should range from ten to twenty years.
Unlike investment in stocks, investment in Real Estate is largely a safe medium of investment. Although investing in Real Estate does not offer regular interests or dividends, the prices of your real estate get appreciated on a year to year basis and so you eventually get higher value or price when you finally sell the property. So, for example, if you had purchased a property $50000, after twenty years, its value sees a marked increase and its value appreciates to $400000 and thus you get a good return on your invested sum.
So you see that there are a number of ways in which you can invest money for your kids. Each source of investment has its own advantages and disadvantages. You should choose an investment option according to your risk bearing capacity, the amount of money you want to invest, and the amount of return you foresee from that investment stream. However the key for investing for your kids remain that you have stay invested for a long term. In this perspective, it is important to start investing for your kids as soon as possible.